The Reserve Bank says the rise in Auckland house prices in recent years is "unprecedented".
A research paper published in the RBNZ Bulletin on Friday says that "over the past three years, house prices have increased 52 percent in Auckland, but only 11 percent in the rest of New Zealand."
The paper says that Auckland house prices have been trending upwards since 1981 compared to the rest of the country. But it is the extent of the divergence since 2009 that is "unprecedented" and "remarkable."
"An upward trend in this ratio might be expected over time, but it is not clear how steep that trend should be, whether it is time-varying, or whether it will persist."
The paper says that "historically, Auckland house prices have trended upwards relative to those in the rest of New Zealand but in instances when this divergence has become especially large, it has reversed to some extent."
There are two ways that the divergence could be reversed. One way is for prices in the rest of New Zealand to catch up to those in Auckland. The second way is for Auckland house prices to decline to levels "more consistent with those elsewhere."
The research paper by Elizabeth Kendall does not try to predict whether Auckland prices will fall, nor does it attempt to predict whether prices will rise elsewhere. Instead, the paper offers some historical context.
"In previous instances when the ratio has increased relatively quickly – namely, during the late 1980s and mid-1990s – this has subsequently been followed by a period of lower growth. In 1987, house prices in Auckland increased while they were flat in the rest of the country. Then in subsequent years, Auckland house prices fell while those in the rest of New Zealand continued increasing. In the upswing of the 1990s, Auckland house prices increased relative to the rest of the country, and stayed elevated until the latter part of the 2000s cycle, at which time house prices in the rest of the country increased at a faster pace than those in Auckland."
Elizabeth Kendall writes that "New Zealand house prices have risen significantly over the past five decades. In real terms, house prices have more than tripled, with a strong upward trend since 1994. Nonetheless, there have been several instances where real house prices have fallen".
"There have been six distinct house price upswings since 1965. The most recent house price upswing has been more modest than previous ones, but real house prices were already at a relatively high level. House price upswings have been varied in their regional composition. Some have been concentrated in Auckland, while others have been generalised across the country.
"House prices movements in Auckland contain some predictive information for house prices in other regions. In the Auckland-driven upswing of the 1990s, house prices increased in regions nearby. Likewise, in the current upswing, house prices in surrounding regions have increased recently.
"But Auckland-specific factors explain only a small portion of house price movements in other regions. Indeed, while Auckland house prices have experienced a strong upward trend since 1981, provincial regions have generally experienced very low house price inflation. As such, Auckland house prices have trended upwards relative to those in the rest of the country," the report states.
"Since mid-2012, Auckland house prices have increased 52 percent, but house prices in the rest of New Zealand have increased only 11 percent. The extent of this divergence is unprecedented. In previous periods when Auckland house prices have deviated significantly from those in the rest of the country, this divergence has subsequently reversed to some degree."