Auckland's property market has been running hot. Picture / Doug Sherring.
Auckland's property market has been running hot. Picture / Doug Sherring.

Housing bust warning for NZ, Australia

New Zealand's housing market has a 40 per cent chance of going bust in the next two years, according to global investment bank Goldman Sachs.

In a research note published this week Goldman says the New Zealand's housing market is the most over-valued amongst the G-10 group of developed economies, Bloomberg reports.

Goldman, Bloomberg said, defines bust as house prices falling five percent or more after adjustment for inflation.

Bloomberg reports that Goldman looked at housing markets in the G-10 countries -those with the 10 most-traded currencies in the world - and finds they are most elevated in small, open economies such as New Zealand, where house prices have rocketed in recent years.

Goldman compares house-price levels across economies using three standard metrics: the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation.

"Using an average of these measures, house prices in New Zealand appear the most over-valued, followed by Canada, Sweden, Australia and Norway," it said.

"According to the model, the probability of a housing bust over the next five to eight quarters is the highest in Sweden and New Zealand at 35 to 40 percent."

While Sweden's risk, according to Goldman, is just above 35 per cent. The risk of a bust in Australia is about 25 per cent.

Labour housing spokesman Phil Twyford said a housing bust could be just as bad as skyrocketing prices.

He said the warning highlighted the consequences of nine years of housing neglect by the Government.

"A housing bust would see a slow-down in house construction. When only half the houses Auckland need are being built at the moment, a slow-down would be a disaster," he said.

"The resulting job losses and reduction in household confidence would ripple through the wider economy."


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