There are 10 implications of a slowing housing market, writes Peter Lyons.

This Government seems intent on cementing the slowdown in house price inflation. Policies such as bans on foreign buyers, Kiwibuild and reduced immigration are just some of the factors that will adversely affect the housing market.

It is worth considering the likely implications of a stagnant or declining housing market. It is becoming obvious that the heady days are over. Here are some of the possible implications:

1. Econominists refer to a factor called the ''wealth effect'' created by rising house prices. As house prices rise, people feel wealthier. They often borrow and spend more. They tap into their new-found equity because they feel richer. They buy new kitchens, cars and spa pools. They borrow and spend on renovations and overseas holidays. A decline in housing inflation is likely to lead to a decline in retail spending as this wealth effect evaporates.

2. The end of the housing boom is likely to expose an unpleasant truth. We are a relatively low-income developed economy with a high cost of living. Housing inflation has helped disguise this truth in recent years. People have been willing to overlook the lack of growth in their pay packets as their houses have increased in value. This is the likely reason why the previous government was unwilling to collect meaningful data on the effects of overseas buyers on the market.

3. It will take some time for the expectations of continuous capital gains on residential property to be truly shaken and finally disabused. Some property investors will then recognise that the yields they are receiving on their rental properties in areas such as Auckland are very sickly.

4. A widespread realisation that continued capital gains on residential property are not a certainty can create further market weakness as some investors head for the exit, further depressing prices. Those who piled in last are likely to be the first to leave.

5. An early sign of a slackening in the property market is a dramatic fall in sales volume. This is already occurring.

6. A further sign is a fall in the number of real estate agents. Another sign is a proliferation of ''for sale'' signs on properties and a decline in auction clearance rates. This is also starting to occur.

7. The final sign is the welcome end of ''renovation and resell'' programmes being screened on television.

8. A stagnant or declining housing market also further reduces the willingness of banks to lend on residential property. Bank lending tends to magnify the booms and amplify the slumps in asset markets such as property. The availability of bank credit has been a key factor in most economic booms and slumps in modern capitalism. Banks are vivacious cheerleaders when the party is in full swing. But they can be righteous undertakers when the party ends.

9. A decline in house price inflation is likely to cause investors to seek better returns elsewhere. Our sharemarket is already well-priced after years of ultra-low interest rates as a result of the last credit splurge. Recent history suggests a decline in one bubble can often lead to the emergence of another. There is an interesting irony in all of this. These ultra-low interest rates are due to expansionary monetary policy which is a legacy of the global financial crisis. The GFC was largely the result of unwise lending practices. So people have been encouraged to borrow more to get us out of the mess created by unwise borrowing. That makes sense?

10. A moribund or stagnating housing market is likely to weigh heavily on the wider economy in terms of output and employment. It exposes the reality that no country in history has become wealthy off housing inflation. As this reality sinks in this Government is likely to cop the blame. But we have been living in fantasy land for a long time and many of us knew it. We just choose to ignore it.

-Peter Lyons teaches economics at St Peter's College in Epsom and has written several economic texts.