Auckland market crash ‘unlikely’ – property institute chief.

The Property Institute’s chief executive has hit back at Finance Minister Bill English’s claims of a potential Auckland house price crash in eight years’ time.

The future of Auckland’s housing market has been subject to much debate this week.

Finance Minister Bill English expressed his concerns about a potential house price crash in the next decade.

Over the last five years, the Auckland housing market has been the single biggest imbalance in our macro-economic system, he said.

“I’m yet to find a housing market anywhere in the world where prices go up at over 20 per cent a year without stopping and then starting to come down again,” he said in a speech to Victoria University which was released on Tuesday.

His reasoning was drawn from “extensive studies in the United States following the Global Financial Crisis”.

“It takes around eight years for the housing market to respond to a shock to demand,” he said in his speech.

“Long lead times in the planning process tend to drive prices higher in the upswing of the housing cycle. And those lead times increase the risk that eight years later, when additional supply arrives, the demand shock that spurred the additional supply has reversed.

“The resulting excess supply could produce a price crash.”

But Property Institute chief executive Ashley Church has hit back at these claims, calling English’s comments unhelpful and comparing them to “reading chicken entrails”.

“The events which shaped the collapse of the US property sector, prior to the GFC, bear no resemblance to the kiwi property market and have no value as a guide to what might happen here,” Church 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,” he explained.

“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.

“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.”

Mr Church said that the Auckland market has a history of levelling off after boom periods – with prices going nowhere for a few years then starting to rise again when the next boom kicks off.