Housing Market Fueled by Bank Created Money in New Zealand

The fallout from the recent New Zealand Labour Party statements about the pervasiveness of the Chinese presence in the local property market continues. In a report from nzherald.co.nz, this is only a distraction to the main issue at hand, which is the increased pressure of demand in the New Zealand property market.

While the presence of Chinese buyers in New Zealand is not disputed, the problem is that Chinese buyers have greater purchasing power compared to the local populace. Flush with cash withdrawn from their ailing stock markets, these Chinese buyers have been lapping up properties throughout the country as a means to park their money for a profit.

These purchases are purely speculative in nature, which consequently drives up the prices of homes still available. The goal is to earn a profit, thus these investors do not concern themselves with resale value or the suitability of the property as a home or accommodation in the long run.

The current situation is also fueled further by the cheap mortgage financing available to local buyers. Since it is already a bidding out there, manufactured money by banks only serve to fuel the rise in prices as local and foreigners try to outbid each other in an already dwindling supply market.

The greater newsmaker though is still the remarks made and data released on Auckland's home sales by the Labour Party. In a report from radionz.co.nz, these statements have created a maelstrom of comments bordering on racism against Chinese investors. The crux of the comments blames the foreign buyers for driving up the house prices in the city which may lead up to a housing bubble.

The NZ coalition government, through its Economic Development Minister Steven Joyce, has failed to respond about these conclusions, albeit shaky at best, being purported by the Labor Party. Instead, claiming that these remarks are 'racist' which does not resolve the issues that are besetting the local housing market.

By choosing to debate on race instead of fixing the economic factors, the debate rages on and the prices continue to climb.