New Zealanders don't like to talk about falling house prices.
Politicians - in both our major parties at least - refuse to publicly acknowledge the possibility.
But to talk about making housing more affordable without admitting that prices will have to fall is increasingly unrealistic, economists say.
"If New Zealand wants to talk about affordable housing, it has to confront whether or not we actually want house prices to come down," says Infometrics economist Brad Olsen.
"That's not a political view, it's purely mathematical."
Under the political "Goldilocks scenario" in which prices just track sideways, reaching a reasonable level of affordability would require the median wage to rise by at least 34 per cent and would take at least a decade, he says.
That kind of long term market stagnation might also be more damaging to the New Zealand economy than a short, sharp correction.
So will the new housing policies announced this week cause a significant correction?
Changes to the tax treatment of interest payments for investors, an extension of the bright-line test for treating capital gains as income (from five to 10 years) and another multibillion-dollar boost to encourage new building have already caused some very real ripples in financial markets.
The kiwi dollar and yields on New Zealand Treasury bonds fell as investors assumed the policies would put less pressure on the Reserve Bank to lift interest rates.
On the sharemarket, property-related stocks - such as retirement village owners Ryman and Summerset - also took an immediate hit.
But economists are divided on whether house prices will actually fall - or just rise more slowly.
Westpac acting chief economist Michael Gordon says the new policies mean "house prices could settle around 10 per cent lower over the long term".
He warns that there could be much greater effects in the short term as some investors get out of the market.
ANZ chief economist Sharon Zollner says the moves, particularly axing interest cost deductibility, "should take the wind out of the sails of the housing market".
BNZ's Stephen Toplis warns that engineering a sustained period of very low house price growth would be very tricky and that a correction is the more likely result.
And ASB economists Nick Tuffley and Mark Smith argue that the policies will slow growth but not lead to an outright fall.
That would be more in line with what the Government says it is aiming for.
But if it does play out that way, it won't be enough to seriously address affordability, says Olsen.
So how far would home prices need to fall to be truly affordable?
Olsen has crunched the numbers using a simple measure of affordability - how many times the national median household income does it take buy a house at the current national median price.
There are lot of other equally important metrics, like mortgage serviceability or the time it takes to save a deposit, he says.
"But at least median multiples give you an idea of how things are trending."
He uses household income rather than individual income because that is typically how purchases are funded.
Currently - based on the REINZ national median house price and Infometrics' internal estimate of median household income (to December 2020) - that multiple is 6.7.
Internationally the "Goldilocks view" on truly affordable housing is that you need a multiple of three, he says.
Real Estate Institute chief executive Wendy Alexander cites the same benchmark.
On that basis Auckland median prices would need to drop drastically, by as much as $750,000, she says.
"This would mean median prices in Auckland would need to be around the $350,000 mark which they haven't been for more than 10 years now," Alexander says.
"Which is why Auckland, and New Zealand, regularly feature in the top 10 list on the annual Demographia International Housing Affordability Report."
Latest REINZ data out this month showed Auckland's median house price increased by 24.3 per cent, from $885,000 at the same time last year to $1.1 million.
Nationally, prices rose 22.8 per cent from $635,000 to $780,000 in February this year.
To get a sense of how affordable we think house prices should be, it helps to look back at the long term trend, says Olsen.
House prices basically bumped around at about two or three times household income from the 1970s on, he says.
"We had a multiple of below four up until 2001," says Olsen. "After that it starts to go up quite rapidly."
In the year to June 2008 it peaked at 5.7.
"It took a bit of a pause after the GFC but then it's only gone up from there," he says.
"People make the case that there might not be one magic number, but to my mind the current levels are patently unsustainable," Olsen says.
You'd need a 25 per cent fall in house prices just to get them back to a more affordable multiple like five times household income, he says.
"To get them back to that Goldilocks number of three you'd need a 55 per cent reduction in house prices."
Or we can look at it the other way.
That is to assume prices stabilise and just stop rising for an extended period.
If you want to get back to a median multiple of five you'd need a 34 per cent increase in the median household income, Olsen says.
To get back to the multiple of three you'd need household incomes to go up by 120 per cent.
Sadly, based on those numbers, the prospect of getting back to a multiple of three looks highly unrealistic for now, he says.
We should probably focus on a return to a multiple of about five - something we last saw after the post-GFC low around a decade ago.
So it's either a 25 per cent fall in prices or a 34 per cent rise in incomes, or a mix of the two, spread over some time .
From a political point of view that last option is probably more palatable, Olsen says.
"You could try and engineer it so wage growth rose ahead of house price growth for a sustained period but I'm yet to see any great idea about how we lift wages to that extent," he says.
Lifting real wages has been a persistent problem for many years in this country.
On that basis it seems more likely that any changes in affordability will have to be led by price falls, Olsen says.
On current wage growth trends, achieving a significant lift in affordability will take roughly a decade - and that is assuming house prices don't move at all in that time, he says.
In report titled "Government on Housing Market War Footing", BNZ economist Toplis warns that this kind of finely tuned soft landing is almost impossible to engineer politically.
In fact, he argues it's never been done.
"The Government will not be happy unless house price growth falls below income growth so it is reasonable to assume house price inflation will fall to near zero, at best in the not too distant future," he writes.
"The risk is that no government, or central bank for that matter, has ever been able to fine tune an asset market, so the balance of risk is that a decent correction in prices occurs."
But we shouldn't necessarily fear a correction, he says.
"For all but new purchasers this matters little as it will simply reverse some of the exceptional capital gain we have seen over the recent past."
And at the most disadvantaged end of the social spectrum, whether or not these policies "succeed" is largely irrelevant, he writes.
People who require social housing "are simply so far away from being able to purchase a house that even a major correction in house prices would not sate their excess demand".
"The solutions for this market are for local and central government to decide how much housing they are able to provide to those who might never be able to purchase a house, and how much housing might be available for those with the potential to eventually own property," he says.
Ultimately there are "no magic wand solutions" to unaffordability, says REINZ's Alexander.
"A long-term, sustained approach that conquers the political divide and includes key industry players, local councils, iwi, social housing providers and developers to build at scale and at speed is what we need to start looking at solving affordability issues," she says.
Prefabrication, rent-to-buy models and more build-to-rent investment properties are other solutions, she says, citing trends like 3D printing and container buildings.
ASB chief economist Nick Tuffley is not convinced we'll see these latest policies cause an outright fall in prices.
"Our initial thinking is that house price growth will slow more sharply than we had factored in, but that the policies will not necessarily trigger outright price falls," he says.
"The supply shortfall and starting point of record low listings will help to keep a floor under the market for 2021. Furthermore, there are plenty of would-be first home buyers waiting in the wings."
But much will depend on how current investors react.
"Some investors might make a run for the exit and attempt to offload properties; if so that would amplify the downward pressure on house prices."
Another issue politicians need to consider, if they are genuine about improving affordability, is whether a sustained period of market stagnation is better or worse for the health of the economy than a short, sharp correction.
When we consider the way sophisticated investors look at equity markets, the latter is actually preferable and typically factored into long term investment expectations.
The bull and the bear market are both accepted as part of the investment landscape.
"Without having done any real analysis on that, I broadly tend to agree," Olsen says.
A short, sharp housing correction would provide an opportunity to restart things, he says.
"What you'd do is put everyone on notice that houses are not solid-gold investments that have no chance of ever going down.
"There is risk attached. As an investor you have recognise risk and I don't think people are correctly assessing that risk."
- The wording on this graphic was changed to clarify the Government action on Interest Deductability. Additional source is Office of Minister of Finance