New Zealand home prices look extremely high.
But if they are so grossly unaffordable then how come so many people are willing and able to buy them?
Very low interest rates help square the circle.
This is not to say that such things as record immigration, land supply, lagged construction response and high and rising building costs are not important factors for the eye-watering prices people are paying for property. They clearly are.
However, to help explain the heights that house prices are now probing, nationally, the inflammatory role of very low interest rates needs to be appreciated as well.
The politics of it
Of course, few people involved in the housing market have any cause to argue against unusually low interest rates. Existing homeowners, and investors, obviously prefer the higher prices that low interest rates tend to bring, along with the low mortgage payments entailed. Banks depend on the strong sales turnover that low interest rates stoke. So too do mortgage brokers and real estate agents. Home buyers, meanwhile, like to be armed with the lowest mortgage rates possible. For these reasons (and a lot more) the government has scant incentive to ever suggest interest rates are “too low”. And so goes the time-honoured politics of it.
This also helps explain why the debate about high and rising house prices is looking everywhere but interest rates – for attention, and solutions. If only we could build more houses, or lower the immigration targets, or change the tax treatment of housing, or just outright ban foreign buyers…then houses would become affordable again. The list goes on, and on.
And this is after having already implemented a lot of policy that was presumed to help bring the market to heel. Like the removal of depreciation allowances on most real estate, the implementation of LVR restrictions (starting October 2013), requiring tax-registration of non-resident buyers and “bright-lining” existing capital gains tax.
Meanwhile, as home prices soar the government is doing more and more to support local first-home buyers through various means and schemes. Such as allowing people to cash in their Kiwisaver retirement funds for the specific purpose of “investing” in housing (a supposedly unproductive asset we are over-investing in, but which we have not nearly enough of). There are also the HomeStart grants and LVR exemptions for people on low to middle incomes. These policies, while well meaning, ultimately keep feeding the beast of house price inflation.
The power of low interest rates – pushing the envelope
While many big forces are colliding in the NZ housing market, what tends to get downplayed in the debate, we find, is the basic role of interest rates.
To illustrate the power of low rates, we can imagine what people could “afford” to pay for a house, as a maximum, given a range of weekly accommodation budgets and mortgage rates. Along with this, assume people have, say, a 20% deposit and take out an interest-only loan. Sure, this is an over-simplification (even inconceivable for many first home buyers without recourse to flush parents, the HomeStart scheme or non-bank lending institutions who are outside the LVR remit). But the results of our simple matrix illuminate the broad points we want to make. It’s not about how much everyone can pay, and borrow, for a house. It’s about what someone can “afford” to pay, providing they meet certain thresholds.
And the main point is that the “affordability” of homes increases exponentially as interest rates become lower and lower. Each one percent fall in mortgage rates gives a greater and greater bang for buck. For example, if mortgage rates fall from 9% to 8% then affordability rises 12.5%. But a drop from 5%, to 4%, causes a rise in house “purchasing power” of 25%, in our simple example.
Consider the example of a 5% mortgage rate coupled with a $600 per week accommodation allowance (which might otherwise be put to renting). With this, one can “afford” to bid up to $780,000 for a house. But that maximum bid limit drops to about $557,000 if the mortgage rate goes up to 7% (arguably what New Zealanders had become accustomed to, on average, pre GFC). That’s a purchasing power correction of almost 30%, for what would appear to be a moderate rise in mortgage rates, of 2 per cent.
To be sure, no one normally has to bid to the maximum that their mortgage servicing affords. However, this envelope comes into play when the market is hot, as it has become (for a host of reasons). Lowering interest rates increases the upper bid limit (exponentially), just as increasing interest rates brings it down. It’s not rocket science. Indeed, it’s essentially what simple mortgage calculators go about showing.
Sense and sensitivity
Sensitivity to interest rate changes, when they are already quite low, is something to think about not just for house prices but asset prices more generally, and globally. At least New Zealand’s starting point on interest rates isn’t as low as it has become in large tracts of the world economy. The Reserve Bank has resisted this greater temptation.
But think about countries (and markets) whose “discount rates” might need to effectively double, treble, quadruple, just to get back to the “new normal” levels (which everyone agrees are lower than they used to be). And, by the very fact “new normal” assumes lower economic speed limits than before, it might take relatively less GDP growth to have inflation resurfacing, as a trigger for rates starting to go back up. Of course, this process could end up being very stop-start, depending on how much sensitivity is, in fact, revealed.
A Fundamental Force
Of course, we’ve heard it said that the interest rate argument fails to explain New Zealand’s house price inflation, in that it has had a regional pecking order to it. If the common problem was low interest rates then it should have affected all markets about the same, so the story goes.
However, this overlooks a few things. First is the fact that regional housing markets have had differing real pressures bearing upon them. Auckland, for instance, has experienced stronger population growth and arguably a greater lack of building in proportion to this. This is valid reason for house prices there to have gone up (to some extent). At the other end of the spectrum some smaller NZ cities and towns have struggled economically, including via structural stagnation/loss of population. This would normally have entailed falling-to-low house prices (as part of a relative price shift).
The stimulus of lower interest rates can thus be thought of as inflaming house price inflation in areas of genuine pressure, while obviating house price falls in areas where economic fundamentals have otherwise demanded it. This doesn’t mean interest rates haven’t provided a widespread force.
For good or bad, New Zealand didn’t have a major house price reset as a result of its 2008/09 recession and GFC, of the sort most other major economies did. The 575 basis points reduction in the Official Cash Rate (OCR) during that time played no small role in this.
In any case, what we’re seeing now is house price inflation picking up right across the country (while Auckland prices keep setting the new high-water mark). Anyone doubting the role of low interest rates in this is clearly not listening to what real estate agents are saying. And to think interest rates are not a significant driver of the housing market would be to assume a shift back up in mortgage rates of, say 2%, would not have much effect. We suggest that such a move would send a significant chill through the housing market.
