A sledgehammer to crack a (housing) nut

House prices are defying almost everyone’s expectations. Looking at New Zealand house prices, you could be forgiven for wondering, ‘what pandemic?’. House prices are approximately 25% higher since the beginning of 2020, despite once-in-a-generation lockdowns and crippled tourism industry. What’s playing out in New Zealand is very similar to what’s happened in Canada, and what seems poised to happen in Australia. Headwinds from higher unemployment rates and slower population growth are overwhelmed by record low-interest rates and changing living preferences. 

In many ways, this highlights the inequality of pandemic-driven labour market developments. Naturally, this raises concerns about housing affordability and governments are being forced to respond across the globe. 

The Franklin Templeton Australian Fixed Income team recently shared why the New Zealand Government has chosen to respond in a very unexpected way here.