Auckland's housing market bubble is now clearly spreading to most of the rest of New Zealand.

This should not have surprised anyone. It was only a matter of time for the potent cocktail of record net migration, ultra-low interest rates, easy credit conditions, restrictive planning policies and favourable tax settings to come to the fore and drive the market upwards. The key questions now are, how long will the housing upswing last? And will anything be done to slow the trajectory down?

We can't forecast the future, but what we can do is compare the price of housing in Auckland with the rest of New Zealand to provide some guidance on how much further the market could climb in Hawke's Bay.

According to QVNZ figures, at present in most suburbs of Auckland a residential property investor is willing to accept a gross rental yield that is under 3 per cent, and in some areas it is sub 2 per cent. In contrast, rental yields in the Hawke's Bay range from around 4 per cent (Havelock North and Rural Hastings) to 8.6 per cent in Flaxmere.


In an environment where the drivers of housing remain in place, we can expect these rental yields to steadily fall as prices are bid up by property investors and others looking to buy into what is seen as a relatively "cheap" market. For example, Napier's median house prices would be an eye-watering 60 per cent higher than today's levels if they were priced at Auckland's average rental yield. This may not happen - other factors such as differences in expected population growth rates and local housing supply constraints matter, too. But clearly there is still considerable upside to current price levels in the "hunt for yield" that property investors are chasing throughout New Zealand.

For people looking to get into their first home and struggling with current price levels, unfortunately history does not suggest anything will be done to meaningfully improve the situation. The cyclical and structural drivers of housing are well known, as are the package of policy measures needed to both reduce the amplitude of housing price cycles, and even out the playing field between housing and other forms of investment.

We can point to many reports over many years offering the solutions, some of which I was involved in working at the Reserve Bank of New Zealand in the early 2000s.

Time and time again, the sticking point is the political will to proceed against the housing sacred cow.

We can only hope that when the bubble bursts, as eventually it must, the fall-out is not as severe as has been the case in many other countries.

- Aaron Drew is chief investment officer with Hastings-based wealth management company Stewart Financial Group.