Investors – who can blame them?
What about the role of investors in the house price pressure? This group has obviously copped a lot of flak, as supposed central protagonists – even demonized by some. They have undoubtedly attracted the attention of the Reserve Bank, which has imposed the greatest credit controls on this group of buyers.
However, one could argue that many investors have simply been behaving in a rational manner, rather than a speculative one. They have certainly done well not to believe the Reserve Bank’s regular forecasts of soon-falling house price inflation. [Will we see the RBNZ conduct a forecast accuracy exercise on its house price forecasts, the way it has done for other key macro-economic variables?]
In this regard, it’s worth noting that between its June and August Monetary Policy Statements the RBNZ yet again pushed out its foreseen house price inflation moderation.
This means for a 25% increase in prices over the next few years now, rather than 15%. With this, along with the Reserve Bank’s maintained rhetoric about further interest rate cuts, can we blame anyone for wanting to put funds into the housing market? In this respect, the Bank’s forward guidance has worked only too well – sustaining quite strong inflation expectations in the general populace, regarding house prices.
This process is reinforced by the fact that collapsed deposit rates, partly on the back of low OCR settings, are forcing people to look at alternative places to park their money. “Investors” are no different in this regard. Sure, rental yields on residential property have been bid low. But then this has not been wildly out of step with the relentless downward path of market interest rates.
In the end, investors will be dealing with similarly low interest rates that other home buyers are basing their purchases on.
Central Bank responsibility
To be fair, the Reserve Bank of New Zealand has increasingly admitted the role that low interest rates are playing in the housing market inflation. However, when push has come to shove, the Bank has also tended to downplay the relative importance of this – viewing house prices as principally a supply-side issue, out of its orbit of control. The big fish, when it comes to inflation, is seen by the RBNZ to be the Consumers Price Index.
To be sure, the NZ housing market has had all manner of major forces bearing upon it – some more difficult to foresee than others. Few predicted the relatively sudden surge in net immigration to all-time highs, for example. Nonetheless, the reality is that the Reserve Bank has to work with whatever may have a material bearing on inflation and/or financial stability, however helpful or unhelpful those factors might be.
Recall the loosening of the fiscal purse strings over the final term of the Labour-led government (2005-08). Or the frequent disappointment on productivity performance, which affects the economy’s underlying “speed limit”? There’s even the weather, which the RBNZ accepts, and positions for. Presently, there are a number of significant global forces that the Bank is taking as given. A major demand-supply imbalance in the local housing market also needs to be treated as macro-economically important.
We don’t mean from this that the NZ central bank should be leaning against this latest asset price inflation. Ultimately, the cash rate is a blunt tool, which, yes, can sometimes put upward pressure on the currency and has a global context to work within. No-one is arguing for a stiff cash rate, even a more neutral-looking one. What we are doing, however, is questioning the amount of fuel the Bank is pouring on the housing market fire, with its policy choice of exceptionally low interest rates.
Perhaps an overcooking in asset prices is the rat we have had to swallow in order to support the broader economy and its CPI pulse. If so it seems like an awfully big rat (of the type that ultimately proved the undoing of the global economy and financial system…and long has been the indigestion).
But then who’s to say less-low rates would have meant for a weaker path of NZ GDP and CPI path? Of course, this thought is anathema to those who see the OCR as an all-powerful joy stick. Those, also, who have probably been quick to blame the Reserve Bank’s rate hikes of 2014 for slowing NZ GDP and CPI. Never mind the role of collapsing dairy and oil prices in these outcomes, as an example, or the many other things that have affected growth and inflation along the way.
Central banks certainly appear to think that what they do is crucial for macro-economic outcomes (even when we’re often arguing over 25 basis points at a time). However, when it comes to assessing cash rate “stimulus” then we need to control for the myriad other things having an influence. This includes the natural passing of. Many economies and markets have a habit of getting back on their feet in spite of, not because of, what the policymakers do.
A bit rich
What seems reasonably clear, however, is that low interest rates have been affecting asset prices, via quite traditional channels. Indeed, if you had asked someone ten years ago what you’d get if the NZ economy was in reasonable shape and mortgage rates were dropped to about 4%, we’re pretty sure the answer would be house prices going nuts. There is nothing new in this.
It also bears mentioning that central banks have so desired the strength in asset prices we’re witnessing, as a deliberate transmission mechanism of their super-easy policy measures. So it would be disingenuous for any central bank to then turn around and dissociate itself from the resultant richness in asset prices. “It’s not us it is immigrants, and the local councils, and the tax rules, and foreigners…”
In truth, central banks, globally, are going out of their way to engender very low and relatively flat interest rate curves. Granted, some of this shape echoes slow economic growth and low inflation – and expectations that this will persist. However, there is also a lot of distortion being imparted by central banks.
The Vice-Chair of the Federal Reserve, Stanley Fischer, for instance, has indicated that the Fed’s much-expanded balance sheet has depressed long-term US interest rates by as much as 100 basis points. Other studies have estimated additional depressing effects on US interest rates from the monetary policy measures being pursued by the likes of the Bank of Japan, the ECB and the Bank of England.
Only after we can abstract from all these extraordinary policy measures of central banks, could we begin to get a sense of underlying (call them “natural”) interest rates. Only then could we truly relate the “new normal” interest rate concepts back to growth and inflation, not to mention the extent of global savings glut we’re supposed to have these days. Until then, however, it will remain a muddied debate. It will certainly be a long time before the major central banks return their balance sheets to anything like their pre-GFC proportions.
