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Auckland nears housing boom: Alexander


Auckland’s housing market is shifting into boom territory, helped along by investors who are dissatisfied with the returns they are getting on bank deposits, BNZ chief economist Tony Alexander says.

His latest weekly overview points out that many recent data releases have been weaker than expected: People are still controlling their spending and job numbers are falling.

He says the likelihood of an official cash rate cut has risen, but is still not very high, partly because the Reserve Bank does not want to push even more investors into the Auckland housing market.

“The housing market is rising already and will become a source of inflationary pressure from next year, so cutting rates now and encouraging even more aging investors to quit low-yielding bank deposits for residential property investment vehicles will not only hasten and enlarge the housing boom-bust but eventually destroy the wealth of many unsophisticated and unlucky people.”

Inflation is also likely to rise when construction spending accelerates.

"We all know that just around the corner lies an inflationary surge in construction spending associated with the rebuilding of Christchurch, catch-up house construction in Auckland, infrastructure activity, water-tightness corrective work and earthquake strengthening.”

He said the negative employment and household spending data did reinforce that while the next change in the OCR is likely to see it rise, that would likely not be until 2014.

Source: Landlords.co.nz