From the article, it seems like the distortions were introduced by policy makers. There was a tax benefit from building new homes in certain places. In those places, prices went down. However, the policy allowed the tax benefits to be claimed against any homes the developer built. This meant a developer could build in tax advantaged locations even though there was already over-supply there. This did not help locations where there were no such benefits so prices continued to rise there. This creates a situation where supply increases (in tax advantaged locations) and price increases (everywhere else). This is a policy failure not a market failure.
Yes, the author (correctly, in my opinion) raises the issue of tax incentives. There are similar distortions in the Australian and NZ tax systems (mostly around taxation of capital gains).
What the author fails to emphasise more - and really should given the title of the article - is the part played by availability of credit. This was the nail in the coffin. It's possible to come away from this article with the impression that oversupply caused the crash, rather than the more correct take that it was a collapse in investment demand due to availability of credit (in my opinion).
Just overlay any graph of interest rates together with house prices for pretty much any market with an accommodation crisis and the correlation becomes pretty obvious. Interest rates go up and booms stop. Sometimes they crash spectacularly.
Kiwi checking in ... crossing fingers we're not about to enter the crash stage, but certainly the contrast in the past 2-3 years from property just flying out the door (low interest rates) to now (high-ish interest rates, lots of low rate mortgages rolling over) are very stark. Auction clearance rates are well, well down. Lots of houses getting passed in at auction which would have been unthinkable a few years ago.
Still having massive migration numbers which may stave off a full crash as ultimately there is an element of supply and demand - very very hard to get rentals.
We have just gone back to landlord welfare with tax durable mortgages possible. We are also circling in on having the country borrowing money to pay for such policies, while also trying to squeeze in tax cuts.
The attitude to housing here is just gross.
No major party is interested in changing it. I find it very hard to imagine this government (or any other in living memory) letting the housing market drop significantly.
catch 22 - if the housing market drops significantly, the country will be very close to going bankrupt, so all they can do is let air out as slowly as humanly possible.
A full on crash would be ugly. No matter what part of society you live in (well maybe except the 0.1%).
Labour did a pump and dump on immigration to make the books look a (tiny) bit better). National well, yes..
Yes and no. We have a lot of temp workers (students/under 30's) who come for the adventure, get sick of living in a van and going home again after their working holiday is done.
Some other people are willing to justify it (eg coming from the bay area). But I think the reality once they get here is different - about 3-4 years ago I was running a software co that was recruiting a bit of overseas people for the skills we needed, we started to get a few that would leave the country after they realised 'maybe the grass isn't greener'
