Maybe another factor is that people who are not first time buyers now have a lot more money from the sale of their previous house. We always focus on the first time buyers, but those are only a small part of the market, and for couples with two high incomes, houses are affordable still. So maybe higher assortative mating leads to higher spending potential in first time buyers, and the rest of the money just comes from people selling their first houses and upgrading. It's quite hard to model though, I don't really see a way to test this hypothesis in a few spare minutes here or there like many simpler theories are.
If you can borrow 800k based on your income and you accept 200 square metres for that price, and there is such scarcity (100 viewings per home, 2% success rate) that you're unable to find a home, it may lead you to accept a 190 square metre home at the same 800k price.
If such a trend continuous for a decade, you may see that suddenly people accept to pay 800k for a 100 square metre home (such as happened in Amsterdam, the Netherlands).
The net effect is that housing prices per square metre doubled: a 100 square home went from 400k to 800k, and a 200 square home went from 800k to 1.6m.
No change in financing capacity is necessary for this to occur. Only a shortage of homes creating a cycle where people keep accepting less space at the same price, thereby increasing the prices per square metre throughout the entire market, thereby pushing prices of homes up.
I believe that's what's happening. The media fuels this process by constantly writing articles about shortages (even though objectively speaking, in the past decades home sizes have sharply increased while household size (persons-per-home) has decreased, i.e. there is objectively more housing per person than ever before).
Of course there is a limit to this logic. But in the Netherlands for example, the average space per person is about 50% higher than in Germany (culturally quite similar country). So there seems room for Dutch to accept smaller homes. And there's some examples (e.g. Hong Kong) that show that a high-income country with housing shortages also can push people to accept smaller homes in their budget.
This effect isn't immediate because prices are sticky. People cannot accept too much change rapidly without believing its overpriced. Over time, these 'overpriced' price levels are normalised and seen as the new normal, accepted, and a new concept of 'high' emerges. But it's not instant. Second, homes are mortgaged and thus must pass an appraisal. Appraisers also don't accept radical changes as they're based on reference objects of a few months ago, so there's a limit to the speed of price change.
Originally, I also thought that proper restriction of foreign investment might be a good solution. I agree with you that it must be domestic actors that are to drive prices upwards.
On a social level, this is going to generate a lot of problems, as it locks out people w/o access to credit to take part in the market. It is crazy what happens in cities like Berlin in regard to gentrification. But even other cities that do not have a hype status are affected by this.
I think it’s been 40+ years since everyday people without any access to credit had broad practical access to buy housing. (This kind of makes sense. You’re buying something with 50+ years of future utility and probably haven’t saved 25+ years of housing costs to put down in cash.)
Can you elaborate on this?
At least anecdotally (in the United States) I have many friends in their 30s-40s that are buying new homes with money from their parents. Or their parents buy the home and they live in it.
Demographics also plays a role. We saw a massive boom in the 1950s, 1980s, and now in the 2000s. This boom is less sharp, and more spread out then the previous ones.
The war generation all had kids between 1944 and 1950 (5-10 year span). The Boomers all had kids in the mid 70s to mid 80s (10-15 year span). The children of Boomers are now buying houses. So it's a longer cycle, this time around (15-20 year span).
Averages can be a bit misleading as you'd compare average home-owner prices to average household (owner or renter) income. The incomes of owners are typically above this average, for renters below the average, so the price to income is probably not 10x but a bit lower.
Second, I wouldn't be surprised if a lot of wealth flowing into the market is not sourced from overseas wealth by immigrants. As in, the source of the wealth is foreign, but it's spent by people who have migrated to NZ.
https://en.wikipedia.org/wiki/List_of_countries_by_net_migra...
You can see NZ sits in the top 20 in the world in net migration rate. The net migration rate (net, i.e. with the short-term workforce filtered out) probably consists of relatively high-income and high-wealth expats.
Second it seems like home ownership is decreasing in NZ lately. Perhaps the rental market is becoming bigger and homes get bought up by investors. Means less supply in the home owner market. That typically pushes prices up strongly, too. (good for the rental market, bad for homeowner market).
Lastly there's a slight increase in average home sizes. Naturally that should increase prices without it necessarily meaning certain floor space of housing is more expensive.
Still, these figures are quite crazy. I'd make more sense if they were 30% lower. I'd also be quite concerned as NZ seems to run off of variable or short-term fixed interest contracts... corrections and volatility is much bigger in such markets, and given mortgaged RE is by definition leveraged, it can really wipe out large chunks of wealth.
> Still, these figures are quite crazy.
Sounds to me like there is something we do not see.
