PHOTO: Drop in housing market predicted and soon leading economist 1 NEWS NOW TVNZ

A leading economist is predicting a drop in the housing market – and soon. The Demographia housing affordability study, released today, ranks Tauranga as the eighth least affordable city in the world – nudging out Auckland and even London. Hong Kong is the least affordable when incomes are compared to house prices. Westpac economist Dominick Stephens says tax changes, rather than supply, are crucial to making housing more affordable. “The focus really needs to be on tax policy rather than housing supply. Getting housing supply right is very important for a range of reasons, but fundamentally, tax policy would be a better bet for addressing housing affordability,” Mr Stephens told 1 NEWS. A capital gains tax is one of the options being considered by the Government’s Tax Working Group. He says some investors are looking at the market and preparing for the possibility of a capital gains tax being introduced. “My view is that the housing market perhaps has one last little burst in it for early 2019 and then I’m expecting house prices to decline over the early 2020s. There are a number of tax policies coming in that will hurt the housing market, and secondly, mortgage rates will rise and that will start to reduce house prices over the early 2020s.” House prices are falling rapidly in Sydney, Melbourne and Perth, although there are different factors at play across the ditch.