The boss of one of New Zealand's biggest funds management businesses says house prices here could fall as much as 25 per cent.
Brian Gaynor, executive director of Shortland St-based Milford Asset Management who writes a column in Weekend Business told interest.co.nz's Gareth Vaughan that a big correction could be in store.
"Property's hard to pick. There's no question about it there's massive momentum to the property market. The way that the property market normally runs out of steam is a big increase in supply. The supply doesn't look like it's coming this year. So I can see housing going even higher.
"But it is a major medium term concern because there's no question in my mind at some stage, and I don't know when, the property market will come back. And it will come back 10, 15, 20 or even 25 per cent and that will have a really devastating impact upon the New Zealand economy because of the high level of debt. Will it be this year? Probably not, but it could be. Will it be next year? I'm not sure. It could be two or three years time but it will happen at some stage.
"Asset prices don't keep on going up year after year although most New Zealand investors believe that they do."
More house building and Australian economic improvements could tip the balance.
"It's supply. It's a big increase in supply and a big upturn in the Australian economy. When all of a sudden Australia does better you get people leaving, going to Australia and you get less New Zealanders coming back here, and at the same time there's a big increase in supply. Supply is normally the major thing that kills it and we're not getting the supply this year, and particularly in Auckland we're not getting anything like it.
"There's talk about the amount of houses we need to build but we're not building them. A lot of the companies are very cautious. They're finding it difficult to make money building houses because although prices are high the cost of materials and the cost of labour, (is also high).
"If you look at the Trade Me latest job ads there's a huge amount of ads for people in the construction industry and property industry. It's a sign that the big companies just can't find the skilled people to work on these projects, and when they do get them they're having to pay them very high wages."
By Anne Gibson of the New Zealand Herald
