Back in 2003, the Reserve Bank missed the biggest shift in the underlying economy in recent history. House prices took off and fuelled a debt-funded spending spree that undermined our export sector and loaded more than $100 billion on to our national debt.

House prices almost doubled from 2003 to 2007, enriching a generation of property owners and ensuring the generations to follow will struggle to afford houses in the big cities.

Missing that shift and failing to raise interest rates early enough and fast enough eventually forced the Reserve Bank to hike the Official Cash Rate (OCR) sharply through 2007 to cool down the economy.

In his first year in the job in 2003, Governor Alan Bollard cut the OCR three times through April, June and July from 5.75 per cent to 5 per cent. He then held it at 5 per cent through late 2003 despite growing signs of the housing boom.


He justified holding the OCR at 5 per cent because a high currency was then keeping inflation pressures under control. It was the beginning of a slide in the relative performance of the export sector that New Zealand has not managed to turn around.

Fast-forward almost 10 years and Bollard is again arguing he doesn't need to put up interest rates because of the high New Zealand dollar. He even went so far this week as to argue he could cut the OCR if the NZ dollar continued to rise.

But are we seeing the same mistake being made all over again? Is Bollard's insistence on low rates about to fuel another housing boom?

There are some worrying early signs in recent weeks that the fizz is coming back into some parts of the market, in particular Auckland.

Earlier this week, Barfoot and Thompson reported Auckland house sales volumes growing at more than 20 per cent a year, and prices rose 23 per cent in February from a year ago in the leading indicator area of the eastern suburbs. The BNZ-REINZ survey of estate agents this week also picks up on the increasingly bubbly sounds emanating from Auckland. Agents reported many more buyers than sellers and prices rising. The survey pointed to the Auckland surge leading "the next upswing in the housing market".

Banks are out again aggressively lending to people with deposits as low as 5 per cent. First-home buyers are raiding their KiwiSaver funds and topping them up with up to $10,000 per couple in subsidies from Housing NZ.

They are doing so confident that the Reserve Bank is reassuring them about lower interest rates for longer.

In the three weeks to March 2, $3.251 billion worth of mortgages was approved and $3.206 billion was approved in the three weeks to December 16.

The last time we saw that same sequence of heavy late-summer, early-autumn house lending was in December 2007 and March 2008, just as the housing boom was peaking.

ASB's 80 per cent-plus lending grew $667 million in the December quarter alone to 19.5 per cent of its book. Westpac, ASB and BNZ are all aggressively lending at 95 per cent again, so much so that ANZ's CEO warned of the potential problems of such lending here.

To top it off, Wellington apartment owner Donald Stott and his (unnamed) bank advertised 100 per cent finance to first-home buyers this week.

"With rising values comes the consequence of rising equity levels by property owners," Stott said. "This display of confidence by one of the country's major banks is exactly the sort of positive indication the wider property market is looking for."

If 100 per cent lending on apartments is not enough of a warning signal, I don't know

what is.

The slightly scary thing is the Reserve Bank could do exactly what it did in late 2003 - rely on a strong currency to leave rates low, or even allow it to cut rates. Have we learned anything?