NZ's record breaking overvalued property

Posted by admin on September 8, 2014

Housing in New Zealand among the most overvalued in the world. A leading British publication has warned property prices in New Zealand, particularly in Auckland and Christchurch, are dangerously overvalued.

The Economist last week released a house price index in 23 of the world’s leading economies. Of those 23 countries New Zealand was third, behind Hong Kong and Canada, as having the most overvalued housing.

The Economist reported they used two yardsticks to measure property: One was affordability, measured by the ratio of prices to income per person after tax.

The other was the case for investing in housing, based on the ratio of house prices to rents.  

If these gauges were higher than their historical averages then property was deemed overvalued; if they were lower, it is was undervalued.

“Based on an average of these measures, houses are at least 25% overvalued in nine countries. Judged by rents, the most glaring examples are in Hong Kong, Canada and New Zealand. The overshoot in these economies and others bears an unhappy resemblance to the situation that prevailed in America at the height of its boom, just before the financial crisis” The Economist reported.

Demographia Housing Affordability Survey co-author Hugh Pavletich told Fairfax News the survey was yet another measure showing New Zealand's houses were overpriced.

"Housing should not exceed three times household incomes but overall in New Zealand it's 5.5 times incomes, while in Christchurch it's six times and in Auckland it's eight," he said.

"Another measure is total housing stock value to GDP, which should not really exceed 1.2 times, where it is in the USA. In New Zealand it is 3.3 times."