KEY POINTS:
The BNZ has warned the Government against trying to bring house prices down just when the market is already in a slump.
As the Government yesterday hinted at stepping up its affordable housing plans, the bank warned that the move could increase supply at the wrong moment.
The bank said in a report that houses were 30 per cent overvalued and warned that prices risked falling by more than the 10 per cent it had already presumed for this year.
A correction was inevitable and would be painful for many people but good for the economy.
"But let's also bear in mind the good news, in that many potential homeowners, long squeezed out of the market, stand to be big benefactors."
The BNZ also warned that a glut of unsold homes occurred in some states in the US because of a massive overbuild, which contributed to triggering the sub-prime debacle.
"We need to be careful about encouraging too much of a supply response just at the wrong time."
The Government unveiled over Easter efforts to quicken building consent processes in an effort to address housing supply problems, and other measures are also being signalled.
Yesterday, Housing Minister Maryan Street told her National Party rivals to "watch this space" on housing affordability, and National has elevated the issue as it seeks to lay some of the blame for affordability problems at the feet of Labour.
Ms Street last night said she wanted more time to consider the BNZ report before commenting on it, while National's finance spokesman, Bill English, said changes still needed to be made regardless of the price cycle.
"It's got a long way to go before young people can afford to get into housing," Mr English said.
"Some of the issues are important regardless of the price cycle - things like the Building Act, and the impact of the Resource Management Act on the cost of housing, are long-run issues that we need to resolve anyway."
Kieran Trass, property investor and founder of Suburbwatch, said the BNZ had "hit the nail on the head" with its observations. He said the market appeared to be "crashing down".
- ADDITIONAL REPORTING BY NZPA
