Former Reserve Bank Governor: Auckland house prices will crash

What goes up, must come down. Don Brash tells us what we all know, but politicians dare not speak:

Dr Don Brash says house prices in Auckland have to fall if they are to get back to affordable levels but politicians of both the left and right are terrified of saying so.

“I cannot see how indefinitely we can continue in cloud cuckoo land. That’s where we are now.”

Brash said it was impossible to go from the current situation in which Auckland median house prices were 10 times the median household income to a more affordable ratio of three or five without a fall in prices.

“Politicians on the right and left are terrified of spelling out the implications of that.”

Brash, a former Reserve Bank Governor and a former National Party leader, said the house prices in Auckland were a huge problem, both economically and socially.

“People on average wages in Auckland simply cannot remotely aspire to own a house,” he said.

“That is a very damaging situation socially – overcrowding, health problems, people not having enough income after rent or mortgage interests are paid to keep body and soul together.”

And yet it has its parallels in other cities around the world where land supply has been artificially curtailed. Sydney, Toronto and even Queenstown are examples of this. You can’t escape the supply-demand curve. 

Commenting on the public spat between the Government and the Reserve Bank, Brash said the overt disagreement being aired was “a bit unusual”.

Last week Key was annoyed that Deputy Governor Grant Spencer mused aloud about possible further restrictions on residential investor lending instead of just doing it, suggesting it could increase speculative activity to beat the new rules.

Spencer suggested the Government should curb immigration and look at other ways to reduce tax advantages of investing in residential housing.

Finance Minister Bill English hit back at the weekend saying: “The Reserve Bank does not have a detailed understanding of how the tax system or the migration system works.”

Brash said he did not think English had been justified in making that comment.

But he sympathised with Key’s view that signalling further restrictions could increase the level of speculation in the market.He said the Reserve Bank had no statutory responsibility for Auckland house prices or any house prices at all.

Its responsibility was the stability of the financial system and monetary policy.

“I’m told that there really isn’t any risk to the stability of the financial system at this stage, that even if there was a very substantial fall in house prices the banking system would be pretty robust in the face of that.”

Few people buy their first home expecting it to be the home they will die in after spending 35 years paying it off. That’s pretty much what politicians pretend is happening. Most of us didn’t start out in a home that cost us 20 times our annual income, and nobody in Auckland is getting on the property ladder with a million dollar house.

The correction, when it comes, will not hurt people who bought at the lower end but the speculators will take a bath. And so what? Such is the nature of making money. It is spelt RI$K.

Corrections  have happened all over the world, in all markets, and they will happen in Auckland too.   The smart people will have cashed out a few months before it hits, then re-enter the market once the fire sales start.

No matter what happens, skilled investors will make money. Where the problem lies are the idiots who overextended themselves with the help of brainless bankers. They are the ones who will be having a life-changing experience.


– Audrey Young, NZ Herald

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