New Zealand’s relative success in handling the pandemic has been looked upon with envious eyes by many other nations. Their quick and effective reaction to the threat has helped to significantly minimise the effect on their economy and their recovery is also happening at a faster pace than most other countries. This success, however, has also produced some obstacles that most other countries are unlikely to be facing. One of these is the unprecedented rise in house prices.
However, the International Monetary Fund (IMF) has warned the rise in house prices is unsustainable and a correction could be just around the corner.
New Zealand’s median residential property prices rose by 22.8% in February, setting a new record. It’s most populous city, Auckland, saw rises of 24.3%. These figures prompted the warning from the IMF.
The surge in house prices has been exasperated partly by interest rates which have been maintained at historically low rates throughout the pandemic. It has also been fuelled by speculative purchasing and a shortage in the supply of housing. There is increasing pressure on the Reserve Bank of New Zealand (RBNZ) to take into account how their decisions have an impact on the housing market.
The report from the IMF said that a comprehensive policy response is needed. It also went on to say this response should include measures that will help to dampen speculation in the market, and unlock supply making more houses available.
Some people have also been critical of the New Zealand government for allowing the spike in house prices to happen. They claim that the property market has been fired up by the government’s policies and first home buyers have been losing out to speculators buying property for investments.
(RBNZ) has recently removed some liquidity facilities as well as bringing back curbs in lending. However, there is still pressure on them to do more to bring the county’s housing market back under control. It is widely expected that more measures will be introduced to help control the situation later this month.
Despite the warning, the IMF has still advised against withdrawing monetary support too soon because there are still uncertainties in the market. Regardless, eyes will still be on the government to see what their next step will be regarding the housing market situation. If it is not bought under control, the market could be in for ‘an eventual, pronounced correction’, according to the IMF.