Despair over the inability to afford a house is misplaced and should be embraced as an opportunity to invest in more wealth-creating activity, says the principal economist at the New Zealand Institute of Economic Research, Shamubeel Eaqub.
"The fixation with home ownership is causing social inequity and despair," said Eaqub, releasing a new study on New Zealand's "crippling" home affordability problem.
"People fear being locked out of a traditional route to financial security, as almost 70 percent of New Zealand's household net wealth is stored in housing. At today's prices, an average Auckland home will take 50 years to pay off on an average Auckland salary. In the early 1990s, the average Auckland home took 30 years to pay off."
"Home ownership rates are at their lowest since 1951," said Eaqub, "but rather than obsessing about that, it is a trend New Zealanders should embrace.
"Economies prosper when people invest in business, not just housing. We need to create level-playing fields for different types of investment, and parity between renting and owning, to support a much needed cultural change around housing."
New Zealand had one of the least "renter-friendly" regimes in the world, reform is needed to stop banks favouring home mortgages over other forms of lending, and the tax system contains advantages for real estate that don't exist for other classes of investment.
Planning rules also need to improve the supply of land and housing supply, which is currently slow to respond to signals that more housing is required to meet population growth and household composition changes.
"There is no easy or quick fix to New Zealand's over-valued housing market," the report, titled "The Home Affordability Challenge", concludes. "Not one single change will be enough. The solutions need to be a complementary set - it's like taking a Swiss Army knife to a knotty problem."
The report identifies a "culture of home ownership and housing investment" as being one of the factors causing the affordability problem.
However, over-exposure to property values carries risks for financial, economic and social stability in the event that house prices drop dramatically, with some measures showing New Zealand houses are over-valued on a globally comparable basis by about 26 percent. Auckland's siting on a narrow isthmus tends to push land prices higher because it is physically constrained, making efficient investment in roading and public transport difficult, the report suggests.
It also says "Australia and New Zealand are some of the most 'restrictive' rental jurisdictions from the viewpoint of the renter. Lease terms are short, tenants can be asked to move with short notice, leases can be terminated on almost any condition as long as notice is given, and personal customisation is often difficult."
Changes to prevailing lease conditions would make renting less unattractive, and the report notes that rents have remained stable while the cost of buying a home has increased in recent years.
Fears that an influx of foreign investors is boosting house prices are "unfounded," the report says.
"The most commonly described foreign investor is someone who comes with a wad of cash or has borrowed large chunks of money offshore to buy a house in a posh suburb and leave it empty. The data simply do not support these anecdotal observations."