Ultra-low interest rates, fear-of-missing-out mindset, as well as the pandemic-related stimulus are seen to be soaring property markets across the globe, with no exception to New Zealand. The remarkable surge in property prices for even the most dilapidated homes in the country has sparked fears of a potential entry of the housing market into the bubble territory.
With New Zealand being one of the most unaffordable property markets in the world, the government is pulling out all the stops to prevent the housing market from overheating. While introducing a significant suite of policy changes in March 2021 to make the housing market favour to the end-users, the Reserve Bank of New Zealand continues to reduce its interest rate to the historical low. In this academic essay, you are required to:
a) briefly describe the status of the housing market in New Zealand:
b) analyse the impacts of the housing policies proposed by the government using DiPasquale and Wheaton’s (1992) four-quadrant model, and:
c) critically review the adequacy of the model in evaluating the policy impacts.
Specifically, you can choose at least two (out of the three) policy changes (you may do all three if you wish) proposed by the government below, including:
a. The Overseas Investment Amendment Bill (Parker, 2018) has been passed into law by the New Zealand Government to ban most foreign buyers from purchasing existing homes in New Zealand.
b. A continued reduction in interest rate: The Reserve Bank of New Zealand reduced its interest rate by 0.75% in one go in March 2020 (RBNZ, 2020a) and also removed the mortgage loan-to-value ratio restrictions in May 2020 (RBNZ, 2020b).
c. Favouring new builds in the tax changes: launch of a $3.8 billion Housing Acceleration Fund to boost the pace and scale of houses being built.