Now we have talked about this before. Structural factors have prevented developers and builders from getting funding (go credit rationing) which has lead to a collapse in house building activity. However, a fall off in building will help to support prices by making property more scarce.
In the short term the recent drop in residential building will prevent a free-fall in prices. The question then is, how many of these structural factors are temporary (credit rationing) and how many are permanent (constraints on land use, RMA?)?
If we only have temporary factors keeping down building then we can expect a sharp decline in prices once this has worked through the system and the “undersupply” has been dealt with. If there are structural factors (which National and Labour both believed) then there will be some support to prices until these factors are dealt with.
Another thing I would point out. There is a feeling out there that house price falls=bad, greater housing affordability=good. However, house price falls=greater housing affordability – so unless bad=good I think this is a factor we have to keep in mind when discussing the housing market …