House prices could plunge 11pc

Finally, some good news for home buyers. House prices may begin a marked fall from later next year as the building of homes picks up the pace, an economics research firm says.

Infometrics is forecasting home building consents to hit record levels by 2018, resulting in an 11 per cent fall in house prices over a two-year period from September next year.

Chief forecaster Gareth Kiernan says that’s based on what he expects will be a 39 per cent increase in the number of new dwelling consents over the next two years, taking consents to an all-time record high of 40,044 a year.

The growth would be driven by Auckland’s massive undersupply of housing, but ‘‘such a sharp lift in building activity will not come without side-effects’’.

He said there would be intense pressure on construction sector resources such as staff and materials, which would push up building costs much as 5.2 per cent a year for the next three years to March 2019.

Kiernan described the costs as ‘‘a necessary evil that will encourage the flow of more resources into building sector’’. ‘‘But even with these additional incentives, we see a risk that activity will struggle to expand to the extent that we are predicting, which would further exacerbate cost pressures.’’

With Auckland needing as many as 32,000 dwellings, Kiernan said he was not suggesting the region’s housing shortage would be rectified in the short-term.

‘‘However, if building activity hits the levels we are predicting then there could eventually be some softening to house prices in Auckland and regional property markets in the ‘halo’ around Auckland’’

Kiernan also said the Reserve Bank’s moves last week to ramp up lending restrictions to investors and low-deposit households were ‘‘merely a sticking plaster on demand’’ and would likely, unintentionally, shut some first home buyers out of the market.

‘‘There may be some short-term dampening effects on the housing market from such a policy, but ultimately lifting housing supply is the only way to get lasting improvements to home affordability.’’