House prices are overvalued, the Reserve Bank says.
"They are certainly well above historical levels and look expensive by international standards relative to incomes or rents," governor Alan Bollard said in a speech to the Employers and Manufacturers Association on Monday.
A repeat of the house-price boom of the last decade seemed unlikely, he said, "but would be very damaging and risky were it to occur."
He did not elaborate on why he believes another boom is unlikely.
The reason may be that the starting point is house prices which are already dispiritingly high.
Because the 2000s boom was not followed by a bust, traditional valuation metrics like the ratio of house prices to income, household debt to income and rental yields are still very stretched by historical standards.
Or it may be that Bollard believes there has been a fundamental and enduring shift in New Zealanders' attitudes towards debt.
"For decades it has seemed attractive for households to borrow - first as a hedge against a couple of decades of high inflation and more recently as real house prices rose more dramatically than at any time in our history. High inflation is a thing of the past. And a repeat of the house price boom ... seems unlikely."
But house prices are rising again, not least in Auckland.
And there is wisdom in the saying that the four most expensive words in the English language are: "This time is different."
Indeed most of Bollard's speech was a reflection on the toxic legacy of the last boom, in the form of the build-up of household and foreign debt.
Experience, like that of Sweden in the 1990s, suggested that the aftermath of a debt and asset price boom need not materially hold back a country's economic performance for long, he said.
"But this time it is looking as if the accumulated debt is, in fact, acting as quite a sustained drag, in New Zealand and other advanced economies."
We have not had a swift recovery, a period of above average growth to lift per capita output back to trend, that is, where it would have been if the long-term growth rate had continued uninterrupted.
Three years after the economy stopped contracting, per capita gross domestic product is still 3 per cent below its peak in December 2007.
And it is about 10 per cent below where it should have been by now if the trend growth rate of the 12 years before the recession had continued.
It is an environment where those with a lot of debt have been motivated to whittle it down as best they can, while those (typically older) with little or no debt are motivated to save more, if only because low deposit interest rates and expected asset returns more generally make building up an adequate retirement nest egg harder.
Another part of the toxic legacy of the last boom has been a deterioration in housing affordability.
Underpinning that has been supply-side dysfunction at the lower end of market, that is, a dearth of construction of small starter homes.
Westpac's economists point out that with an average of around 2.5 people per household, if a city is not adding one new dwelling to its housing stock for every 2.5 people its population is growing by, it is under-building.
In the three years to June last year Auckland's population grew by seven for every new dwelling built.
More recently there are signs of a response from the building sector to that pent-up demand.
In the latest June year there has been a rise of 24 per cent in the number of dwelling consents issued in Auckland.
But at an average value of $311,000 - and remember this is the cost of the building, not the land - they are clearly not starter homes.
This continues a longstanding trend towards construction skewed to the upper end of the market.
Research by two Treasury economists, David Law and Lisa Meehan, based on surveys of household finances illuminates some of the distributional consequences (economist speak for winners and losers).
Between 2004 and 2008 in all regions lower quartile houses rose in value faster than upper quartile ones.
For the country as a whole a lower quartile house (that is, one a quarter of the way up from the bottom when they are ranked by value) rose 63 per cent over those four years, while at the upper quartile (a quarter of the way down from the top) the increase was 47 per cent.
Possible reasons they suggest are tax and the cost of land.
"With various tax incentives on rental properties more pronounced in the 2000s than they are now, and rental property typically being toward the lower end of the quality spectrum, this may have stimulated demand more at the bottom end of the distribution."
And high section prices encourage the building of larger, higher-specification houses upon them.
Unsurprisingly their analysis of the survey data found that housing affordability increases significantly with incomes, particularly for couples.
People are more likely to be able to afford a home of their own if they are middle-aged, have a partner, or live somewhere other than Auckland.
"The likelihood is reduced as interest rates rise, [or] if an individual is any ethnicity other than European or is female."
Looking forward, the BNZ-REINZ survey of real estate agents found last month a record net 28 per cent of them reporting more property investors in the market.
And a high net 44 per cent of agents report more first-home buyers in the market. This is a response to mortgage rates being at 50-year lows.
But they are not likely to stay that low indefinitely, or if they do it will be because the world economy is in deep, deep trouble.
Someone who thinks "I can just about afford a mortgage at these rates" needs to reflect on this simple arithmetical fact: If floating mortgage rates were to rise by 2 percentage points - which is hardly beyond the bounds of possibility - that would increase their interest bill by more than a third.