Housing affordability – Let’s be honest
Let’s imagine, however, that NZ homes do become “more affordable”. What does this really mean? Does it imply, for example, that Auckland’s house prices will reverse the near 70% they have risen since 2012? This is essentially what’s suggested by economic fundamentals – such as incomes, rents, even construction costs – if historical trends and metrics are to be respected (not that we can see any immediate trigger for such a correction). But how would a drop of that size even begin to be stomached by everyone concerned?
The local banking system would be robust, according to RBNZ stress tests, even to a severe house price correction. This fortitude is being aided by the equity buffers inherent to the Reserve Bank’s LVR policy. However, this is not to say that homeowners’ equity would be invulnerable. The LVR policy might just mean a chunkier amount of equity to lose, for latecomers to the house price party. This could, in effect, be their retirement (Kiwisaver) funds, or parents’ money, going down the dunny.
This is especially so, if a house price correction feeds back into the real economy, hitting construction in particular and jobs more generally (as typically becomes the process). It would be a deflationary force in more ways than one, in other words – one that the RBNZ can and should genuinely worry about.
All that we have really seen to date, however, is that the moment someone suggests house prices should best come back a bit, especially in Auckland, it becomes a political football. The default position appears to be that so long as house price inflation slows, even goes flat, then we can grow into these over-sized house prices. Practically, however, this means scant change in the affordability of home prices as we know it, for a very long time. This is not opinion so much as schoolboy mathematics.
But the problem with NZ house prices is not even a prospective one. The real issue is the heights to which they are already ascending. It stands out like the proverbial, as much as mortgage rates do to the downside – amid an economy that is otherwise looking normal. So even if some of the broader demand forces in the housing market abate, and supply factors respond, people will still be able to “afford” to pay very high prices for homes while interest rates stay this low. However, to the extent that interest rates go back up…
Craig Ebert is a Senior Economist in BNZ’s Wellington dealing room. You can contact him here. This article was originally published here and is reposted with permission.
122 Comments
The take out from all of this; interest rates must stay very low for a very looooooong time or the whole thing goes to hell. The Fed is too scared to raise them 0.25% from near zero - the lowest interest rates in 3,000 years of monetary history.
Has anybody got a clue how we get back to "normal" ?
Sounds about right Scarfie.
Here's John (muddle through) Mauldin:
I see no way for Europe to avoid that crisis. The US might if we make some radical decisions in 2017. You can ask yourself how likely that is.
I’m telling you, this is not going to end well. You cannot assume that your investment returns will look anything like the average for the last 20, 30, 40 years.
I know some people will say that is exactly what’s going to happen. Many of them are my friends, and I enjoy sitting and talking with them over a bottle of wine and a great meal. But I will look them in the eye and tell them that they’re walking into economic hell with their eyes closed. And anyone who follows them will see their portfolio go up in smoke.
This is going to be the most difficult investing environment of the last 100 years. Only a public outcry can stop it.
http://www.mauldineconomics.com/editorial/john-mauldin-the-fed-is-leadi…
It's bizarre to me that negative gearing and the boomer generation never get bought up in this conversation.
The boomers are largely invisible in this scenario, but you better believe a couple of international holidays, a new SUV and the annual subs to the golf/yacht club aren't going to be funded by an unconditional pension... Rental income from many rental investments, yes, and that's a western global pattern, another boomer echo coming through, not migrants, foreign investors, but boomer investors keeping their money go rounds spinning...
'Perhaps an overcooking of asset prices is the rat we have had to swallow in order to support the broader economy and its CPI pulse, if so it seems like an awfully big rat ' Now which offshore banks are making record profits year after year. Is it any wonder the RBNZ will unlikely introduce DTI or restrict interest only loans, which have played a significant part in many global housing downfalls. Ebert talks of affordability, yet home ownership rates are plummeting .There will be no plateauing of the housing market to suggest otherwise is pure drivel, and if and when Aucklands housing market does turn stress tests of our offshore banking sector will count for little.
Thankfully someone is now talking about the obvious.
To me, New Zealand suffers from a syndrome consisting of the following elements:
1 A current account deficit. As a country we spend more than we earn, every year since 1973.
http://www.rbnz.govt.nz/statistics/key-graphs/key-graph-current-account
2 To balance this we must (a) sell existing assets to foreigners or new immigrants, and (b) borrow from overseas via our ever helpful banking system, to make up the exact shortfall.
3 The new money coming in does not go into new productivity enhancing assets, it goes into existing assets. So there is no improvement in earnings from this "investment", only an increase in total borrowings, year in, year out.
http://www.rbnz.govt.nz/statistics/s7
4 The "authorities" see the vast debts and modulate interest rates down to a level kiwis can afford. It's hard to see what else they can responsibly do when the people have borrowed $420,000,000,000 between them. They are effectively overpromoted civil servants in thrall to the banking sector, although they are individually diligent and well meaning.
5 While this condition lasts, the productive export sector is largely in survival mode but construction picks up.
6 Tourism flourishes as the New Zealand condition is based on a world flush with money, but it is a very low productivity sector, better than unemployment, but that's about it. So more money flows into construction of low productivity assets.
7 Eventually the money and people flow stops and reverses. The currency goes down, inflation therefore goes up, but to everyone's surprise, exports become profitable again. Who would have thought?
What to do? My suggestion is target the bureaucrats and politicians on balancing the current account. Make their pay dependent on it. Get serious about earning a living as a country. Look at the details that make it easier to borrow / sell existing assets than it is to earn money.
quote "The government is doing more and more to support local first-home buyers (thereby increasing house prices) through various means and schemes. Such as allowing people to cash in their Kiwisaver retirement funds for the specific purpose of “investing” in housing" .....
The only difference being ...........
