If you are wondering why house prices are rising so quickly, it’s not what you are being told.

It’s not the possibility of hundreds of thousands of Kiwis returning home, some will come, but many won’t.  Why would a 20-30 year old single Kiwi with a good job, great social life and the opportunity to travel come back to sleepy old NZ? Sure NZ is a beautiful country and we don’t have Covid, but as someone who spent 12 years overseas in their younger years, NZ is quite boring for young people, and younger people are less likely to be afraid of Covid.

What about lower interest rates? Yes, they help push up house prices as people can borrow more, but interest rates have been dropping for many years now, and at a much greater rate, like from 5% to 2%. Why does a potential drop from 2.5% to 2% explain people clambering over each other to go into debt now in the middle of a global crisis?

Is the housing shortage causing the rapid rise in house prices? Or speculators, or investors or first-home buyers? Sure, all of the above contribute to house prices rising.

I believe that the number one factor causing this rise, right now, is inflation.

There is simply a lot more money chasing a finite number of houses – and that’s getting worse as the Reserve Bank of NZ is about to pour gasoline on the fire with its Funding for Lending program whereby they will lend to the banks at super low interest rates hoping they will lend it out to us – to buy houses.

So far this year the world’s central banks have already created US$10,000,000,000,000 (10 trillion US dollars) of new money. While much of this money is still sitting in the bank account of banks, some has made its way into the financial system driving up:
– share prices
– gold
– silver
– art work
– collectable cars
and of course house prices.

House price rises have not been restricted to New Zealand. We are not unique, we are a tiny little island in the pacific buffeted by the winds of the world. The fact is that the US lowered rates and we followed. The US started printing money (back in 2008 already) and we followed. US house prices in any city in which you’d want to live have risen dramatically. They have severe housing shortages and what do we do, do our own thing?, try something different?, no we do what the US has done and didn’t work for them. We blindly follow their lead, whether the outcome is good for us or not.

Are house prices likely to keep rising, Yes.

Is it going to get harder for first home buyers, Yes.

Is our government going to do anything to materially change the way houses are supplied to make it more affordable, No.

It’s too hard, they don’t understand and they don’t actually care. House prices rising means many people feel better off, so they spend more money, and that’s what the government wants above all else right now, us to spend, spend, spend, in the hope that jobs are saves and a lid is kept on unemployment.

Our very expensive houses, a potential bubble, and the billions borrowed to fund it are a problem for another day…

Just my humble opinion. Thanks for reading.

John Kenel
CEO
Assured Property

#assuredproperty #housing #rentals #propertyinvestment