Does Auckland have a housing bubble? It seems to be the big question of the moment.
There's no doubt the property market is hot. Too hot for those struggling to buy their first home, too hot for the Reserve Bank's liking.
But is it a bubble? Well, how do you define a bubble?
Economists try. You can run various formulas that apply price to earnings ratios (the cost of buying and servicing debt versus actual rental return) - to try to establish if pricing has become detached from fundamentals.
These can offer some insight into the degree of market speculation. But whether it's property, stocks, or tulips a bubble market must by definition be inflated and fragile. Bubbles once formed do not have a long life span.
On that basis it is reasonable to argue that Auckland's market - while problematic, potentially damaging for the economy and many other things besides - is not yet a bubble.
The issue, as even property bears such as NZIER's Shamubeel Equab have noted, is that it is not clear what is going to make it pop - at least any time soon.
Migration trends remain strong and so does demand, especially in Auckland's central suburbs, but supply there is horribly constrained and even best-case scenarios suggest it will take several years of planned development to make any kind of meaningful impact.
There's the risk that the economy may take a bad turn. But that might actually exacerbate things.
New Zealand seems to be heading into a traditional cyclical slowdown. If dairy prices don't recover soon our rock-star economy risks falling off the stage.
But that's only going to cause interest rates to fall further, which will further improve the equation for property investors and speculators.
This is no doubt what is troubling the Reserve Bank. The rest of New Zealand may soon need a rate cut but a case could be made for Auckland rates to head in the other direction.
The Chinese Government would deal with this quite simply by putting a ring around Auckland and calling it a special zone with its own citywide bank lending restrictions.
In China they have gone as far as raising deposit requirements to 60 per cent for second homes and banning lending altogether on all further properties. Investors must have cash to cash in on the boom.
The Reserve Bank won't go that far. Regional rules for last year's loan to value ratio restrictions were considered but rejected as complex and risky for an open economy.
But it does bring us to the possibility that some form of regulation might be the thing that pricks a bubble.
The Government has tacitly acknowledged the problem by committing more resources to the IRD to police what is effectively an existing capital gains tax regime.
But it appears there is no appetite for a more prescriptive property tax regime. Even Labour will be treading carefully now. The term "capital gains tax" is politically toxic. The threat of it being applied to first homes must be carefully resolved before it is thrown into the policy mix.
Keenly aware of the risks, The Reserve Bank is looking at further bank lending regulations around investment property.
It is possible we could see some investment disincentive introduced into the market soon, but it is likely to be light handed - at least by Chinese standards.
Then there's all that Chinese investment money to consider - anecdotally or otherwise.
China's economy is slowing and perhaps that might see a drop off in foreign investment in Auckland property?
Don't bet on it.
Right now the flow of capital out of China is highly regulated and just a fraction of what it could be. If capital account liberalisation goes as planned in the next few years the slowdown effect will be negligible.
As the property bears will point out, it is the risk of two or three of these events coinciding - perhaps including something unforeseen - that will prick a bubble.
With some 73 per cent of New Zealanders' assets invested in the housing market there is no doubt the risk is severe.
So does Auckland have a housing bubble? Perhaps not yet.
But I'd argue we are at serious risk of allowing a property bubble to form and we need to take action.
Why? Because bubbles always pop. And the bigger the bubble, the bigger the mess.
Debate on this article is now closed.