Australian Governments monetised the practice by simply providing FHB cash grants of $27,000 (Federal) plus $13,000 (State) but found house prices immediately rose by those amounts .. The total annual cost of the schemes was right in their faces
NZ disguises the same effect by using indirect schemes that are 2 degrees of separation from cash grants
EVERYTHING - low interest rates, high immigration, government rent and mortgage assistance, lack of CG tax and stamp duty, no foreign buyer restrictions plus some genuine supply shortage in places is conspiring to increase housing prices.
The unintended(?) consequence of WFF, FHB Kiwisaver access and rent subsidies in raising property prices hasn't been quantified but it does seem very strange that so much of middle New Zealand is now dependant on government assistance to be able to raise a family and put a roof over your head. I can understand that maybe 10% might need help for various reasons but the median adult income ($31,000) is now below a living wage at the same time property and asset prices are roaring away with double digit price rises.
Something is seriously not right with all of this.
You missed one important factor on the list; us! Each and every buyer, whether it for their first family home or even for an investment property, wants prices to climb. It doesn't matter whether you squash all the other factors, New Zalanders love property and one way for the family to get ahead is to buy a family home, put some frilly bits on it, and hock it off for thousands more.
True enough Simon, the old greater fool theory. Makes you wonder how much more it's got to run given the falling ownership rates are a reflection of affordability - Jack and Jill Jafa are effectively shut out now even with 4% interest rates although John Key said that Kiwis are just not interested in owning houses anymore. I guess giving cashed up foreign buyers free rein will give it a few more years but god help us all when the inevitable happens.
http://www.scoop.co.nz/stories/PA1606/S00211/john-key-out-of-touch-on-w…
Most buyers want property values to rise. A small minority with a few clues don't. House prices are relative - with lower house prices it costs less to get into a bigger, nicer home. The reason many want the prices to rise is the size of their mortgage - buying now, at inflated prices means that are locking themselves into the current value level, and ignoring the consequences of the needed house price crash. Do they consider the possibility that life circumstances will force them to sell into an unfavourable market. I've known friends who had to sell their homes after the '87 crash. One still owed $50k on his mortgage after settlement - not pretty!
i guess I'm stating the obvious here,but there's only two conclusions you can come to here isn't there?
Our "representatives" are stupid or they are vote buying and don't give a damn.
I don't think they're the former.
It's been a long time since I voted because in my view the only difference between National and Labour is the flags! Most of the MPs on both sides are career politicians and totally removed from the average person.
We're all too soft in this country.Where else in the world apart from Oz and NZ do you get a tax rebate for being a landlord?Anywhere else the rebates go to owner/occupiers!!
Isn't it ironic that a people descended from people who came from countries where they were oppressed by landlords are oppressors themselves or are oppressed by the same?
No mention of introduction of potential debt to income limits? No matter how low interest rates get DTI rules would limit borrowing power. Lower interest rates would still leave more money in the public's pockets for spending and reduce business and farmers borrowing costs. DTI rules would even favour FHB's over established investors.
Why is the RBNZ dragging the chain so much on introducing them? Is it because they would have to introduce the highest DTI limit in the developed world to avoid crashing the property market?
Told to drag their heals at a guess... our PM was not called the "smilling assassin" for nothing while at merril lynch.
nothing needs to take 2 or 3 years to implement .....problem is the longer they wait the bigger the mess
http://www.smh.com.au/business/world-business/nzs-key-the-evercheerful-…
When he was Merrill Lynch & Co's global head of foreign exchange in London in 1998, the ever-cheerful John Key was nicknamed "the smiling assassin" after he fired some 50 members of his team.
Yes in order to not upset the apple cart, the DTI requirement would have to probably be the worlds highest. But at least it would be all set up, sitting there. Ready to be lowered. Able to be reported on.
To not implement this even in the background in a "systems" sense is criminal.
As per the chart, on $800 a week, affordability has gone from $520,000 to $1,300,000.
Every other factor in lifting house prices is minor compared to that sort of difference.
Which is why none of the "solutions" often suggested, would ever have more than a very minor effect.
Affordability today doesn't equal affordability tomorrow not while Interest Rates can move up and down.
That is why a Loan to Income (LTI) restriction is CRITICAL to protect people from getting too far in debt based on the record low interest rates and affordability they have presently.
Government is not sincere and do not genuinly wants to control the housing bubbble which is evident from their statement that reflects their mindset.
Bill English says that housing problem is a GOOD PROPLEM and to top it the hon PM John Key says that housing crisis is a sign of prospseity.
If you ask them will go to extreme that we do not want house price to fall 40% or 50%. NO ONE WANTS THAT but what is expected is to control the market like vancouver has done and rectify the taxation on invested property. So please do not take cover behind that statement of one individual and use it to defend your inaction for hidden vested jnterest.
Even the CEO accepts, though must be having number of houses still are able to understand and feel for average kiwi but not [John Key] - may be because he enjoys spevulative environment as is from forex trading background in which the higher the volitality more the money but they forget role of the leader is different that of a businessmen.
Read below article published in nzherald today
http://m.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11720…
Also know from some experts and close people that government will be introducing ( by force) LAND TAX ON NON RESIDENT BUYERS sometime early next year - election year ........
A few points;
1. Bank economists are not independent or unbiased in their advice. Their job is to sell mortgages -that is how banks make money. So it is a bit rich for one of these 'salesmen' to be criticising politicians for playing 'football' -when quite clearly they are players too.
2. Home ownership peaked in 1990, it has now dropped to the lowest level since 1950. So less people can afford to buy/own a home -that is a simple statistical fact -not schoolboy mathematics.
