Property

Kiwi houses too expensive: IMF

New Zealand houses are overvalued by as much as 25%, the International Monetary Fund has said in its annual economic assessment of the country.

Wednesday, May 15th 2013

It suggested the Reserve Bank would need to raise interest rates if house price rises and credit expansion continued, but said it was comfortable with current monetary policy.

In previous years, the IMF had said house prices were 10% to 20% overvalued.

This year, it said house prices were a primary issue for New Zealand and could “lead to an increase in debt-financed household spending which would put pressure on aggregate demand and increase the risk of an abrupt price correction.”

It noted that price-to-income ratios are 20% higher than the average of the past three decades. Price-to-rent ratios show an even larger overvaluation, although the IMF noted that that was distorted by the large number of houses supplied by the Government.

Population growth, low housing investment, supply constraints, low interest rates and high building costs were driving values, the IMF said.

"New Zealand has one of the highest rates of growth for working age population among OECD countries—over the last 30 years New Zealand has experienced population growth well above the OECD mean."

It said not enough new housing was being built.

"Housing investment fell sharply in the wake of the global crisis and has been below 4% of GDP in the last five years, the lowest level in 40 years and relatively low when compared to other countries."

It noted that the cost of building was a lot higher than in Australia and industry productivity was flat-lining.

The IMF raised its assessment of the potential for a sharp fall in house prices to "low to medium", from "low" previously. Such an event would have a medium to high impact on the economy by reducing household investment and increasing mortgage defaults.

Directors agreed that the current accommodative monetary policy stance was appropriate.

Comments

No comments yet

Most Read

Unity First Home Buyer special 4.29
SBS FirstHome Combo 4.29
Co-operative Bank - First Home Special 4.85
China Construction Bank 4.85
ICBC 4.85
TSB Special 4.89
Kiwibank Special 4.89
ASB Bank 4.89
SBS Bank Special 4.89
Westpac Special 4.89
BNZ - Std 4.89
Nelson Building Society 4.93
ICBC 4.95
SBS Bank Special 4.95
China Construction Bank 4.95
Wairarapa Building Society 4.95
TSB Special 4.95
ANZ Special 4.95
ASB Bank 4.95
Kainga Ora 4.95
Westpac Special 4.95
AIA - Go Home Loans 4.95
SBS Bank Special 5.39
Westpac Special 5.39
ICBC 5.39
Co-operative Bank - Owner Occ 5.59
BNZ - Std 5.59
BNZ - Classic 5.59
AIA - Go Home Loans 5.59
ASB Bank 5.59
Kainga Ora 5.69
Kiwibank Special 5.79
ANZ 5.79
SBS Construction lending for FHB 3.94
AIA - Back My Build 4.44
CFML 321 Loans 4.99
Co-operative Bank - Owner Occ 5.95
Co-operative Bank - Standard 5.95
Heartland Bank - Online 5.99
Pepper Money Prime 6.29
Kiwibank - Offset 6.35
Kiwibank 6.35
TSB Special 6.39
Kainga Ora 6.44

More Stories

Four decades of 6-7% yearly house price growth ending

Friday, March 21st 2025

Four decades of 6-7% yearly house price growth ending

New Zealander’s reliance on property capital gains in the mid-single digits is at an end.

[TMM Podcast] Yelsa serves up “marine reserve” of property buyers

Friday, January 31st 2025

[TMM Podcast] Yelsa serves up “marine reserve” of property buyers

It’s been years in the making and former real estate agent Mike Harvey is now coming to market with his platform matching buyers and sellers, an offering he says will be a gamechanger for the industry.

Leaving last year's stumbling housing market behind

Friday, January 17th 2025

Leaving last year's stumbling housing market behind

As interest rates ease and job losses climb, New Zealand’s housing market faces a mixed year of modest growth, with conflicting forces shaping the outlook for homebuyers and investors.

Don’t bet on house prices rising faster than incomes

Wednesday, January 15th 2025

Don’t bet on house prices rising faster than incomes

Former Reserve Bank Governor and National Party leader Don Brash says there are grounds for believing that house prices may finally have ended the three-decade period when they rose significantly faster than incomes.