Housing boom and bust

Since 1970 there has been a pattern of pronounced cycles every seven or eight years.

"This doesn't mean you are guaranteed a big housing boom every eight years but it is what has happened over the past 35 years," says Westpac chief economist Brendan O'Donovan.

When demand climbs for whatever reason - a surge in migration, perhaps, or low interest rates - supply cannot respond quickly because of the time it takes to get consents and then to do the building, especially when skilled labour is in short supply.

Prices accelerate sharply, over two or three years. That creates its own momentum and pulls in speculators.

But when the supply-demand balance tips and boom turns to bust, house price inflation falls away just as rapidly.

Not to the point that average house prices fall, however, at least not very much or for very long. There were mild (less than 5 per cent) declines in house prices in 1991, 1998 and 2000.

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