Correction unlikely: Property Council

Reserve Bank governor Graeme Wheeler warned yesterday that there was a risk of a price drop: “The more that house prices get out of line with historic relativities, the greater the risk of a sharp correction, leading to financial instability.”

He said house prices in Auckland and Christchurch were two of the main risks to the economy.

But Property Institute chief executive Ashley Church said Wheeler’s warning was not backed by evidence.

He said Auckland's property boom was being driven by demand for an additional 39,000 homes and would not stop until that demand was met. "On current projections, that will take at least three more years, and possibly longer."

He said there had been only two sharp corrections in the New Zealand property market since the 1970s. "The first, in the mid 70s, was the result of New Zealand losing access to the British export market and a dramatic increase in oil prices. The second, at the time of the GFC, was the result of a major hit to the world economy – and even then the fall was only around 5% - following a boom in which house prices had more than doubled."

Auckland house prices tended to settle, not drop, at the end of each boom, Church said. "This current boom is far more likely to end with a whimper rather than a fall, only to start rising when the next boom hits four or five years later. People need to remember that Mr Wheeler is tasked with keeping inflation under control and that his comments should be understood in that context. His job is always going to be to dampen the market and that’s what he was attempting to do yesterday."

Church said, short of a global economic crash, property owners could be reasonably confident.