, represents a risk to financial and economic stability. irrespective of the mix of demand and supply - based factors, the longer excess demand persists, the further prices will depart from their underlying fundamental determinants and the greater the potential for a disruptive correction. new zealand ’ s house prices, when compared to incomes or rents, are high on an international basis and very high when compared to new zealand ’ s historic trend. figure 5. 1 shows that new zealand ’ s house price - to - income ratio in 2013 was 30 percent above its historical average. only norway had a higher historical deviation. including resource consent for a development master plan, applications for plan variations, engineering approvals for civil works and associated resource consents, survey plan approvals, and the approval of individual land titles. auckland council ( 2014 ). bis central bankers ’ speeches figure 5. 1 : international house price - to - income ratios ( deviation from historical average, 2013 ) source : oecd auckland house prices are particularly stretched, having increased by three times since the start of 2002. this stretch is emphasised by the recent demographia affordability survey that shows auckland to be the ninth least affordable city out of 86 major metropolitan areas ( population over 1 million ) 11. in september 2014, the median auckland house sale price was 8. 2 times the median household income, compared to a survey median ratio of 3. 8. nationally, new zealand ’ s median house price - to - income ratio is about 5. 0. new zealand is one of the few advanced economies that has not had a major house price correction in the past 45 years. during this period, most of the advanced economies have had at least one significant house price correction that has created difficult challenges for financial and economic stability. several countries saw 20 percent plus house price declines in the gfc, including the us, ireland, spain, greece and the netherlands. a correction in house prices in new zealand could be prompted by a range of potential shocks to the economy or financial system. global interest rates are at record low levels and large mortgages have been “ affordable ” at these rates. as global interest rates return to more normal levels, many mortgage borrowers could come under pressure as they are required to refinance at higher rates. alternatively, a downturn in the global economy and financial markets could lead to a drop in national income and rising unemployment, at the same time as foreign creditors are requiring an increase in the interest rate

to house price pressures. this is true for most regions, but is most pronounced in auckland where current inventory would be exhausted in only 12 weeks at the current level of sales. consistent with this, annual house price inflation in auckland has been increasing, reaching nearly 17 percent in march. house price inflation has remained more moderate elsewhere, although price levels remain stretched in most regions. what has caused this resurgence in the housing market? the answer is not straightforward. several demand and supply factors are at play. population growth over the past year has contributed to increased demand for housing. net permanent and long - term ( plt ) migration inflows reached a record rate of over 55, 000 in the year to february 2015 – boosting the population by over 1 percent. while strong growth in migrant arrivals has pushed up the net immigration numbers, there has also been a significant slowdown in the number of new zealanders leaving the country, currently at its lowest level for over a decade. it is estimated that over half of the net migrant inflow have settled in auckland. this is providing a major boost to auckland ’ s population, which grew by nearly 34, 000 people in the year to june 2014 ( figure 3. 2 ). although consent issuance of new dwellings in auckland has continued to increase, reaching 7, 700 in the year to february 2015, this has been insufficient to match the surge in population, let alone cut into auckland ’ s housing shortage. bis central bankers ’ speeches figure 3. 2 : auckland annual net population change ( rolling quarterly totals ) source : statistics new zealand, rbnz estimates. people - per - dwelling is a useful metric for looking at the physical balance between housing supply and demand. over time, people - per - dwelling should slowly trend down as the population ages, families shrink and people become wealthier. this means that the number of dwellings required will tend to increase at a faster rate than the population. if residential building is insufficient to keep up with population growth, then the number of people - perdwelling will trend up rather than down. in auckland, people - per - dwelling has been increasing since 2008 while it has continued to trend down elsewhere in new zealand ( figure 3. 3 ). the sharp rise in people - per - dwelling in auckland in 2014 highlights that home building remains well below the level required to accommodate the rising population. we estimate the shortage of houses in auckland has increased over the past year to between 15, 000 and 20, 000 houses