KEY POINTS:
A parliamentary committee was today urged to tread carefully when making decisions to try and combat the spiralling problem of housing affordability.
Figures presented to the commerce select committee showed the gap between wage earnings and house prices in New Zealand continued to increase and was outstripping other western countries.
However, Westpac chief economist Brendan O'Donovan said he expected the heat to disappear from the market over the next few years and warned the Government against taking drastic measures to try and influence the situation itself.
"Essentially our housing correction is a matter of when, not if," he said.
Mr O'Donovan said he was aware the Government was anxious to ensure home ownership was within reach to all New Zealanders but urged caution in terms of introducing subsidies for new buyers or disincentives for investors.
For every potential solution there were always consequences further down the line, he said.
"Be wary of people coming in with solutions, because there is no one solution, there is no silver bullet."
Mr O'Donovan said the housing market was cyclical and information at hand pointed to prices flattening and wage growth continuing.
"Affordability will not be the issue it is now in four years time."
He said there was a multitude of reasons why house prices had been driven up, including favourable interest rates and tax rules and the growing ease of being able to obtain credit and the flexible terms that went with it.
Other suggestions were myths, including one that investors had been scrambling to buy property.
Mr O'Donovan said only about 8 per cent of home owners had extra properties that were purchased for investments.
Labour MP Shane Jones said it appeared part of issue was New Zealand's infatuation with owning a house and considering it to be a bullet-proof and high return investment.
* Figures sourced by Westpac show household debt in relation to disposable income rose steadily from about 50 per cent in 1990 to 180 per cent in 2006.
* Relative house prices in New Zealand have over the past several years outstripped Australia, Britain and the United States.
* Affordability is over 40 per cent lower now than the historic average.
* Since 2001 house prices in relation to income generated have increased by 45 per cent.
* While house values have increased dramatically around most of the country, it has led to a decline in comparable rental yields. Figures show rental yields on residential property have dropped from about 7 per cent per annum in 1998 to just over 3 per cent now.
* An international survey of home ownership rates shows New Zealand is about on a par with average rates in eight other western countries. New Zealand had a 68 per cent ownership rate between 2000 and 2003, compared to Ireland (80 per cent), Germany (40 per cent), Britain (68 per cent), Australia (71 per cent) and the United States (68 per cent).
- NZPA