3. Given home ownership has been falling relentlessly for 25 years -during periods of high and low interest rates and high and low immigration rates, high and low foreign investment -then sure cheap credit, foreign investment and immigration are having cyclical effects -that could be tackled -but there is also an underlying long term effect that is being ignored. That long term effect is the unresponsive way housing supply works in NZ, especially in Auckland. There is something wrong with the way we build new homes. Look at Auckland's build rate -it is struggling to break through the 1000 homes/month -prices are inflating at a massive rate of knots and the build rate is only very sedately rising -this is not the normal supply and demand response we see with other goods and services. To balance supply and demand in Auckland's housing market -we would need something like 20,000 homes to be built a year, or 1667 homes a month. Auckland is a long way from achieving that.
4. Like with other assets, like cars/trucks/machinery.... -it is the cost to build/buy new which sets the prices for 2nd hand. Interest rates are only a minor cyclical influence.
5. Having a measure for housing affordability which only measures interest payments (so a 100% interest-only mortgage) is stupid, essentially it measures the point where a renter is indifferent between renting from a landlord and renting from a bank. Because there is no principle payments -somebody doing this is not buying a house -they are not heading towards home ownership. The only reason someone would do this would be for speculative reasons -i.e if they believed house prices will keep rising. In Auckland -saving for a deposit and repaying principle on even a low(25% mark) median house has become out of the reach for the median worker couple as Interest.co.nz showed recently. We are heading to a society where the route to home ownership is through gifts and inheritance from family. Is that the sort of society we want in New Zealand?
Scarfie why do some assets inflate in price and others do not? If credit is the problem why do not car prices, truck prices and other capital items like plant and machinery get pumped up in price too? What is so special about credit nowadays that it only affects land whereas in the past cheap credit used to cause inflation indiscriminately to all prices?
Why does land prices which are zoned or likely to zoned residential inflate faster than land not so fortunately zoned? Is that a credit effect too? I don't think so.
It is the effect of the rules we have for governing our built environment. In particular the way we do planning in NZ signals in big neon lights that land banking is an enormously profitable game to play. This land banking is enormously destructive if we want to achieve environmental or social justice goals. Great if we want to reward a self entitled elite of financial rentiers and the landed gentry.
Once a mania starts it generates it's own momentum - people are buying because the price is going up. There have been many examples of this - NZ shares for example pre the '87 crash or Tulip bulbs in 17th century Holland. Land is a good one, manufactured goods not so much due to global surpluses and finite life expectancy. Cheap credit and zoning restrictions are like petrol on the fire and this one has plenty of fuel to burn for a few years yet IMHO; how it ends is the question.
Kiwidave I am not refuting that cyclical effects such as, credit and speculation of an out of control bubble property mania type (plus immigration and foreign investment) are not having negative affects on housing. I am just saying that predating all of this is some long term effect which I think is the way we regulate/govern our built environment. I think there is clear evidence NZ has unresponsive housing supply. Short term we can attack all the cyclical effects and I would support those sort of policies. But a long term fix means addressing the way we govern the built environment.
I honestly don't know, there are good models that work but not everywhere and at all times. Perhaps all we can say is that flexibility is the key to rapid responses from the market for house sites. The lead times for development are quite long, 12 months would be good going for the red tape and physical work.
In the Kerikeri market we had a huge build up in section supply as a response to immigration driven demand in the 2003 - 07 period. After the crash sales stalled and prices collapsed to half their prior value - if you could find a buyer. There was, at one stage, ten years supply on the market based on the prevailing clearance rates. They have now been largely sold through with prices now back up to the former peak and new supply coming to market with strong demand - Auckland refugees mostly.
Some interesting (worrying?) comments from Westpac chief economist:
A wave of housing building will not lower Auckland house prices; in fact it will actually keep them from falling.
That's the view of Westpac acting chief economist Michael Gordon, who says far from causing house prices to crash, new houses were needed just to "justify the prices that people are already paying for land".
http://www.stuff.co.nz/business/money/84773169/auckland-must-build-or-l…
KiwiDave I actually think this Westpac economist viewpoint is helpful. It is best explained by way of example. If new planning rules -Unitary Plan, my reciprocal intensification proposal or the regulations which Houston or Tokyo having been using for a decade or two -then this allows one house to replaced by several houses.
Lets say one house in Christchurch -say in Sydenham - 90 years old -3 bedroom/135sqm on 600sqm land -value $420,000. New planning rules mean it can be replaced with 3 level walk-up apartment. Say 6 x 2 bedroom apartments -70sqm each. The cost to do this is $420,000 divided by 6 for land plus say $3000 per sqm build cost =$280,000 cost per apartment. Add a small profit for land owner =$300,000 sale price for 2 bedroom apartments.
That would be affordable in Christchurch -I know a lot of young nurses who would jump at that sort of opportunity.
But would this affordable 2 bedroom apartment housing crash the values of 3 bedroom stand alone housing? I don't think so. What has happened is the change in rules allows a different segment of the market to be reached.
It is possible there is more fear of affordable housing than there should be.
Agree Brendon.
Unfortunately our urban policy makers have been asleep at the wheel a very long time. And the High Court Judicial Review on the Unitary Plan places big risks. The JR has a good case. I expect a lot of the upzoning in the decision version of the UP will be reversed and Auckland Council will need to go through a massive plan change.
Frankly, the Council stuffed up big time. Their dwelling capacity work was poor and the Plan as notified in 2013 was totally insufficient. They screwed themselves / Auckland from the start, and then were desperately trying to play catchup.
Another example of NZ policy making at its finest...
Fritz if the Judicial Review is going to hold up the Unitary Plan what should we do to improve the housing supply response to tackle these long term issues? What about mine and David Lupton's ideas for removing restrictions on going up and out?
http://www.interest.co.nz/opinion/83082/brendon-harre-and-david-lupton-…
In particular, I think my reciprocal intensification idea could be very useful while Auckland works its way to more permanent decisions regarding up-zoning.
