Editorial: House prices alarm

GETTING IN: Prime Rentals principal Steve Warburton says there has been an overwhelming number of rental applications over a short period of time.

An international housing survey has rated house prices in Tauranga the second most unaffordable in the country behind Auckland.

According to the study, affordable homes should cost no more than two to three times the median income.

In Tauranga, the median house price of $364,800 was 6.6 times the median income.

The median has since risen to now $403,000 according to figures released by the Real Estate Instute of New Zealand, yesterday.

Study co-author Hugh Pavletich this week said the country was facing a property bubble, and prices would need to fall dramatically in order for homes to become affordable.

That meant there was a risk to the economy as a result of the mortgage debt needed to fuel the bubble, something the Reserve Bank had made clear during the past few years.

The Government was addressing the issue by entering into housing accords with major councils (including Tauranga) but the process needs to be quicker, according to Mr Pavletich.

The Property Investors' Federation has questioned the methodology used in the survey because it ignores interest rates. It acknowledges property is unaffordable but says this is due to, among other things, New Zealanders' taste for big houses which cost more.

Interest rates do not, however, explain why the Western Bay is more expensive than other areas in the country.

It is not difficult to see why many potential first home buyers are struggling to raise the 20 per cent deposit needed to buy a home since the Reserve Bank's lending restrictions were introduced.

As reported in the Bay of Plenty Times Weekend this is now placing pressure on the rental market because the restrictions are forcing people to rent longer. The restrictions were needed to take some heat out of the market and, perhaps, prospective home buyers may need to lower their expectations.

However, the Government must also act to reduce the growing gap between income and house prices.

Kiwis should be able to buy their own home without taking on overwhelming, life-long debt in the process.