Million-dollar ‘unlivable shack’ in Sydney shows split with New Zealand home market

AUSTRALIAN and New Zealand house prices soared together when the pandemic hit, fell together when interest rates rose – now they have parted ways.

Home prices in Australia rose for a second straight month in April, while in New Zealand they began falling at the start of 2022 and the government does not forecast gains until the third quarter of 2024.

Driving this divergence are the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) – respectively one of the developed world’s most dovish and most hawkish central banks. The pair provide a stark illustration of the impact of monetary policy on the housing market at a time when many central banks are contemplating a pivot from the tightening cycle.

While the drop in prices does not mean New Zealand is particularly affordable, it has helped first-time buyers grab a record share of transactions in the past two quarters, and the RBNZ said the market is close to reaching a sustainable level. In Australia, it has never been harder for people to get on the housing ladder, with new research this month finding nine in 10 aspiring first-home buyers are unable to purchase a property.

“There must be a lot of Australians feeling despondent because unless they get help from their parents they are not going to get into the market,” said Gareth Aird, an economist at Commonwealth Bank of Australia, the nation’s No 1 mortgage lender. “The dynamics are not going to get any better.”

In the bellwether market of Sydney, dilapidated homes are selling at well above the listed price, with more bidders and greater crowds at weekend auctions, said property agents.

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“Unliveable shack that must be demolished,” read the title of a listing in the northern beach suburb of Mona Vale which sold for A$1.6 million (S$1.43 million) this month following a bidding war involving five prospective buyers.

Selling agent Juliet Wills from LJ Hooker Mona Vale said she has seen a “significant upswing” in sales since February and expects the market to hold up despite a surprise rate hike by the RBA in May that took the cash rate to an 11-year high.

While the housing rebound will help RBA governor Philip Lowe engineer a soft landing in the economy, it also raises the risk of higher-for-longer interest rates.

“The RBA would have been surprised like everyone else at the recent turnaround in house prices,” said CBA’s Aird. “But they can’t keep hiking because of that. You’d have to look at other arms of policy to try and come up with a solution.”

The government this month announced a slew of measures to support first-home buyers and boost supply, but “we have much further to go in creating a fair, secure and affordable housing market for Australians”, asaid Eliza Owen, Australia head of research at property consultancy CoreLogic.

At the heart of the problem is a chronic lack of houses at a time when population growth is surging. A measure of supply versus demand looks set to reach its tightest level since 2008 later this year, Goldman Sachs Group economist William Nixon said.

Chilling effect

In New Zealand, the market is listless as vendors and buyers hold back. House sales fell to a record low in the three months through December, according to CoreLogic.

It is a dramatic change from 2020 and 2021 when the market was on a tear, with prices rising almost 30 per cent in 2021 alone.

Then in October 2021, the Reserve Bank began one of the most aggressive tightening cycles in the world – and it is forecast to continue this with another hike on Wednesday (May 24). Tighter lending requirements also had a chilling effect on the market.

House prices have now fallen 17.5 per cent from their November 2021 peak, as indicated by the Real Estate Institute of New Zealand.

Still, while the RBNZ judges house prices are now less susceptible to booms and busts, this should not be confused with being affordable, said Sharon Zollner, chief New Zealand economist at ANZ Bank in Auckland.

Borrowers in New Zealand now face interest rates on newly agreed mortgages of at least 6.5 per cent – up from 2 per cent or 3 per cent before the tightening cycle began.

But the drop in prices has helped tip the balance in favour of first-home buyers, who now hold a record-high market share of 25 per cent, according to CoreLogic.

One such aspiring new entrant is Bart Milne. Two years ago, owning a home seemed an impossible dream for the 37-year-old technical analyst. Now, with prices down 24 per cent from the peak in Wellington, he is in a position to buy.

Milne has his eye on a two-bedroom house in Paraparaumu, a small commuter town about 50 kilometres north of the capital, and he is confident an offer 20 per cent below the asking price of NZ$590,000 (S$499,323) would be accepted.

“I’ve got the luxury of time because the market is so slow,” Milne said. “It’s that deflationary thing – why should I buy today when it’s going to be cheaper tomorrow?” BLOOMBERG