High Home Prices In New Zealand Causing Anxiety

NICK PERRY

WELLINGTON, New Zealand (AP) ⿿ Rising home prices are often welcomed as a sign of a country's economic health and vigor. But in New Zealand, concern is growing that prices have risen so high they are instead an economic anchor, sucking resources from those who can afford a home and prompting those who can't to consider moving overseas.

While much of the world remains mired in a housing slump, median home prices in the South Pacific nation rose to an all-time high of 372,000 New Zealand dollars ($303,000) in June. That's 6 percent above the peak reached before the global financial crisis and more than double the level of a decade ago, according to the Real Estate Institute of New Zealand.

Median prices are about five times the median household income, well above the historic multiple of three. In the largest city of Auckland, which is driving the market, home prices have hit a median $500,000 New Zealand dollars ($407,500). Average annual wages, meanwhile, are languishing at $53,000 New Zealand dollars ($43,000).

High home prices represent an anomaly for a developed country of 4.4 million that, Auckland aside, is sparsely populated and where available homes often lack adequate insulation or central heating. Part of the explanation lies in tradition ⿿ owning a home with a yard holds enormous social and economic significance in New Zealand and has long been the investment of choice for the middle class, who have shied away from stocks and other financial assets. But high prices are forcing more people to rent ⿿ home ownership levels have dropped from 75 percent in the early 1990s to 65 percent now.

The Economist magazine this month rated New Zealand's home prices as 66 percent overvalued when compared to rents, second only to Canada in the 21 markets measured. By comparison, the magazine concluded homes in China were 7 percent overvalued compared to rents, homes in the United States were 15 percent undervalued, and those in Japan were 37 percent undervalued. Using income as a measure, the magazine concluded New Zealand homes were 22 percent overvalued.

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