5. 00AM Friday May 04, 2007By Claire Trevett
An economist has warned politicians against quick-fix solutions to the housing price boom, saying first home buyers should look to other countries and earlier generations who faced similar problems.
Westpac chief economist Brendan O'Donovan said New Zealand did not need to panic - affordability was still better than in the 1980s and home ownership rates were the same as in the 1960s.
Briefing the commerce select committee's inquiry into housing affordability, Mr O'Donovan said New Zealand had been through the "granddaddy of all housing booms", but it had been in similar places before.
"Prices will tend to flat-line. Wage growth will continue and as inflation abates, interest rates will tend to come down. All these things have been completely against affordability but they will change. In four years, affordability will not be the issue it is now."
He said it was too early for panic over declining home ownership rates.
The rate was about 67 per cent - down from 74 per cent in 1991, but about the same as in the 1960s and similar to the rates in other countries.
Affordability was 42 per cent lower than average, but not quite as bad as the 1980s.
"So we've been here before. It doesn't make it more comfortable, but it shows it's cyclical. These things tend to adjust by themselves."
But today's first home buyers were different to previous generations who had waited and "would sit on beer crates" rather than buying the latest technology.
"They're the Freddie Mercury generation: I want it all, and I want it now."
He said any Government initiatives to help first home buyers, such as income supplements or subsidies, would help individuals in the short term, but there was little it could do to have a large effect on affordability.
He asked the committee to analyse the effect of any solutions it came up with very carefully.
"Every solution has an unintended consequence, in this area more than any other because of interrelated factors."
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