Auckland's housing market has become a giant Ponzi scheme, one economist says, as residents pay each other to get in and drive prices up and up.
Shamubeel Eaqub, NZIER principal economist, said this decade's housing market was like last decade's finance companies, being run as a high-risk money-go-round which could eventually end in misery.
"Essentially it's a Ponzi scheme because you need more and more new entrants to keep prices rising and that's exactly what's happening in the housing market. We've seen this in all kinds of businesses, for example finance companies were a classic. Who are the people buying the houses? We're paying higher and higher prices to each other," he said.
Eaqub now rents in Auckland, after returning from Wellington late last year, because he says it's cheaper. But says he will buy at some stage.
He and wife Selena are expecting their first baby next month. He has never ruled out buying, but says it has made little finance sense perhaps when he is in his 40s.
Auckland prices were being driven up by a number of factors including tight land supply, the high cost of building, lack of infrastructure supply and high net migration.
"But there's other factors there as well. There's a huge amount of animal spirit: it ends up being an emotional thing and there's a fear of missing out which supports the boom. It probably won't last but we just don't know how it will end. Prices could level off like the late 1980s and early 1990s. Or it could be like Ireland, Spain and the US where there's a big slump. But for that to happen, there needs to be an excess supply of housing so Auckland doesn't have the preconditions now," he said.
• Property: Got a million? Auckland's for you
• Property: Do-ups a reality for first-home buyers
• Property: Long wait to save a home deposit
• Affordable homes: Best and worst regions revealed
Meanwhile, Sydneysiders are being advised to take comfort from their high house prices because Aucklanders are suffering more.
Simon Thomsen of publication Business Insider Australia today wrote a column advising Sydneysiders trying to buy a house to cheer up, because it could be worse: they could be in Auckland.
New Zealand was second only to Norway for high house prices compared to incomes, he said.
"If you think Australian property prices are insane, try New Zealand," his article was headlined.
"Cheer up Sydneysiders trying to buy a house, you could be in Auckland, New Zealand, which is undergoing its own property boom."
Thomsen then cited this week's Barfoot & Thompson high sales volumes.
"Unprecedented sales activity in March has seen Auckland's residential housing market establish new records for prices and sales numbers. The average house price is even more expensive than in Sydney, with the gap widening as a stronger Kiwi dollar heads towards parity," Thomsen wrote.
He then cited 2013 data from NZ Reserve Bank governor Graeme Wheeler showing New Zealand the second-most expensive place to buy a house when compared to income ratios.
"He produced the following 2013 chart from the IMF showing that NZ was only just behind Norway when it came to greatest deviation in house price to income ratios," Thomsen said.