27 May 2013

Prediction house prices will rise for another three years

7:04 am on 27 May 2013

Bank of New Zealand chief economist Tony Alexander believes house prices will continue to rise for at least another three years.

House prices, particularly in Auckland, have reached record levels which is of increasing concern to the Reserve Bank.

Mr Alexander said future price rises will be driven by more people immigrating to New Zealand, and more expensive building costs.

Nationwide house construction costs have increased by about 3.1% in the last year when inflation has been just 0.9%.

Mr Alexander said there is a reasonably firm correlation between increases in construction activity and construction costs eventually rising 10 - 15% in a year.

He said the cost of house construction will go up even before considering factors such as increased insulation, watertightness, earthquake strengthening and the major building programme that will take place in Christchurch.

Mr Alexander said New Zealand had a net migration loss of 4000 people a year ago, but now it's gained about 4500 people.

"When you look at the most recent months they suggest we're heading towards 15,000 plus per annum in fact the peaks in the past have been much higher than that."

Mr Alexander said most of those migrants will go to Auckland which is where the pressure will be the greatest but he believes the Auckland property price gains as a result of that will starting spreading to other parts of the country later this year.

He said momentum in the housing market is likely to continue for at least three years.