Economists hit back at warning of housing bust

by NZ Adviser17 May 2017
Global investment bank Goldman Sachs has warned New Zealand’s housing market is at the highest risk of a correction among the G-10 economies, along with Sweden, Bloomberg reported yesterday. 

In its report, Goldman found there is a 40% chance of a housing “bust” in New Zealand over the next two years, defining a bust as a five per cent or more drop in house prices after adjustment for inflation.

"Goldman compares house-price levels across economies using three standard metrics: the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation,” Bloomberg said.

But local economists and also the Prime Minister are of a different opinion. 

ASB senior economist Chris Tennent-Brown told Fairfax that even if prices were to fall by 10-15%, it would be the same prices seen only one year to 18 months ago.  

"You could have a reasonable correction and what was a $1 million house becomes $900,000. It's still a very expensive home."

Economist Shamubeel Eaqub said a five per cent fall would give no cause for alarm given that prices have doubled in recent years and that "we want prices to come down", according to a Newshub article.

"Don't we want houses to be more affordable?" Eaqub said. "There are winners and losers in all of these things, and not everyone can win."

Prime Minister Bill English also told the NZ Herald that a five per cent drop in house prices is a "reasonable adjustment" not a "bust".

"It sounds to me like the language they're using is exaggerated. What they're describing, which sounds like a reasonable adjustment in house prices, I think most people would like to see that and there's some indication that that's underway in Auckland," he told media.

"I understand their definition of a crash is a five per cent reduction in prices. Well, there's some prices in Auckland that have reduced by that much over the last nine of months so and I think most New Zealanders would regard that as a pretty sensible adjustment in what's been a hot market."
 

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