Land is the new "Gold". It is permanent, and there is a limited supply of it, you can see it and touch it, and it is useful. Gold which $US used to be linked to is relatively useless to the average person. Most Poeple would much rather have the latest iPhone than golden jewellery. Also, how much gold actually exists, could buy it but unless in your physical possession no guarantee it even exists, but land is real, can touch and see it. Problem now is so much cash being pumped out in world now that cash is becoming more worthless. Increasing supply of cash, limited land, contributes to increasing value of land. It used to be gold, but now land is golden asset - however this asset overinflated in value in NZ.
That is a pretty lightweight reply Brendon, and just shows your bias formed by narrow linear thinking.
The question isn't why the credit bubble doesn't show up in other areas. The fact of the credit bubble is exactly that. The question is where does the credit go if you stop the credit going into housing. Hard to say for sure, but it would go into the next easiest financial asset class where people are chasing the free lunch of yield and/or capital gain.
This is a money problem, not a housing problem. The advantage that housing has is leverage. Ask yourself what would happen to prices if you removed the leverage. Imagine that, not credit available to buy a house and you have to pay cash. And also ask why not cash to guy a home?
Milton Friedman: Is Inflation Always And Everywhere a Monetary Phenomenon
Why do supply siders seem to thing that they are smarter than Friedman?
Oh god Scarfie you are not going to prattle on about linear thinking and other psycho-babble now are you.
What is the difference between my so-called 'linear' focus on supply issues -which I have explained how it fits in with what others are saying about credit, speculation, immigration and foreign investment and your 'linear' focus on credit only, where you haven't acknowledge any other effects?
Lets just keep this really simple. There is a surplus of money over and above what the economy requires. It doesn't just evaporate, it has to find a home somewhere. Now it isn't under people pillows, since it is all digital, so where is it going to go? The easiest home it can find, housing. If you take housing away, the money is still there. So the question again, where is it going to do, the next easiest home.
Where is it going to go?
Your logic is that if you supply enough housing it magically makes all the surplus of money disappear. Nonsense my friend, find a better cause to fight.
If there is a surplus of money and I am not saying it is. Money could just be sitting as zeros and ones in some rich bastards bank account. But if it does exist and it no longer finds housing attractive then maybe it will go some where less socially destructive. What is the problem of allowing housing to be less attractive to the monies class and more affordable to the working class?
Look at GDP vs M3 money supply for New Zealand(charts here on interest.co under tools). 10 years ago the money supply was 8% greater than GDP, now it is 43% more. But in reality with a velocity of 7, the money supply should be 1/7th of GDP. It is a bubble that is 40 years old, and goes back to when we went off the gold standard.
More than $130B, or a 70% gain, in the money supply in ten years. Leveraged into housing, is it any wonder we have a bubble. **I note the the money supply rate of growth is contracting quite fast.
No problem with bursting the housing bubble, the problem with the supply side argument is that you guys think it fixes the problem. It doesn't because housing isn't the problem it is the symptom, just alleviates it with a temporary fix for a bit. Think of it like going to a doctor with a medical problem, do you want him to treat the symptoms or the problem?
" Bank economists are not independent or unbiased in their advice. Their job is to sell mortgages -that is how banks make money". Interesting comment Brendon, and since its something that condemns every economist, and therefore not a statement to be make slightly, how do you KNOW that to be true ?
Grant surely this isn't controversial. Banks are profit maximising entities. The senior management -CEOs, Chairman's etc are responsible to shareholders for achieving this goal -it is standard practice to reward such employees with bonuses for doing this. I am sure these managers effectively communicate this goal to their respective bank economists. Craig Ebert is almost certainly a fine economist, but his primary responsibility is to his employer -the BNZ not to the NZ public.
Brendon - I agree its the popular perception, but in a past life that isn't that long ago, I have been reasonably close to a range of economists across a number of organisations including banks. I have not met one who has deliberately put out forecasts to try to favourably influence conditions for their employers. Without exception in my experience, they have been men or woman of integrity who take pride in doing their analysis and putting out forecasts and commentary based upon what the truly think will happen - they do value their reputations. Sure they've got it wrong regularly since 2008 as things have grown more dysfunctional, but then so have many others, including those on this site.
Grant I am not suggesting that economists lie or anything blatantly dishonest. It is more how their background affects their worldview. Craig's article wasn't too bad -there was some interesting comments -but his measures on affordability were a bit off -in my opinion.
Grant we all have backgrounds which affect our worldview. Mine is I have spent several years thinking about how NZ could improve the way we manage our built environment to improve its housing supply response and therefore control house prices through this approach.
Craig has come from a different angle -looking at how the credit cycle has impacted on house prices. In a way it is all good -a conversation -an exchange of worldviews helps us move forward. I don't think there is one solution to the housing crisis -it will take a broad front of policy changes -attacking both the short term cyclical effects and the long term underlying factors -how we manage the built environment.
I read Craig's article again -really it is a good effort -which adds to the debate. The only thing I would recommend needs clarification is his housing "affordability" charts need to be relabeled because being based on interest-only loans means it is not about paying off a home. What it measures is the indifference point between renting from a landlord and "renting" from the bank.
It is Brendon if you know alot of economists and have seen zero evidence of that. All of us have loyalty to our employers if they are half decent employers, and we are half decent employees, but none of us should feel pressured into lying or mistruths. I'm just saying that in my experience your first point is controversial because, despite being very close to many over the years, I have never seen evidence of it. But that doesn't take anything away from the rest of your points and the debate that I have enjoyed reading, it just that the less red herrings we discuss the better the debate.
KH - Yes you are correct. I leave debates about the likes of the housing market and a lot of other subjects to those that actually know a lot more about the subject than me - I try to learn something from those discussions. Personally I only comment on subjects that I know a lot about, and therefore probably more than the average on here - what do you do ?
