High housing costs are lessening the productivity of young Kiwis and acting as a bigger drag on New Zealand's economy than previously thought, a leading bank says.
The latest ANZ Property Focus report found housing unaffordability not only created a growing wealth gap between those who own homes and those who do not, but left thousands of families financially insecure under high levels of debt.
It also hurt young Kiwis the most by forcing them to divert vast amounts of money into paying off home loans rather than financing new business ventures.
"New firms tend to be more innovative. And while accessing figures on this is difficult, we suspect new businesses are more likely to be created and owned by younger people," the report said.
"[However], high house prices make it more difficult for younger households to invest in businesses, limiting the entrepreneurial endeavours of younger people."
The warning comes against a background of lagging productivity gains and plummeting home ownership in New Zealand.
Productivity remains the biggest determinant in whether countries have high per capita incomes or not, the ANZ report said.
"And productivity growth in New Zealand has been lacklustre in recent decades," it said.
"We estimate that labour productivity grew 1.6 per cent per annum on average through the 1990s, 1.0 per cent per annum through the 2000s, and a very subdued 0.3 per cent on average from 2010 until present."
The number of Kiwis owning their own home had also fallen from 55 per cent in 2001 to 50 per cent in 2013, with ownership levels among 30-49-year-olds taking an even bigger hit.
This had flow-on drags on productivity because "home ownership is associated with greater stability, better educational outcomes and income prospects ... and more favourable living standards in retirement".
And while house prices had stalled across much of the country in recent months, they remain out of reach of many Kiwis.
According to online auction website Trade Me's latest figures, the average asking price for a New Zealand home in June was $642,050, down 0.6 per from a month earlier.
Auckland prices also fell 0.9 per cent compared to May to $910,250.
First-home buyers could take further heart from the fact there was greater choice as 42 per cent more homes were advertised for sale in Auckland in June than a year ago, Trade Me head of property Nigel Jeffries said.
That choice could be further boosted if the Government's KiwiBuild programme succeeds in building 100,000 affordable homes across the nation.
"If KiwiBuild fulfils its potential ... demand will ease in the first-home buyer segment, which will mean prices could reduce," he said.
Yet any price drop is likely to do little for younger Kiwis who have to "take on near-record levels of debt to buy a house" and "save longer to cobble together a deposit", the ANZ report said.
Such high debt levels left families and banks heavily exposed to the housing market and presented a financial risk to New Zealand.
"Financial distress could result if house prices were to fall sharply, which could have systemic effects on New Zealand's financial system as a whole," the report said.
In addition to this risk, high housing costs had other drags on productivity.
This included making it more difficult for workers and businesses to move to locations that are more productive and limiting the amount of money available for investment in business.
The report said a steady supply of new homes was crucial to addressing housing affordability.
This included making more land available for development, setting up a pipeline of future construction that matched planned increases or decreases in migration into New Zealand and improving productivity in the construction sector.
"Ultimately, the issues of low productivity growth and unaffordable housing are inextricably linked," the report said.
"More affordable housing would be good for productivity, and better productivity could help improve housing affordability."