Where Housing Prices Have Crashed and Billions in Wealth Have Vanished

Michael Wilson was hopeful when he put his three-bedroom house up for sale: Over a dozen would-be buyers came to the initial showing.

But about a year later, the property is still for sale. Offer after offer fell through because the prospective buyers were unable to sell their homes.

Welcome to New Zealand, one of the world’s most troubled housing markets. Over the last 18 months, homeowners and investors have lost billions of dollars in wealth after prices that spiked during the Covid pandemic started plunging as mortgage rates also soared.

“If we listed it, say, two months before we originally did, it would have literally sold the next day,” Mr. Wilson said. He and his wife, Jade, might finally have found a buyer for their three-bedroom house in Te Awamutu, a pretty North Island town of 13,000 people. But if they are lucky they will be paid about 15 percent less than they originally sought.

The pandemic’s disruptions to jobs, wages and living conditions caused a yo-yo effect in housing markets in many countries, including Sweden, Britain, Canada and Australia. Few places have experienced as wild a swing as New Zealand, which last week slipped into a recession.

Property in New Zealand has traditionally been expensive and in short supply. Now a combination of even higher prices, poorly constructed housing and the biting effects of interest rate increases has pushed the housing crisis to the top of the agenda, ahead of national elections this year.

During the pandemic, as people took advantage of low mortgage rates and relaxed lending rules, house prices soared almost 50 percent. Since November 2021, after New Zealand’s hawkish central bank embarked on one of the most aggressive rate-tightening cycles in the world to tackle rising inflation, prices have plummeted 17.5 percent, eradicating more than $6 billion in household wealth, according to Statistics New Zealand estimates.

Home sales fell to a record low in the three months through December, and houses now sit on the market for an average of 47 days, with some languishing for many months.

Calls for the government to address the housing shortage grew more urgent in February, when once-in-a-generation storms and flooding damaged thousands of homes on North Island, some irreparably. Then five people died in May in a devastating fire at a hostel in Wellington, the capital, that was inhabited mostly by men without stable housing.

Despite relatively low wages and ample land — New Zealand has a population of five million spread over an area the size of Colorado — a dearth of building, coupled with low borrowing costs, meant that buyers had long been willing to pay for older homes that were poorly built and insulated.

“You’re just lucky to have shelter, rather than worry about the quality of shelter,” said Shamubeel Eaqub, an independent economist in Auckland.

Since the early 1980s, building in New Zealand has not kept pace with population growth, after new restrictive zoning laws and high construction prices limited development.

Property values in New Zealand are also highly susceptible to the rise and fall of interest rates. Unlike U.S. mortgages, which are effectively backed by the government and often set for as long as 30 years, home loans rarely have fixed rates of more than a couple of years. Buyers and homeowners with mortgages now face interest rates of at least 6.5 percent on new loans, up from about 2 percent in 2020.

Housing problems touch virtually every corner of the population, including those on painfully long waiting lists for public housing, underserved renters for whom property ownership seems out of reach and more affluent people who bet big on property and are now seeing their investments fall in value.

Homes are among the least affordable in the world, with a median price of 780,000 New Zealand dollars, or about $480,000, compared with about $407,000 in the United States, according to Redfin.

“You’ve got an enormous number of people who live week to week, paycheck to paycheck, who see an extraordinary amount of their take-home pay eaten up by housing costs,” said Chris Bishop, a member of Parliament for the center-right opposition National Party. “It’s a big driver of inequality and of poverty generally.”

The problem has defied policy fixes by successive governments, and the politicians know that New Zealanders have a lot at stake in the issue. Most New Zealanders own a home, and 57 percent of household wealth consists of land and houses, according to the Reserve Bank of New Zealand. That is partly because there is no capital-gains tax, meaning money made on sales is typically not taxed.

“Property investing is the great New Zealand hobby,” said Max Rashbrooke, a researcher on economic inequality in New Zealand.

Adding to the gloom: A rare moment of bipartisanship in housing policy appears to have hit the skids.

In late 2021, New Zealand’s two major political parties co-signed legislation making it easier to construct three-story buildings in the central areas of cities and towns, to avoid extensive suburban sprawl. But Christopher Luxon, the leader of the National Party, said last month that he intended to walk back that commitment and return to a model in which many new houses are built on former farmland at the edges of cities.

Prime Minister Chris Hipkins said he had called on the opposition to offer changes to the law rather than scrap it.

The two parties’ dueling approaches will be put to the test in the nation’s election in October.

In the meantime, homeowners are doing what they can to manage the troublesome mix of more expensive mortgages and falling prices.

Lisa Lamberton recently sold her home in the city of Whanganui and is moving farther north to be closer to family. She is philosophical about paying higher rates. “When you’re a homeowner, at some point rates aren’t going to be in your favor,” Ms. Lamberton, 42, said. “From my perspective, it was always going to happen.”

James Faber, a warehouse operator and part-time property investor in Palmerston North, spent months trying to sell a property as the market dropped. It ultimately sold for about 360,000 New Zealand dollars, 130,000 less than he had hoped.

Last month, seeking to avoid a similar wait, Mr. Faber, 38, listed another property at auction with a starting price of one New Zealand dollar, against the advice of his lawyer and his property agent. The home eventually went for 400,000 New Zealand dollars — more than other comparable recent sales, he said, but far less than the council estimation of 570,000 New Zealand dollars 18 months earlier.

Even then, he said, he was shocked by the lack of interest in the auction. “It’s a fricking dollar reserve,” he said. “I still can’t believe half the city didn’t come to the open home.”