Only Canada's house-price ratio tops NZ

NZ house prices are the worlds second highest. Photo / Chris Skelton

New Zealand house prices are the world's second-highest compared with rents, according to the Economist.

The magazine published a list of 21 countries, comparing prices with rents, and showed that only Canada topped New Zealand.

It showed the relationship between the price of buying a house and the amount of rent which would be generated from that house, saying the price-to-rent ratio was "an analogue of the price-to-earnings ratio used to judge the equity value of listed firms".

That showed that New Zealand properties were 68 per cent overvalued compared with the rent generated.

Canada's were higher on 76 per cent but New Zealand's were ahead of Belgium's 65 per cent, Singapore's 60 per cent, Hong Kong's 58 per cent and Australia's 48 per cent.

The magazine said New Zealand house prices were 20 per cent overvalued compared with income, with an average of 44 per cent overvalued when both rents and income were taken into account.

Canadian house prices are 54 per cent overvalued compared with rents and income.

Houses are undervalued in other markets, the survey shows.

Japan's price-to-rent ratio is -36 per cent, Germany's -18 per cent and Austria's -13 per cent.

Of the 21 countries studied, the magazine said buying a house looked like an increasingly good bet compared with renting.

Rising rents are helping to cut into a backlog of unsold homes, the Economist found.

Yesterday, the Herald reported how high rents were forcing people to buy because only slightly more money was needed to service a mortgage, according to the Roost Rent or Buy report.

The typical Kiwi first-buyer household would need only slightly more money to service a mortgage on a bottom-range house than it costs to pay a median rent.