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opinion

Justin Giovannetti is a Montreal-based journalist.

New Zealand and Canada’s housing markets have much in common. They both have some of the least affordable homes in the world and both saw prices explode during the pandemic.Phil Walter/Getty Images

When my fiancée and I decided to announce we were leaving New Zealand to return to Canada, I prepared myself for awkward conversations. I needn’t have worried. Most of our friends beat us to the punch with their own plans to leave, turning the first months of 2022 into a long going-away party. For those who remained, the conversation boiled down to one question: “It’s the housing, isn’t it?”

I arrived in New Zealand’s capital of Wellington in early 2020 with my fiancée, a New Zealander, to buy a house and start a family. We knew that the Pacific country’s overheated housing market would be a challenge, but we’d lived in Toronto and Vancouver. We considered ourselves prepared. We’d soon learn that New Zealand’s housing problems are similar to Canada’s, just much worse.

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We eventually decided to buy a small two-bedroom, turnkey apartment on the fringe of Wellington’s suburban sprawl. It was only 800 square feet, the commute would be miserable, it had no backyard or parking space. The area didn’t have a grocery store and the government had labelled it one of the country’s worst for socio-economic deprivation. But we thought we could attempt a bid with the 750,000 New Zealand dollar ($602,000) asking price.

We walked into our local bank in August, 2020, holding our mortgage application. We were beaming to show that after a decade of frugal living – quite literally passing up on avocado toast, and cycling to work to save on bus fare – we’d paid off student debt and had more than six figures set aside for a deposit. An adviser looked at our bank balances and asked if we were expecting a large donation from family. Our smiles faded. Without at least 20 per cent down, the bank wouldn’t even look at our application papers. A year later, we tried again with the help of a mortgage broker. The result was the same, but house prices had soared by 50 per cent. We started packing our bags for Montreal, which still has relatively affordable homes.

New Zealand and Canada’s housing markets have much in common. They both have some of the least affordable homes in the world and both saw prices explode during the pandemic. The home ownership rate in both countries is dropping, but it has fallen further in New Zealand as landlords and speculators have come to dominate the market. The Pacific country now serves as a warning for Canada, with homes increasingly out of reach for formerly comfortable middle-class families. Canada needs to avoid a dive deeper into the well of unaffordable housing and the resulting social problems. A slowing housing market won’t magically solve the problem in either country.

New Zealanders found themselves with some of the developed world’s most unaffordable homes before the pandemic. Prime Minister Jacinda Ardern quipped back in her days as an opposition politician that the country’s economy was basically “a housing market with a few bits added on.” Since she came to power in 2017, house prices have increased by nearly 60 per cent.

In both countries, barriers to new construction are many. In New Zealand, the country’s Byzantine environmental rules make the construction of new subdivisions immensely difficult. New legislation to rezone nearly the entire country to allow multi-family homes has run into a wall of NIMBYism at the local level. It isn’t for a lack of land. New Zealand’s five million inhabitants are spread across an area twice the size of England.

I arrived in New Zealand at a time when there was a brief moment of celebration as the national average pushed toward one million New Zealand dollars (around $800,000). It was early in the pandemic, the country was closed from the world and many families were rich on paper. But then prices kept increasing, while salaries didn’t. Working as a journalist in Parliament, I spoke with Ms. Ardern as she began to worry that the country was fracturing between those in the housing market, and those caught on the outside.

The country’s falling home ownership rate was a sign of what was happening. With few purpose-built rentals and nothing like Canada’s condo boom, New Zealanders largely live in detached houses or rent them. As more people are priced out of owning and struggling families increasingly share houses, the percentage of households that own their homes has fallen sharply over the past two decades from 74 per cent to 65 per cent, its lowest rate since the early 1950s. In Canada, the rate has been more stable, but is also in decline: In 2016, 67.8 per cent owned their own homes, versus 69 per cent in 2011.

The Pacific country is now facing a difficult hangover, with high levels of child poverty and a growing brain drain as young workers head overseas for brighter futures. New Zealand’s leaders largely paid lip service to affordability while the middle class could buy in, allowing the national housing market to slip out of their control. Amid predictions that prices will now drop by 20 per cent as the country grapples with a cost-of-living crisis – filling up your car can cost C$2.50 a litre – affordability continues to plummet. Despite falling home prices, this is now the worst time in New Zealand in 65 years for a first-home buyer. Why? Borrowing costs have surged and banks have clamped down on new borrowers, labelling them too high-risk.

