By Bernard Hickey
Property Institute Chief Executive Ashley Church has criticised Finance Minister Bill English's suggestion that a delayed housing supply surge in Auckland could cause a US-style housing crash.
Church said English's comments were unhelpful and he compared them to "reading chicken entrails." English made the comments in a speech in Wellington last week, which Interest reported on yesterday here.
Church said Auckland's housing market was nothing like the US housing markets that slumped through the Global Financial Crisis. Auckland was driven by real demand rather than loose lending standards and prices tended to stagnate rather than go bust after booms, he said.
"The American experience in the years leading up to 2008 was basically a comedy of errors. During that time US banks significantly relaxed their loan criteria and were lending to people who were not in a position to pay back their loans," Church said.
"To get around this they were also offering balloon payments which meant mortgage payments started low, but ratcheted up steeply after a few years. There were also a number of States which passed laws allowing homeowners to simply return their keys and walk away if it got too hard to make their payments," he said.
“New Zealand has very tight controls around lending – probably too tight – and the Auckland housing crisis is underpinned by real demand - not an artificial boom created by the banks as was the case in the US."
'NZ supply could overshoot demand, but price bust unlikely'
Church said Australasian banks were much stronger and more responsible than their US counterparts.
He said agreed with English that Auckland's property price boom would end when supply caught up with demand, and that supply may even overtake demand.
“New Zealand has a history of ‘overshooting’ the mark and building more homes than we need – which means we may end up with a surplus of properties that take a year or two to absorb," he said, adding however that a price crash was not inevitable.
'Prices only go up or sideways in Auckland'
“Mr English said he was yet to find a housing market anywhere in the world where prices go up but don’t come down. Well, he lives in one. You have to go back to the early seventies to find a time when there was a significant fall in the Auckland property market following a boom."
Church said Auckland had a history of leveling off after booms, "with prices going nowhere for a few years then starting to rise again when the next boom kicks off."
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