Houses in NZ are not overpriced except for in Auckland and maybe Tauranga etc.
Ch.ch. prices are still very affordable and rental yields providing you are clued up are well over the mortgage interest rates.
Wish people would stop thinking that Dorkland is the only place in NZ.
Any intelligent buyer/investor is heading south!
THE MAN - have a wee look at what's happening right now, and seemingly under the radar of the media and the bulk of the public - but plenty of developers and investors in the property well know about it, but it is becoming far more wide spread than that. Funningly enough, savers are withdrawing funds from banks in an attempt to find higher yields (rental properties, share market etc). The banks are now coming right up against their prudential limits for the required level of retail funding. Guess what they're doing, not passing on OCR cuts for retail borrowers, and increasingly raising margins on wholesale borrowers - furthermore the banks have brought in asset growth caps across pretty much all of their sectors, consequently, if you can get the money at all. its already becoming increasingly expensive. So who's getting it over time, savers.
The global monetary system has become so dysfunctional that anyone who makes an assumption that "Interest rates will stay well under 5 per cent for the next few years at least" is showing little understanding of what can and will happen in markets, let alone one as dysfunctional as this one
The government is not doing anything IMO because the crash is going to be caused by an external event, such as a bank collapse outside nz. That way they also can't be blamed for what happens. Just look at the finance company crashes, it was the financial crisis that was blamed, not that the regulations weren't tough enough.
But one thing is fairly certain, there will be some form of collapse in the future, as history has always shown as the markets work on a boom bust cycle, fuelled by greed. But who is going to be affected by the next one? I certainly wouldn't want to own a shack which today as a paper value of over a million, when only a few years ago it was valued ta half that, and wages haven't grown enough to justify the rise. It's value has been pumped up by unsustainable cheap money.
Agree, that yes there will be some that will get burnt in Auckland, as we all know that Auckland housing market is ridiculously high, but we all know why the prices are so high.
Once that money dries up there will be consequences in Auckland.
People that are buying rental property in Auckland are not investors, they are pure speculators.
Anyone that buys with a return of 3 per cent or so has rocks in their head and are totally relying on capital gain.
Would anyone give money to a Bank and pay them money for them to hold it?
That is effectively what is going on at the moment in Auckland as all property being purchased is negatively geared in Auckland.
Agreed
Auckland is a mess as
1. Loan to income ratios are not in place
2. No purchase tax on foreign citizen buyers and investors (of existing property)
3. Foreign students and temp workers classified as non foreign
So while people think prices will continue to go up they are more than happy to buy even if negatively geared.
The longer this is allowed to continue the bigger the mess.
My guess election next year National.will.promise some action and all will be forgotten. They will want to win the election at any cost. Labour and greens will annouce their vancouver tax policy too late and national will beat them to it.
Hi Brendon vancouver tax as it will reduce demand and bring in millions for intrastructure.....
Plus it has alot of press and would be an easy sell by labour or the greens ...
A friend in the know believes John key will announce it before next election and labour and greens will miss the boat...
I dont think a ban would fly as they will blame the FTA etx
However under FTA we can tax foreign buyers and investors....
Tax 15% would be 150k on the average Auckland home.... its what our peers are doing and unlike the editor i prefer to look overseas when deciding on what policies nz should use as we can see how they have worked before trying them on. Educated decisions based on all information available....
Not just what the media and govt want us to believe
"Anyone that buys with a return of 3 per cent or so has rocks in their head and are totally relying on capital gain."
Before 2008 I would have agreed with you, but not so much now.
1. 3% is in many cases better than a bank. Particularly since you get that on leveraged money.
2. Confidence in banks has taken, and is still taking a massive hit. People don't trust them. Property even in a bust is still a physical asset with some inherent value (land/habitation/food production). A zero on your next account statement is completely worthless (also applies to shares)
3. In a full blown crisis, I personally think you are better to be in debt than credit.
a) losing something that is not fully yours is easier to take.
b) If the debtor has lost, then the creditor has lost anyway as they are unlikely to recover all their costs.
c) if everyone loses, (eg If DB fails and takes out half the worlds banks) will there be anyone left to say pay up? or
d) any civil unrest may mean no-one asks you to pay up either.
4. The core factors behind the increases are still there - Immigration isn't slowing, interest rates aren't rising, and supply isn't increasing. NZ has also shown that any law changes take a very long time to implement, are sloppily written, and seldom enforced, or if they are it is very poorly. So prices aren't likely to drop anytime soon.
Even if prices do drop do we really lose? A Kiwi buying now for $1.5mil, selling to a foreigner for $2mil in 3 months time, then buying it back for $500k after a crash seems like a win to me.
Auckland will always property will always trade at a premium to the provincial ones. It is now an international city. Comparing prices to chch or Wellington is fine but it is like comparing London property prices to those in Bristol,in the U.K. or NY to Charlotte in the US. The unitary plan has just made some property owners a lot wealthier due to the greater density now allowed and that will continue to happen in certain areas over the next 20 years. In Auckland the game is to buy near good transport hubs or to be centrally located as the congestion is only going one way and people will pay a premium for ease to get to and from work.
