NZ economy faces risks from rising home prices, trade tensions — OECD

WELLINGTON — The Organization for Economic Cooperation and Development (OECD) said on Tuesday that soaring house prices and global trade tensions are some of the key risks facing New Zealand’s economy.

New Zealand’s house prices have soared more than 50% over the past decade, and almost doubled in its biggest city, Auckland, raising concerns that high mortgage debt could pose a systemic risk if the market turns down sharply.

The OECD bi-annual survey released on Tuesday said the main domestic risk for New Zealand was a housing market correction.

“The effects of a contraction would be magnified by the elevated household debt levels resulting from sustained house price increases,” the report said.

Real house prices have soared and are much higher than other OECD countries such as Canada and Australia, the survey showed.

New Zealand’s center-left government, which took office in 2017, has taken some measures to improve housing supply including a new government project to build affordable housing, called KiwiBuild.

But tight regulations have disrupted building activity, which has constrained the supply of new housing, the survey said.

“In housing, the new Urban Development Authority will cut through red tape to increase housing supply,” Finance Minister Grant Robertson said in response to the findings of the survey.

The report also said rising trade restrictions internationally could have “substantial negative repercussions” for New Zealand as a small open economy highly exposed to international commodity prices.

New Zealand has expressed concerns over the growing USChina trade tensions and was flagged as one reason for the central bank’s interest rate cut in May.

Growth has slowed from the high rates recorded in 2015 and 2016 to around 2.5%, just under OECD’s estimates of potential growth, it said, while private consumption growth has softened as immigration fell from its peak.

Low business confidence has contributed to weak business investment, despite capacity constraints, it added. —