Economists in New Zealand have expressed alarm at a housing market boom which could soon see average prices of property in the country’s largest city pass the $1m mark.



In Auckland, the cost of an average domestic property has risen from $550,000 during the last property boom in 2007 to nearly $810,000 now. House prices increased at a rate of 14% last year, while the rest of the country’s index remained stable.



Some houses are increasing in value by $1,000 every day while 36 suburbs in the city now have an average house value of $1m or more. And at current rates the whole city’s average will be $1m within a year-and-a-half.



The National government has in part recognised the boom and taken action for the first time to tackle what many believe is a housing crisis.



It announced a multimillion dollar development plan to build affordable homes, a move added to a previously announced tax on property speculators.



But some economists believe more needs to be done, and while growth is expected to slow, that will merely move the $1m mark back a month or two.



Small, one–bedroom apartments are selling for $800,000 and delapidated wrecks in barely desirable suburbs are fetching more than $1m.



Senior research analyst Nick Goodall of property analytics company CoreLogic said: “It is inevitable the average price in Auckland will be $1m.”



In the past 15 years housing has seen a phenomenal investment in Auckland, as huge demand and limited supply has increased prices at record levels.



Expensive land, and restrictions on building new and denser housing, has seen limited new stock come on the market. And a strong economy, record net migration, especially to Auckland, and banks happy to lend money in a market with significant capital gains, has seen people paying over the top of each other.



“The narrative goes because it has been good in the last 10 or 15 years, it must be good forever,” said Shamubeel Eaqub, principal economist at the Institute of Economic Research.



But it is impossible for this to continue, he says.



“Auckland is in a massive bubble.”



New Zealand is unique in the OECD, where Auckland is the country’s only major city.



And the city’s housing market is effectively holding the country’s economy to ransom: restricting interest rates, exchange rates, and limiting exports and business investments, according to Eaqub. And it is also having “caustic” social effects as the Kiwi dream of home ownership evaporates in Auckland.



The rampant growth in the past two years has made homes unaffordable for first home buyers in Auckland, according to an affordability report by AMP 360.



The growing inaccessibility of home ownership is also increasing inequality, according to Eaqub.



“It is telling the story of disconnect and resignation by younger generations that are falling further and further behind, and we are sowing the seed of inequality between generations that will grow more and more,” he said.



The savage competition in the market has also been blamed for growing xenophobic and anti–Asian attitudes. Although foreign buyer data is limited, Eaqub estimates about 8% of the Auckland market are identifiable cash buyers and likely to be foreigners, while investors are 45%.



In last week’s budget the government announced a $52m investment in the development of 500 hectares of state land in Auckland. The government had earlier revealed a tax on property speculators who sell houses within two years, and required foreign buyers to have a New Zealand bank account and tax number.



This is coupled with new Reserve Bank rules, specifically targeting Auckland property investors, requiring them to have a 30% deposit.



These are small steps in the right direction to signal the “sacred cow” of property investors are finally being targeted for their role in the housing crisis.



“Whenever we have conversations about Auckland, you can’t say it has been driven up by investors. It was foreigners, it was everybody else, but it wasn’t investors. Yet when we look at the numbers the majority who are the biggest group who buy and trade houses are people who own many properties,” said Eaqub.

