Economist: House price downturn no short term blip

Westpac chief economist Dominick Stephens.

The Auckland housing slump is not a short term blip that will end as soon as the election is over says Westpac chief economist Dominick Stephens.

Speaking on the Economy Hub at the Pub video show Stephens said he believed the long, slow easing of the market indicated a more structural shift in house prices.

Both the election and the Reserve Bank's loan-to-value-ratio restrictions were being overplayed in the analysis of the downturn.

"What we've seen over the last year is quite a steady pervasive downturn in the market, prices have been falling in Auckland month after month after month," he said. "If you look at past elections, usually its just a few months of a slightly flatter market. So it is deeper and more than that."

The biggest influencing factor was actually the rise in mortgage rates, he said.

"At today's house prices a small change in interest rates makes quite a difference to affordability and I think that's what's bothering the market."

LVRs have been a target for the real estate industry in the past few weeks but Stephens believes their impact has been overplayed.

"We did quite a bit of work on exactly how macro-prudential tools like these affect markets overseas. It tends to be quite a short sharp impact that lasts about six months. It just does not look like that, what we are seeing at the moment."

Stephens said he was not convinced by arguments that the solution to the housing crisis was simply to increase supply.

"I think it's a lot more complicated than that," he said. "They've risen all over New Zealand since 1990, to a massive extent, whether the population has grown or not."

Two things having a much bigger impact than population growth were the drop in average mortgage rates allowing people to borrow more and the tax system which was incentivising New Zealanders to buy land.

"We're incentivised to own land to the exclusion of other forms of saving and that has skewed the New Zealand economy."

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