The Reserve Bank is reaffirming that house prices are expected to ease, fuelled by record building activity.
RBNZ governor Adrian Orr. Photo:
In a speech at the Property Council of New Zealand's retail conference, the central bank's governor Adrian Orr said house prices are currently unsustainable and posed risks to the country's financial stability.
Homes in New Zealand are the most unaffordable among OECD nations, with prices soaring about 30 percent in 12 months due to an acute housing shortage, historically low interest rates and cheap access to capital from the government's pandemic-driven stimulus spending.
The jump in house prices was mainly related to the inability of housing supply to respond to changes in demand, Orr said.
"The extent to which New Zealand house prices have reacted to changes in housing demand is mostly related to the inability of housing supply to respond.
"Houses have been scarce at a time that demand was strong. The reverse is now evolving - with housing building at record levels at a time that population growth is static."
As a result of the supply-demand dynamics, house prices were expected to ease over the medium term, he said.
"This means house prices would be moving back toward a more sustainable level - a level that can be explained by underlying economic fundamentals."
There was no one agency or silver bullet to fix the problem, with affordability and prices affected by not only supply and demand factors, but also immigration, tax policy, government benefits or transfers, land availability, building standards, infrastructure and training programmes, Orr said.
He also said the role of the Reserve Bank in the market was "bit part".
"We are one cause of demand changes as we alter interest rates to meet our monetary policy remit. We also work to limit mortgage lending when it appears excessively risky.
"However, this is more about limiting the damage to banks' balance sheets, rather than altering overall demand."
Ultimately, access to land and space had recently proved to be the biggest challenge to enabling a smooth functioning housing market, Orr said.
The central bank was well advanced in its work to start consulting on additional debt servicing ratio tools that will help limit more extreme lending by banks, Orr said.
- RNZ / Reuters
