'Ghost of Muldoon' looms over housing market - expert

An investment expert has warned the property market is starting to look "shakier" than it has been, with the "ghost of Muldoon" waiting to pop the bubble. 

It comes as new data from Trade Me shows asking prices continuing to go up and the nationwide median surpassing $800,000 for the first time, but also amid anecdotal evidence investors are losing interest in property following the announcement of new tax rules in March. 

"At a recent event in Auckland, I remonstrated that house prices could slide," editor of financial site Wealth Morning, Simon Angelo, wrote in a post on Wednesday. " It may not seem possible, but it is. You could have felt the perspiration dampen the room... the mood began to darken."

Angelo says the Kiwi property market right now is remarkably similar to how it was in the early 1970s, huge gains "based on high net migration and shortages of builders and materials". 

House prices spiked about 75 percent between 1971 and 1974 before ending the decade pretty much where they started, Angelo said. Sir Robert Muldoon's government, elected in 1975, oversaw a massive slide in values.

"Muldoon's government became alarmed then, as [Jacinda] Ardern's one seems to be now. Planning controls were loosened to allow more flats to be built in cities."

There are also similarities with New York in the 1920s, he said, with an economic boom fuelled by low interest rates and money printing following a pandemic.

"Then came the unravelling."

He also pointed to a recent warning from the International Monetary Fund issued in March about the New Zealand market was similar to one from 2000 about the Irish property market, which went on to fall 54 percent in just six years. The boom was fuelled by low interest rates brought in when Ireland joined the European Union, he said. Eventually too many were built, and when the global financial crisis hit, thousands were left empty and neighbourhoods unfinished.

Angelo doesn't see us building too many homes.

"The more likely source of risk here comes down to leverage. As it so often does," he wrote.

"It would appear the most significant risk to New Zealand property is the re-pricing or restricting of lending. 

"Interest deductibility rules have already re-priced loans to property investors. But the greater risk is the introduction of [debt-to-income ratios] and inflation," and interest rates ending their record-low run. 

"I do not see New Zealand out-building its supply gap any time soon. But I do see a lot more activity than before coupled with a twisted greed and fear gap, a debt bomb, and growing regulation.

In this regard, the ghost of Muldoon could well come to sit in auction rooms across Auckland. Especially for investor-focused residential properties."

Finance Minister Grant Robertson has asked the Reserve Bank to look into debt-to-income lending restrictions to stop investors getting extremely leveraged.