New Zealand's excessive house prices are confined to Auckland and Christchurch, says a New Zealand economist.
Commenting on an international report published over the weekend that rated New Zealand's housing market the most overvalued in the world, Shamubeel Eaqub, chief economist of the New Zealand Institute of Economic Research, said smaller regional centres were close to fair value based on rents and incomes.
"If you take a regional view we've had a bust in most parts of New Zealand," he said.
"It's only really Auckland and Christchurch that have risen from the peaks in 2007."
He said figures from the Organisation for Economic Co-operation and Development (OECD) showing house prices out of kilter with rents supported his view that price rises were not being driven by a physical shortage of housing.
Eaqub said New Zealand's strong net migration, running at almost 32,000 people a year, might not put as much pressure on the housing market as some pundits were predicting.
"If you look at Australia, the reason net migration has turned around is not just because people are coming back but because so few are going over," he said.
"That spreads the population growth throughout New Zealand, not just in Auckland. It will be more widely diffused than if it was because of immigration."
The OECD's latest Economic Outlook report found New Zealand house prices were 70 per cent overvalued on its price-to-rent ratio, the biggest gap between rents and prices out of the 31 countries surveyed.
New Zealand narrowly beat Canada which was 66 per cent overvalued and Norway (64 per cent).
Strategic Risk Analysis managing director Rodney Dickens said house prices had tracked rents in New Zealand until about 2003, when a "yawning gap" opened between the two.
"On the price side the key issue is we are paying for 'smart growth' policies pursued by councils over the last decade or more," Dickens said.
"The biggest thing that's changed has been section prices, which have had a dramatically bigger change compared to building costs."
It was not clear why rents had not kept up, unlike during the 1990s when both rents and house prices increased rapidly.
"Maybe it's an income constraint - incomes haven't grown enough," he said.
"If that's the case it places even more emphasis on the housing affordability issue."
New Zealand homes were also found to be over-valued by 32 per cent compared to incomes, second only to Belgium where prices were 47 per cent higher than expected based on the long-term average.
To make matters worse for would-be homebuyers, New Zealand also had the fastest rate of growth in house prices in 2013 at 8.5 per cent.
Greece and Spain had the biggest price falls, down 12.6 per cent and 11.1 per cent respectively.
Australian house prices were also high, at 45 per cent overvalued compared to rents and 28 per cent compared to incomes, although house prices increased only 3.8 per cent in 2013.
The International Monetary Fund and the Reserve Bank of New Zealand have previously warned about the risks to New Zealand's economy from high house prices, particularly in Auckland and Christchurch.
- Fairfax Media