OECD has house price warning for NZ

Rapidly rising house prices and high levels of household debt are a risk to New Zealand’s financial stability, an Organisation for Economic Cooperation and Development report says.

In a biennial report on the health of the nation, the OECD has echoed warnings from the Reserve Bank that Auckland’s super heated housing market is a risk to the economy.

Read the full report here.

It urges the government to increase housing supply in Auckland and invest more in infrastructure and public transport.

The organisation’s 2015 Economic Survey of New Zealand says Auckland and Wellington are the second and third most congested cities in Australasia, behind Sydney.

In Auckland alone, the city’s congestion is estimated to cost $1.25 billion a year in lost productivity.

Senior economist responsible for the report David Carey told Morning Report more motorways as well as urban roads should be tolled.

“Congestion charging should be introduced and that would reduce the demand in peak time for traffic and then there should be more provision of road infrastructure and also public transport.”

House prices have risen markedly over the past few years and, relative to long-run averages, are high relative to income and rents by OECD standards, the report said.

The largest increases had been in Auckland, where housing affordability was poor by historical standards, despite relatively low interest rates.

In addition, house price appreciation has boosted household debt to high levels relative to incomes

“Housing poses some risks to the otherwise sound financial sector,” the report said.

Inequality

While New Zealand is doing well compared to many other countries, there are inequalities in living standards and wages are low.

The government should do more to stem the rise in poverty and inequality in New Zealand, the report says.

Greater focus is needed on improving the lives of the most disadvantaged, particularly children from low income families.

The OECD says the economic reforms in the 1980s and 1990s are still being felt.

Lower and middle income families suffering the most, due in part to higher than average unequal employment prospects and shortage of affordable housing for low-income families.