Kiwi Houses Too Pricey? Or Has Someone Been Fudging The Maths?

New Zealand Houses Are Overpriced

Figures published by The Economist this month suggest that New Zealand house prices are grossly overpriced. Basing its claims on a comparison between local property prices and rental prices, The Economist concluded that Kiwi homes are 66% over valued, second only to Canada (at 77%).

Unsurprisingly, this figure has set off a flurry of media commentaries on the state of our housing affairs and its inherent implication for the economy at large. Commentators are nervous. Bernard Hickey believes that higher house prices can set off a domino effect that can only result in the stifling of this country’s productivity and entrepreneurial dynamism. Naturally, when Bernard gets nervous, so do a lot of people.

Are Kiwi Houses Really Spiralling Out Of Control?

Stop. Before you hit the panic button, let us find out if there is anything to panic about.

The New Zealand Property Investors’ Federation (NZPIF) says “No” In a media statement released just today, Andrew King, NZPIF President says that, “The conclusion that the magazine came to is wrong. It is not that house prices are too high, it is more that rental prices in New Zealand are too low.”

By comparing property prices to rent prices, The Economist rests critically on the assumption that rent levels in New Zealand are as they should be. It has been the NZPIF’s position that they are not. In fact, the national property investors’ body considers rental prices to be lower than they ought.

After carrying out its own studies, the NZPIF further concludes that “it currently costs $4,284 more to own the average New Zealand house than it does to rent it. This does not take into account the $72,000 deposit required to buy the house or that mortgage interest rate costs are at their lowest point for many years, making home ownership that much more accessible.”