New Zealand's virus success unleashes runaway housing prices

WELLINGTON, New Zealand (AP) — New Zealand's success in battling the coronavirus has unleashed an unanticipated problem: skyrocketing house prices.

When the pandemic first hit, most experts predicted house prices would fall. Instead, prices have risen by more than 19% over the past year, putting them out of reach for many people wanting to buy their first home.

The government, which has come under increasing criticism for its response to the housing squeeze, on Thursday announced the first of what it says will be a series of moves to address the issue by ordering the nation's central bank to consider the impact on house prices when making decisions.

Reserve Bank Governor Adrian Orr said it welcomed the new directive, which is “in tune” with its own advice to the government. The central bank has also recently announced its own moves to restrict lending to housing investors.

But some observers say the moves announced so far will have little impact on upward price momentum, which is being driven by undersupply and record low interest rates.

“It's very pleasing to see movement in the right direction,” said Shamubeel Eaqub, an economist with Sense Partners who has written extensively about New Zealand's housing problems. But, he added, he expects house prices to “keep going up at a great rate of knots” without further strong intervention.

Eaqub said that over the past 30 years, New Zealand hasn't built enough homes, especially rental units. And he said politicians find themselves in a paradox — they want prices to keep rising for those who own homes, and to fall for those who don't.

New Zealand has managed to stamp out community spread of the virus, allowing most aspects of life to return to normal, and its economy has rebounded strongly as a result. GDP...