The problem with how we talk about housing market “problems”

What is framed as a negative may actually provide a realistic path back to housing affordability

Summary: Falling house prices are often framed by media as a negative, have generally been seen as politically problematic, and can be alarming for individual home-owners. But they may in fact be necessary – for the country as a whole – as a means to restore affordability, defined as typical prices being three times incomes. Fortunately, with the ratio of prices to incomes having fallen from its exceptional pandemic-era peak, there is a relatively smooth course available to the new government, one in which it can restore affordability in 10-20 years without large-scale personal or social disruption. This would involve prices still increasing slightly in dollar terms, but falling relative to the costs of other goods.

Earlier this week, the RNZ site led with a news story entitled, ‘The problem with Auckland’s housing market’. The subheading read: ‘House values have dropped for the past two months. Could townhouses be the cause?’ (NB: The story has since been renamed.)

The framing of this story suggests that price falls are unequivocally a bad thing, and that a cause must be found. In this case, the cause cited is the large number of recently built townhouses coming onto the market, especially in Auckland, even while high mortgage rates are limiting the number of buyers.

This does, of course, raise some concerns. Seeing one’s house price fall can be an unpleasant experience, and in extremis can cause owners real problems – especially if they bought with a large mortgage at the peak of a market, have to sell for a much lower price, and for whatever reason cannot take advantage of the fact that prices for the houses they want to buy will likely have fallen too.

The RNZ piece also suggests some new houses may be selling at below cost, which is obviously unsustainable long-term for house-builders. It also suggests that high house prices are partly about the disproportionately elevated cost of building houses in New Zealand, which can be a startling 50% higher than in Australia (on a per square metre basis).