Treasury Secretary Gabriel Makhlouf has expressed his concerns about the high levels of housing debt that has grown out of Auckland's rampant housing market.
"When New Zealand's housing debt is around $215.9 billion, a 26.6% increase in five years, nobody should be surprised the Treasury is concerned," he said in a speech to the Committee for Auckland Group Summit.
Housing debt was far and away the largest component of this country's $246 billion of household debt, which has increased by 26.2% in five years, he said.
"By the beginning of 2016, the level of household debt to disposable income had risen to 163%," he said.
"That is higher than in the lead up to the Global Financial Crisis and is likely to go higher still, with the Reserve Bank expecting credit growth to continue to outpace income growth."
He warned that the historically high debt to income ratios in Auckland, where it now takes nine times the average household income to buy an average house, meant households were increasingly vulnerable.
"A drop in income or a rise in interest rates might see some struggling to meet their mortgage payments," he said.
He was also concerned about the risks this posed to our banks.
"Housing represents around 60% of bank balance sheets," he said.
"In the event of downturn, the high levels of debt across the banking sector and significant levels of indebtedness of individual households could have knock on effects that might cause serious losses of confidence and financial disruption.
"In short, inflated Auckland house prices are a risk to New Zealand's financial stability and the economy more generally."
Warning to speculators 'getting rich off the status quo'
Makhlouf also made it clear that Treasury believes the shape of the new Auckland Unitary Plan, which Auckland Council is expected to finalise in August, will be a key element in solving the region's housing problems.
"One of the crucial things we'd like to see is that the Auckland Unitary Plan provides sufficient residential development capacity - in terms of the quantum, location and typology - to support urban growth and create a competitive market for land," he said.
"This would send a clear signal to land bankers and speculators getting rich off the status quo.
"There are figures on the number of development sites that sound like a lot, but prices suggest otherwise.
"In large part this is because of a shortage of feasible development capacity in existing areas within current plans.
"Creating a competitive land market, by making more development capacity available across all parts of Auckland, would weaken the incentives for speculation and land banking, resulting in a larger proportion of potential development sites being brought to the market," he said.
Here is a link to the full speech:
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