{"id":118164,"date":"2021-03-23T16:35:14","date_gmt":"2021-03-23T16:35:14","guid":{"rendered":"https:\/\/precoinnews.com\/?p=118164"},"modified":"2021-03-23T16:35:14","modified_gmt":"2021-03-23T16:35:14","slug":"editorial-house-prices-need-to-fall-and-kiwis-need-to-get-used-to-it","status":"publish","type":"post","link":"https:\/\/precoinnews.com\/business\/editorial-house-prices-need-to-fall-and-kiwis-need-to-get-used-to-it\/","title":{"rendered":"Editorial: House prices need to fall and Kiwis need to get used to it"},"content":{"rendered":"
EDITORIAL:<\/strong><\/p>\n House prices need to fall – and sooner rather than later. There are signs that Kiwis are finally starting to understand this.<\/p>\n A shift in public sentiment in the past year has presented the<\/span> Government with chance to act.<\/span><\/p>\n And yesterday it finally did.<\/p>\n If prices continue rising at the pace we’ve seen in the past two decades then there are two possible outcomes.<\/p>\n One is that we entrench a deep social divide, following the brutal path of countries where the middle class lives and works behind the security fences of gated communities.<\/p>\n The other is that it all comes crashing down in an avalanche of bank debt, taking the economy and our high standards of living with it.<\/p>\n So the Government should be applauded for the policies it announced yesterday.<\/p>\n They were well overdue.<\/p>\n It is pointless to dwell on lost opportunities. In the absence of a time-machine the best time to act is now.<\/p>\n The new measures probably won’t achieve a much needed housing market correction on their own.<\/p>\n They remain tempered by the perceived wisdom that falling house prices are political poison.<\/p>\n It’s telling that the Greens – the most left-leaning party in Parliament – can only bring themselves to call for a “soft-landing” in house prices.<\/p>\n But that doesn’t mean the Government has under-delivered.<\/p>\n The extreme reaction of investors and worried response from economists suggests that this package could finally be the one to shift the dial.<\/p>\n See also yesterday’s share price falls for retirement village stocks, which are treated by investors as a proxy for property prices.<\/p>\n There was no silver bullet in the package of policies.<\/p>\n It included a mix of demand side moves to tighten tax rules for investors and a significant supply side boost for new building.<\/p>\n It is doubtful any silver bullet exists.<\/p>\n Commentators and economists have tied themselves in knots over the past 20 years arguing over what the biggest driver of house prices really is.<\/p>\n Is it land supply, building costs, migration, foreign buyers, property speculation or low interest rates- take your pick?<\/p>\n The fierce debate has largely resulted in stalemate and inaction.<\/p>\n But now there appears to be momentum building.<\/p>\n <\/p>\n The initiatives unveiled yesterday will land along with a tighter constraints on lending and – in Auckland at least – the biggest house building boom in nearly 50 years.<\/p>\n Foreign buyers are banned. Immigration has ground to a pandemic induced halt.<\/p>\n The missing piece of the puzzle is cost of borrowing – with interest rates still at record lows.<\/p>\n While the pandemic keeps our borders closed there is no chance the Reserve Bank will lift rates.<\/p>\n But globally there is expectation that a strong pandemic recovery will drive up inflation and that interest rates will rise from 2022.<\/p>\n If and when that happens then all the conditions for a market correction will be falling into place.<\/p>\n For a New Zealand – with an economy addicted to the house price inflation – a gradual withdrawal process is preferable to going cold turkey.<\/p>\n The sooner we get used to an economy where house prices aren’t a one way bet, the safer we will be from the damage a housing market crash would cause.<\/p>\n