The median house price in New Zealand in June was around $683,000, down from the all-time high a few months prior. It’s comparable to the Canadian average home price of $665,850 (which includes all housing types). However, limited financing and lower wages make the overall picture somewhat more challenging for homebuyers in New Zealand, where the average annual wage is around $62,000, versus $70,000 in Canada, according to OECD data. Both countries have been seeing housing price declines in recent months, but soaring interest rates mean that affordability isn’t notably improving in either place.

In both Canada and New Zealand, the figures conceal regional differences. Affordability in Toronto and Vancouver is substantially worse than what the national numbers show. A young middle-class family looking to enter the market today in either city would also struggle without any parental assistance. While housing is often spoken about with averages and medians, or expensive government programs measured in the billions, every housing story is personal. I chose to live in Montreal because it’s close to my family and my dollar goes further. For what we were looking to spend in New Zealand, we could buy a walk-up near one of Montreal’s trendy neighbourhoods or a nice section in the suburbs, with room for our family to grow.

We haven’t missed escaping New Zealand’s lightly regulated and precarious rental market. How much worse could it get, someone in Toronto might muse? Ms. Ardern’s government recently approved a rule change allowing renters to hang art in their apartments with nails. Damaging a wall with a nail could previously get a tenant evicted.

Unaffordable house prices didn’t appear in New Zealand overnight. Prices had steadily grown for most of the past two decades, and while most middle-class parents could continue to help their children get on the property ladder, politicians from the right and left could promise to tackle the problem and then shrug as their interventions failed to launch. The blame does not fully rest on the incumbents in Wellington or Ottawa.

However, Ms. Ardern came into office with a marquee promise to build 100,000 homes within a decade. The program became an embarrassing failure, delivering only 1,000 homes in its first five years. Her government then changed course, putting forward a rebooted $321-million program to help first-home buyers. The country’s Housing Minister drew laughs with a triumphal press release where she announced that only 12 families were helped.

New Zealand suffers from a national obsession with housing. Buying an investment property is the ultimate sign of success in the country. Where Canadian parents might bond over early-morning hockey practice, New Zealand parents talk about buying their kid’s first investment property. The only greater sign of parental achievement is a child showing promise on the cricket pitch. It’s now estimated that about 7,000 landlords control half the country’s properties. It’s hard to overstate how many of the country’s leaders have bought into the housing market, diverting capital from more productive uses.

Most New Zealanders will admit this is a problem, although recent polling has shown little appetite from homeowners to see any decrease in the value of their own homes. Attitudes have begun to change in recent months as the housing market grew grotesque. Homes were no longer listed with prices, to fuel already intense bidding wars. The cost of making a bid also increased, with young families asked to fork over thousands in legal and inspection fees each time they send in their best offer. It’s not unheard of for renters in their 30s to have spent more than $30,000 on bids without getting a place.

Worse than the economics is the clear social damage. Reports come in every week warning New Zealanders about the heavy price of expensive housing. Poverty rates are growing, while the country’s emaciated welfare net fails to keep pace. Gang violence is often on the front pages, a daily reminder of the country’s fraying social fabric.

The health impact of substandard and crowded housing is growing on the country’s Indigenous population. Rheumatic fever is a rare but life-threatening disease, eliminated in most developed countries. It is still sometimes detected in First Nations communities in Canada’s North. Cases of rheumatic fever are diagnosed every few days in New Zealand, nearly all in Indigenous children. Many of the cases happen in homes only a short drive from the Prime Minister’s residence. It’s one of the reasons New Zealand’s children’s commissioner reported in June that the country is now “one of the worst places in the developed world to be a child.”

Back in Canada, I look at New Zealand’s housing statistics and hope they don’t follow me here. As one of my colleagues told me before I left Wellington, I was heading out of the fire and back into the frying pan of overheated prices. Maybe a little better, but not out of danger. Prices might be falling now in Canada, but there’s no sign of a real long-term fix. Politicians have made promises, but have yet to back them with effective programs. Leaders should take note, not only of Ms. Ardern’s rapidly fading popularity at home, but the speed with which a housing crisis can become a catastrophe.

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