The Auckland property market is out of control once again. Not only are first-time home buyers forced to look outside the city, but investors are too. According to Quotable Value, 45 per cent of all homes bought across the country are investment properties.
High prices lead to high rents, and people paying high rents can find it hard to save the 20 per cent deposit they need to put down on a home of their own.
This week's property podcast with Steve Hart:
Obviously, the government and the Reserve Bank are losing the war on property. Yes, the 30 per cent deposit requirement for property investors in Auckland dampened demand for a while, but now those investors are looking elsewhere.
So it's time to extend that requirement across the nation, and perhaps even make it 40 per cent. But the Reserve Bank could go even further.
To cool the overheated housing market in the the UK, the Bank of England told lenders to restrict loans to 4.5 times a person's annual income. It's a simple solution that restricts what people can pay for a home.
Not only that, borrowers will likely be in a better position to survive financial shocks, such as redundancy, unexpected bills and rising interest rates. They'll also have more money to spend in the wider economy.
But can it work here? The grandly named Property Institute claims that if New Zealand was to follow the UK's lead, then it would "kill the market dead". That is, of course, rubbish. The market is not dead in the UK or anywhere else where sensible lending is practised.
One of the problems is that because house prices are rising so fast, lenders are on a good bet when lending for property purchases. Even if our Reserve Bank Governor didn't care about house prices, he must have concerns about household debt levels.
Average, hard-working Kiwis can't compete with cashed-up foreigners (who may opt to leave a property empty) or investors leveraging one property against the other to build their portfolio.
Something will have to give if Auckland wants to retain the young people it needs to work in the city.
For an insight into some of the social implications of unaffordable housing, look at the excellent nzherald.co.nz/hometruths.
Economists at Westpac are predicting that property values across New Zealand will rise 11.5 per cent this year.
They were surprised by "the power of the housing market's rebound" and that rising house prices are becoming widespread.
Rising household borrowing, they say, strongly suggests that low mortgage rates are a powerful driver of the market.
One almost wonders if raising mortgage rates is an option.