Westpac bank's chief economist predicts interest rates will remain low for the next two years - but believes there may be ''trouble brewing'' in the New Zealand housing market.
Addressing delegates at the Australia and New Zealand joint Property Institute Conference in Queenstown yesterday, Dominick Stephens said the conservative view of the housing market at present was that there was a ''supply issue''.
In Christchurch, 10,000 homes were destroyed following the Canterbury earthquakes, creating a supply problem. However, elsewhere in New Zealand - particularly in Auckland - other issues were at play, Mr Stephens said.
''In Auckland, between 2008 and 2011 for every house built, or consented to be built, the population increased by seven people ... over a three-year period.
''Under-building has been really chronic in Auckland for a long time.''
Mr Stephens believed low interest rates had been a major contributor to the housing shortage but the Government's proposal to build more houses in Auckland and ''forcing'' the Auckland council to release additional land would not slow house-price inflation.
''It will create more economic confidence, thus creating more economic inflation,'' he said.
''House prices go through the roof, people feel wealthy, they spend more money and we lift interest rates.
''When they go up, I think people will find they paid too much money for houses. You're kind of setting yourself up for a boom-bust.''
Mr Stephens said the Reserve Bank was consulting on its plans to implement new management tools to cool the housing market and he predicted it would look to do it quickly - potentially as soon as August or September.
One of the tools it was looking at was limiting the loan-to-value ratio, which would limit the number of loans banks issued to customers with smaller deposits.
''Thirty percent of all new loans are to people with a 20% deposit or less.
''The loan-to-value ratio is 80%.
''Banks are proposing ... [to] limit that to 12% ... only 12% [of new loans] are to be made to people with small deposits.''
Mr Stephens predicted the Reserve Bank would ''try'' the measures, but house prices would continue to rise, interest rates would eventually increase and there was ''a bit of trouble waiting for us''.
