With the property boom nearly over, let’s take a look back at who has benefited
Home owners, property investors, property speculators, property developers, real estate agents, mortgage brokers, builders and those who work in the construction industry directly benefited from the property boom.
The rise in residential prices have increased the wealth of those who own real estate.
At the same time those who provide property services (real estate salespersons, mortgage brokers, valuers, property management companies) and those work in the construction and renovation business have seen their earnings grow substantially during the property boom of 2013-2017.
Often not mentioned is how well the banks have done. With the rising house prices, borrowers are forced to borrow more and pay more interest. Sure the interest rates have come down to historical lows, but the banks have been able to maintain their margin (the difference between the cost of funding they pay to RBNZ/overseas banks and the interest rate they charge borrowers).
But indirectly the property boom has contributed to the wider NZ economy:
- Rising house prices means home owners now have more equity in their home
- Home owners can revalue their house and take out a revolving credit facility (ask your bank)
- This allows home owners to borrow sometimes a few hundred thousand dollars to buy a nice car, boat, etc (at a low interest rate when compared to credit cards and personal loans)
- It’s no surprise if you have seen increasing number of people buying new vehicles and more and more people driving fancy European cars
- Real estate agents and salespeople, and others who provide property services also earn more income during the property boom and they too spend their increased money
- All this increased consumption flows on to local businesses
- Local businesses see increased revenues and profits and even may expand and hire more staff
So we see this flow on effect – the property boom trickles down to other areas of the economy. Rising house prices, generally encourages consumer spending and lead to higher economic growth. In this case, everyone benefits to some extent from a property boom. Of course those who have direct interests benefit the most.
Also no one gives credit to the fact that the property boom and tourism boom has helped bring NZ out of the Global Financial Crisis. In Australia, it was the mining boom. But in NZ it was the tourism and property boom that has contributed to NZ’s economy in the last 5 or 6 years.
While housing affordability is an oft cited problem, nobody ever talks about something worse: empty houses with no buyers. If you look in some developed countries, whole cities have become ghost towns because people have deserted it to look for jobs elsewhere. That’s a far worse problem than housing affordability.
The good news is that people want to come to New Zealand. The negative effects include housing affordability and traffic congestion. These problems do need solutions. But one thing for sure it won’t be solved by precipitating a housing market crash.