Three expert economists make predictions on if Auckland housing bubble will burst and when

Three expert economists make predictions on if Auckland housing bubble will burst and when

Kim Vinnell asks three of New Zealand's leading economists to make their predictions on if the Auckland housing bubble will burst - and when.

She identifies as a mildly depressed millennial, resigned to being a lifetime renter, trying very hard to hide her frustration with baby-boomers-turned-property-moguls hogging all the houses.

Three expert economists make predictions on if Auckland housing bubble will burst and when

SHAMUBEEL EAQUB 

QUALIFICATIONS: Super-experienced macro economist, former Principal Economist at the NZ Institute of Economic Research, focuses on analytical frameworks to aid economic forecasting, does lots of commentary work.

KV: Do you think the Auckland housing bubble will burst?

SE: Yes. The housing bubble has to burst at some point. Because the current prices are so unaffordable, that if we keep going this way soon no one will be able to afford houses. Other than existing home owners. 

If yes - any idea about when?

The timing is impossible to tell. It may be because we build enough houses, immigration falls, the economy weakens or banking and tax regulations. My pick is that the bubble will burst in the next year simply on gut. But definitely sometime in the next decade - the longer it goes up, that nastier the fall will be. 

(KV: All my friends are saving their pennies to jump on in there when their parents and parents' friends default on their loans as the market crashes. I told them they were morbid dreamers *increases monthly savings to 50% of income*)

Three expert economists make predictions on if Auckland housing bubble will burst and when

BERNARD HICKEY

QUALIFICATIONS: Former financial journalist, senior contributing editor interest.co.nz, published hivenews.co.nz , economics commentator.

KV: Do you think the Auckland housing bubble will burst?

BH: It depends on whether three things happen all at once. If migration slumps at the same time as interest rates rise and unemployment rises sharply, then house prices in Auckland could fall. But the chances of them happening simultaneously are quite low. Net migration is remaining stubbornly high despite years of predictions of a peak, while interest rates are expected to fall further. The Reserve Bank would also be expected to cut them sharply in the event of a recession. There is still a shortage of 40,000 houses in Auckland and, despite the new Unitary Plan's potential for a big increase, there remain big problems with infrastructure funding and skills shortages that could frustrate the quick arrival of new supply.

(KV: I realise he didn't give a yes or no answer, which is obviously what - as a depressed under-30 lifetime renter - I was hoping for. However he's given us an equation so we can watch for the signs, like professional doomsday predictors: interest rates rise + higher unemployment + fewer migrants = housing bubble burst).

KV: If yes - any idea about when?

BH: Short answer is no.

Three expert economists make predictions on if Auckland housing bubble will burst and when

MICHAEL REDDAL

QUALIFICATIONS: Former Reserve Bank adviser, head of financial markets, former macroeconomics NZ Treasury adviser, economic commentator.

KV: Do you think the Auckland housing bubble will burst and why / why not?

MR: The best way to think about Auckland house prices is that they have reached their current outrageous levels because of the interaction of rapid population growth (mostly on account of immigration) and tight land use restrictions. 

Whether prices, or price-to-income ratios, ever fall back very sharply mostly depends on what, if anything, governments do about alleviating those pressures.  Net immigration does ebb and flow, but around a very high annual target for the inflow of non-citizens. 

There doesn't seem to be much political appetite to change that target, and there also seems to be only limited appetite for really freeing up land use restrictions. Allow any land within 100 kilometres of downtown Auckland to have even two storey houses built on it, and the price of urban land would quickly fall a very long way - owners of land on the margins of the city will be keen to utilize the land as soon as possible, not as slowly as possible. 

But far-reaching reform like that doesn't seem that likely. So, sadly, while we might see house prices fall back 10 or even 20 percent in the next recession - whenever that is - it is difficult to be optimistic that price-to-income ratios will drop back to around three (they should be) any decade soon.

(KV: So not so much a burst, as a slight deflation. I'll keep stacking those pennies, then, so when I'm 50 I can finally get a two bedroom unit on State Highway 1 nearing Ngaruawahia)

KV: If yes - any idea about when?

MR: Forecasting is a mug's game.  All that can really be said is "please, as soon as possible".  The longer the eventual adjustment is delayed the more people - owner-occupiers and investors - who will be caught having borrowed hugely to pay today's massively distorted prices. 

The longer prices stay at these, or even higher levels, the more difficult the economics and politics of ever making Auckland housing affordable again.

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