Prepare for the party to end. Bernard Hickey

​Should we all celebrate? Or sink into a great depression, or run for the nearest bunker? It’s hard to know how to react to the news Auckland’s average house value rose over $1 million in August. Auckland’s homeowners should in theory be celebrating their good fortune and voting for more of the same.

Indeed, some are celebrating. New car sales are at record highs and spending in Auckland’s cafes, bars and restaurants is growing at double-digit rates. They can also feel in their bones that house prices at 10 times incomes are hyper­ventilated, if not downright over-valued.

New Zealand’s house-price-to-income multiple is the second-most-expensive relative to long run averages in the OECD (behind Belgium), and is the most expensive relative to rents in the OECD. That overvaluation has grown more than any other country in the OECD over the past six years.

This is not the sort of world champion tag we want.

Another response is to hunker down and prepare for an implosion, which means saving madly to repay debt ahead of the housing market end-times and to diversify into other types of assets. This isn’t so much a celebration as a preparing for the party to be shut down.

If you think one day the music will stop and you don’t want to be holding the bad loan parcel, the best approach is to flick-pass the parcel as fast as you can and hope the music stops for someone else.

Let’s take the long-term view and use the Crown’s balance sheet to negotiate our way out by funding and building homes that will be there for many decades and housing cycles to come.

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