Auckland home prices catching up with those in New York

With prices rising 13pc a year in New Zealand's biggest city, central bank believes that it's time to step in and put a lid on mortgage frenzy

PUBLISHED : Wednesday, 14 August, 2013, 12:00am
UPDATED : Wednesday, 14 August, 2013, 4:03am

When it comes to buying a house, New Zealander Ginny Braun is finding that her home town of Auckland is rapidly catching up to New York.

"The market feels crazy, it feels like it's out of control," said the 40-year-old associate professor of psychology at the University of Auckland, who's been looking for a house for more than three years. "I've heard people say it's cheaper to buy in New York than in Auckland. Having lived in New York, that doesn't seem an outrageous claim."

Prices in New Zealand's largest city have already surpassed four of New York's five boroughs with an average of NZ$768,664 (HK$4.78 million) in July, or about US$618,000. While short of Manhattan levels, prices are rising 13 per cent a year. That's why the central bank is set to join counterparts from Sweden to Canada in limiting mortgages. It wants to dampen the market without raising interest rates and denting economic recovery.

Curbing mortgages may not be enough. Rates are the lowest in almost 50 years and there's a shortage of new homes in Auckland and earthquake-ravaged Christchurch, New Zealand's third-largest city. Auckland's growing population and limits imposed on urban sprawl left it with a shortfall of 30,000 homes last year, according to research by ANZ Bank New Zealand.

"The Reserve Bank is treating a symptom rather than the cause," said Luke Malpass, a research fellow at the New Zealand Initiative, which analyses public policy. Limiting lending would "take a bit of heat out of the market in the short term, but in the medium-to-long term it could have some unintended and undesirable consequences".

Reserve Bank Governor Graeme Wheeler said in May he wants to place a "speed limit" on the number of loans banks could make against down-payments of less than 20 per cent of a home's value.

The Organisation for Economic Co-operation and Development said in May that New Zealand's homes were the fourth most overvalued in the developed world, behind only Belgium, Norway and Canada.

While the central bank hasn't yet specified its planned limit for high loan-to-value mortgages, in a June consultation paper it gave 12 per cent of new loans as an example.

The measures could make it harder for first-home buyers like Braun to get a loan. She said she had a deposit of about 10 per cent, and saving to come up with a 20 per cent down payment "would push things a long way into the future".

The lending curbs will "punish people low on equity for the sins of councils and central government", said Malpass, who specialises in research into the housing market. "The real culprit here is a lack of supply."

Across the country, there were only 16,929 residential building permits issued last year, down from 25,590 in 2007.In Auckland, permits have averaged less than 3,800 a year since 2009, while the population has grown by more than 20,000 a year.