Housing Frenzy

PHOTO: A Harcourts auction in Wellington, on Nov. 27. The city’s prices have climbed 13.5% year-on-year. Photographer: Mark Coote/Bloomberg

  • First-time buyers miss out as prices surge at packed auctions
  • Government puts pressure on central bank amid political heat

A housing frenzy at the bottom of the world is laying bare the perils of ultra-low interest rates.

At a packed auction room in Wellington, New Zealand’s capital city, houses are selling for hundreds of thousands of dollars above their government valuations. A young couple hoping to buy their first home — a basic three-bedroom dwelling built in the 1950s — are forced to bow out as the bidding approaches NZ$1.2 million ($850,000).

“The housing market at the moment is quite ferocious,” says auctioneer Darryl Harper. “Interest rates historically have never been lower, so it’s easy for buyers to borrow money.”

The red-hot market is causing such concern that Prime Minister Jacinda Ardern’s government has taken the unusual step of asking the central bank to do something about it, saying surging prices are “harmful to our aims of reduced inequality and poverty.” It’s a dynamic that’s starting to play out in other countries too, as the record-low rates deployed to battle the coronavirus pandemic drive a rush into bricks and mortar.

New Zealand house prices jumped 9.2% in November from a year earlier to an average of NZ$769,000. In Wellington, a compact harbor city with a shortage of homes for its growing population, prices climbed 5.8% in the past three months alone for an annual gain of 13.5%.

Harper, of local realtor Harcourts, said the prices he’s achieving at auction are on average 41% above the government valuations used to levy local council taxes.

The house that Harriette McClelland, 27, and partner Harry Greenwood were bidding for at the Nov. 27 auction — a modest timber-clad residence in an inner-city suburb — sold for 66% more than its registered value and about 11 times the median household income.

“All of the houses went for a lot more than we expected,” said McClelland. “I think in Wellington it’s being driven by the lack of supply and high demand, but obviously low interest rates have really escalated things a lot.”