Housing market risks for NZ - OECD

Tuesday 25 June 2019

The steep rise in New Zealand’s house prices is a major risk to the country’s economic success, a new report from the OECD warns.

By Miriam Bell

According to the OECD’s latest economic survey of New Zealand, the economy has stabilised and there is solid growth, picked to come in at 2.5% this year.

This is supporting well-being through jobs and incomes.

But OECD Deputy Secretary-General Ulrik Vestergaard Knudsen says that not all New Zealanders enjoy the same levels of well-being, with gaps in health, education, employment, and income.

“The challenge going forward will be to continue improving well-being through building a more productive, sustainable and inclusive economy.”

One of the big domestic risks to the economy is a housing market correction - although there is no evidence of oversupply, the report states.

"The effects of a contraction would be magnified by the elevated household debt levels resulting from sustained house price increases."

The report also says that housing is an issue because of the big rise in house prices which means that affordability has dropped and because homelessness is high.

It suggests reforms to increase housing supply responsiveness to demand would improve affordability, enhancing well-being.

This could include replacement of regulations that restrict new construction with rules that facilitate densification.

It also puts forward the case for local government infrastructure funding pressures call for new sources of funding, such as special purpose vehicles financed by targeted rates.

And it advocates that greater priority should be given to new rental housing, including increased provision of social housing in areas with shortages.

Additionally, the report was not positive about the Government’s controversial KiwiBuild policy as it stands, saying wider issues like planning, infrastructure and construction sector constraints need to be sorted out first.

It suggests the policy could be better targeted and should look at freeing up land for development and putting risk back on to developers.

Finance Minster Grant Robertson says the OECD’s recommendations are set to be addressed by upcoming policy announcements or changes.

“In housing, the new Urban Development Authority will cut through red tape to increase housing supply.

“The KiwiBuild reset will drive the building of affordable housing, and we’re ramping up the state house building programme announced in Budget 2018.”

*A snapshot of the Economic Survey of New Zealand, with the main conclusions, can be read here.

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