New Zealand House Prices World's 'Most Overpriced' Among Developed Nations
By Reissa Su | May 19, 2014 4:24 PM EST
New Zealand's housing market inflation was declared by the Organisation for Economic Co-operation and Development as the second highest in the developed world in its latest published report. The OECD has ranked New Zealand's housing prices based on a price-to-income ratio.
Although U.S. home prices inched up in April and new home sales rose to a two-year high in May, the national housing market remains uneven and weak, said a New York-based developer.
On a price-to-rent ratio, the OECD found the country to be the "most overpriced." New Zealand Prime Minister John Key has downplayed the latest information which found the nation's house prices to be 70 per cent higher than other countries in terms of rent.
The Labour party pointed out that New Zealand is experiencing a housing crisis, but Mr Key denied the allegation. He said a combination of factors was driving New Zealand's housing market. He cited buoyancy in the overall economy and high levels of employment which motivate people to check "go into the housing market."
The prime minister believes the housing boom will not slow down. Referring to the budget, he expects strong growth from the housing sector in the coming years. Mr Key attempted to divert the attention to the increase in house prices by 96 per cent between 1999 and 2008 under the previous Labour-run government.
Mr Key mentioned Auckland to have housing prices lower than in London and Sydney. According to the OECD, New Zealand's house prices have an annual increase of 8.2 per cent while Australia and the United States followed both with 6.6 per cent. Canada ranked fourth with 5.2 per cent, while Germany is in fifth with a 5.1 annual increase.
Phil Twyford, Labour's Housing spokesperson, said the OECD report is "authorative" and suggests New Zealand is under a real housing crisis. Based on the government's budget, it will cost an average person with an average wage about 49 per cent of his salary to afford service for an average mortgage. My Twyford said this will only increase in the coming years.
Twyford and Housing Minister Nick Smith believe it will reach 63 per cent in five years with Auckland to have 86 per cent for the average wage to service the average mortgage.
House prices rose 8.4 per cent, according to the New Zealand government agency Quotable Value. The Reserve Bank of New Zealand has raised interest rates twice. To slow down the housing market, the RBNZ has also introduced a limit on loan-to-value on high debt lending.
Despite the struggle to control house prices, New Zealand's growth forecasts in the past six months continue to increase due to strong exports, post-earthquake reconstruction and export growth. According to reports, New Zealand's house prices continue to increase and have reached a new record-high in April. The sharp rise for the third consecutive time has led to a drop in the number of houses sold.
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