Bay market not following - economist

Economist Shamubeel Eaqub says the Hawke's Bay housing market is no longer tied to Auckland's.

A rising Hawke's Bay housing market, following Auckland into record price levels, does not mean Hawke's Bay is returning to its historic pattern of following the Auckland market, says economist Shamubeel Eaqub.

Before the 2007 peak of the Bay's housing market Hawke's Bay, like most regions, followed the lead of main centre price increases by several months.

That pattern broke after 2007.

Auckland house values, adjusted for inflation, are up 45 per cent on the 2007 peak.

After several years of sluggish growth Hawke's Bay finally breached its 2007 peak last year and has steadily accelerated since.

Data from REINZ shows between December 2014 and December 2015 the number of days to sell a house in Hawke's Bay fell 31 per cent to 15 days, the third-biggest regional drop, while for the same period in Auckland it fell by two days.

Mr Eaqub, the author of Growing Apart, Regional Prosperity in New Zealand, said the main areas benefiting from a "spillover" from the heated Auckland real estate market were Bay of Plenty and Waikato.

"Wellington is an entirely different thing — it is all about the Wellington economy coming right and for the rest of the provinces it is quite specific in terms of what is driving them," he said.

In the past economic indicators covered the majority of the country.

"What has been unusual in the last five years is the provinces haven't had a synchronised recovery in terms of jobs.

"Most of the jobs have been in Auckland and Canterbury — not much has happened elsewhere," he said.

"I'm not sure the divergence between Auckland and the rest of New Zealand is something that is going to be closed soon."

Regional New Zealand had "very different drivers in terms of population and economic growth" so the housing market was unlikely to revert to the trend of regional markets following Auckland.

He said the majority of New Zealanders did not have the income to service debt levels required to purchase Auckland houses.

The Auckland market had parallels to Ireland's property bubble, that burst in 2007, "in terms of debt levels, turnover and falling affordability".

From 2007 to 2010 house prices in Dublin more than halved, previously enjoying five years of steady increases.

The difference in Ireland was "they actually built houses when the housing market got real hot".

The absence of market supply of new housing, while Auckland prices rose, was a main reason why it was difficult to predict when the Auckland market would go into correction.

"You really need a supply response at some point in time — that is usually how it works," he said.

It was "a very brave person" who could say when the Auckland housing market would correct itself "but certainly there is nothing that we can see now that gives us confidence things will fix themselves soon".