18 July 2014
Despair over the inability to afford a house is misplaced and should be embraced as an opportunity to invest in more wealth-creating activity, says the principal economist at the New Zealand Institute of Economic Research, Shamubeel Eaqub.
"The fixation with home ownership is causing social inequity and despair," said Mr Eaqub, releasing a new study on New Zealand's "crippling" home affordability problem.
"People fear being locked out of a traditional route to financial security, as almost 70 per cent of New Zealand's household net wealth is stored in housing.
"At today's prices, an average Auckland home will take 50 years to pay off on an average Auckland salary. In the early 1990s, the average Auckland home took 30 years to pay off.
"Home ownership rates are at their lowest since 1951, but rather than obsessing about that, it is a trend New Zealanders should embrace."
Mr Eaqub said economies prospered when people invested in business, not just housing.
And there needed to be parity between renting and owning.
"Australia and New Zealand are some of the most 'restrictive' rental jurisdictions from the viewpoint of the renter," he said.
"Lease terms are short, tenants can be asked to move with short notice, leases can be terminated on almost any condition as long as notice is given, and personal customisation is often difficult."
Reform was needed to stop banks favouring home mortgages over other forms of lending and to remove tax advantages for real estate.
Planning rules also needed to improve the supply of land and housing supply.
"There is no easy or quick fix to New Zealand's over-valued housing market," the report, titled The Home Affordability Challenge, concludes.
"Not one single change will be enough. The solutions need to be a complementary set - it's like taking a Swiss Army knife to a knotty problem."
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