Thursday, August 29, 2013

Auckland house market risky: NZIER


It is a myth that house prices never fall in New Zealand, with inflation-adjusted prices outside Auckland and Canterbury down 20 per cent since 2007, according to NZIER.

"People tell me house prices never fall in New Zealand . . . go and look at house prices in the provinces. House prices do fall," NZIER principal economist Shamubeel Eaqub said yesterday.

Auckland house prices had risen 13 per cent since the last peak in 2007, after adjusting for inflation, driven by low-deposit lending and coming on top of already high debt levels, which made the market "vulnerable".

In the past year, in central Auckland house prices had risen 15 per cent, but rents were up just 2 per cent.

That indicated there was not an actual shortage of homes as there was in the early 2000s when there was a migration and real shortage of homes.

"My feeling [is] what's happening in Auckland is driven by investors, not by physical supply and demand balances," Eaqub said.

Canterbury house prices were up 5 per cent, since 2007, adjusted for inflation. That reflected a clear shortage of housing since the big quake in 2011 destroyed 10,000 homes.

But for the rest of the country, inflation adjusted house prices had fallen 20 per cent since 2007.

"There is no housing crisis, outside of Auckland," Eaqub said. In fact, house prices in many places had become "pretty affordable".

For example, in regions such as Taranaki the median price is about $320,000. For skilled energy sector workers such as a field engineer that was only about three times annual income.

Inflation remained under 1 per cent and wage inflation was low.

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