Thursday, 1 August 2013

Our house prices as seen by the OECD

I must have missed it at the time - the OECD's latest Economic Outlook came out on May 29 and I've only just come across a reference to one of its findings in the UK's Telegraph - but the latest Outlook had an interesting analysis (Table 1.4, p24) of where real house prices (nominal house prices deflated by the private consumption deflator) have got to across the OECD.
The graph below shows how far away current real house prices are from two long-term (since 1980) trend perspectives - the price-to-rent ratio and the price-to-income ratio.


On either measure, New Zealand does not show to advantage.
I've been a bit sceptical in some previous posts about the necessity for reining in the banks' housing lending, mainly because the credit growth statistics aren't showing a blowout in the pace of lending and because high house prices in Auckland have felt, to me, more of a reflection of the local supply and demand dynamics rather than a symptom of over-lax monetary policy.
These figures, however, would give anyone second thoughts. They don't rule out my previous idea, that it's mostly strong demand in a strengthening economy hitting tight supply, but when you see us like this, well out on the left-hand edge of the developed world with unusually expensive house prices, you begin to have rather more sympathy for moves to curtail high loan-to-value-ratio lending.

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