FHBer's woe in UK data "“By the time they hit their early 30s, those born in the early 1980s had about half as much wealth as those born in the 1970s did at the same age. Sharp falls in home-ownership rates and in access to generous company pension schemes, alongside historically low interest rates, will make it much harder for today’s young adults to build up wealth in future than it was for previous generations.”
http://www.telegraph.co.uk/news/2016/09/30/people-born-in-the-1980s-are…
Vancouver article worth reading provides a summary of the restrictions in place on non citizen buyers for a range of countries :
https://www.theguardian.com/cities/2016/sep/30/vancouver-canada-house-p…
Foreign buyers
Restrictions and incentives around the world. A few have 15% tax
China
Restriction
Qualifying foreign individuals and companies are allowed to buy as many properties as they wish on the Chinese mainland, but they are subject to local housing purchase limits. In Shanghai, for example, people without a Shanghai household registration are only allowed to buy one property
New Zealand
Restriction
A tax on second home properties bought and sold within two years has been introduced. Foreign buyers also have to apply for a government ID number for tax purposes. Some NZ Banks are refusing to provide mortgages for non-residents
Fiji
Restriction
Land sales in towns restricted to domestic buyers only. Foreigners who currently own houses in Fiji cannot sell it to other non-residents. Foreigners who already own land but have not built a house must do so within two years or face a fine of 10% of the property's value every six months
US
Restriction
The identities of buyers for all-cash purchases are now required in Manhattan, Miami-Dade County, California and Texas
Canada
Restriction
In Vancouver, foreign buyers must pay a new 3% property transfer tax rate applied to the portion of a home sale that exceeds C$2m. Additionally, there is a new 15% property tax for foreign buyers purchasing within the Metro Vancouver area
Indonesia
Restriction
Foreign nationals who are resident can buy a landed house or apartment in Indonesia, though various requirements must be met, including a minimum price
Vietnam
Restriction
Foreigners are not allowed to own land
Hong Kong
Restriction
Foreigners can buy property but must pay a 15% additional buyer’s stamp duty
Singapore
Restriction
Foreigners must pay a 15% additional buyer’s stamp duty
Australia
Restriction
Foreigners can buy new dwellings but cannot buy established dwellings as investment properties or as homes. Victoria, Queensland and New South Wales charge foreign buyers extra stamp duty. Some states also charge extra land tax
Joe Public -maybe foreigners should be banned from buying existing homes and when buying new there is a further stamp duty type tax -perhaps called a infrastructure tax to reflect that foreign purchasers are benefiting from infrastructure services which NZ taxpayers have paid for and they have not?
Yeah anything would be better than the current situation of open access and zero tax for all foreign buyers
Problem is as mentioned about 13,500 of the 50,000 houses sold were to students and temp visa workers. The actual number of houses sold in nz is very small ie 50k however when a third are sold to foreign buyers with supply being so tight it has a huge impact on price. Also on peoples expectations of future prices rises a point often missed. Local citizens will also invest knowing that demand from foreign buyers will only continue to grow further pushing up prices.
13k houses sold in a world with so many foreign millionaires is a tiny number and very easy to fill. Would just be a tiny percentage of all foreign houses purchased.
http://m.scmp.com/news/china/money-wealth/article/1867321/china-be-top-…
Check out how many new millionaires are expexted world wide including usa and china in next 4 years.
As other cities put up restrictions such as vancouver tax and banning of existing house sales like Australia logic tells me more will look at Auckland.
Still havent heard a good reason why we shouldnt put the affordability concerns of local citizens ahead of foreign buyer interests. What we are doing is creating a too big to fail scenario.
Oh for sure, I agree the Vancouver tax would be the most effective, most immediate measure that could be taken and should be measure number 1. Perhaps banning might be difficult and Labour might want to have a wee look at their policy, I think it might be a bit half-arsed to honest. Might get to and email Phil Twyford, one thing about him is he is responsive when contacted, and throw some of this to him.
If govt do suddenly opt to do something, but time it to best suit them, all they will do where I am concerned is prove to me how right I am about them being utterly cynical.
PocketAces maybe you should add Phil Goff to that Phil Twyford email as he was in the Herald today talking about pressuring the government to do something about foreign buyers and immigration.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=117…
Fritz there is some controversies/complications to introducing a stamp duty type tax on foreigners. There is the lack of accurate data on foreign buyers and the whole Chinese sounding name saga. Then there might be some practical considerations -such as how to capture the foreigners who are here with NZ IRD numbers -the students and work permit holders. There might be legal considerations re free trade agreements for the stamp duty type tax. National did not negotiate an opt out in the TPPA for an outright ban -I am not sure whether there is limitations on stamp duty tax too.
I can certainly see the media giving an opposition announcement about taxing foreigners the 3rd degree -pointing out lots of complications. But if John Key made the same announcement, say just prior to the election as Joe Public suspects will happen, then the media -the Gower, Garner types will say how brilliant a political move it is.
There's nothing in our international agreements that stop us from introducing the stamp duty ala Vancouver.
I don't think limiting purchases to new dwellings, as per Labour's imitation of Aus, is necessarily going to be effective. It doesn't seem to have helped much in Aus at limiting house price inflation.
There was nothing stopping us from placing bans either till John Key and his crew came along and signed one with South Korea that did not allow any bans. Those conditions then had to be bestowed on China, but you won't ever catch John Key saying that, he is quite happy to point obliquely to the China fta and use that to say, we cannot ban. More people need to know that.
How to capture should be easy... ask australia how they do it...
My guess when buying 1st questions and 2nd questions are
1. Do you hold NZ citizenship ?
2. Do you have a permanent Visa ?
If they dont answer yes to one of these questions they are a foreign buyer.
Then ensure the penalty for non compliance is large enough to ensure complaince. Perhaps min 200k fine and up to 2 years jail should do the trick.
Then its job done. Others do this we are not the first so we need to leverage off the best practice.
Taxation is allowed under Korean FTA.
Great idea emailing labour and greens. Its like a game of chess if they dont move first they will be forced to move and lose the element of surprise. National will out play them again if they are not careful.
Anyone entering the property market as an investor at the moment with such low rental returns is doing so for capital gains (and there is every chance that this will be a great investment). From my point of view there is a massive difference in risk to the country between people investing in housing for capital gain and investing in shares on the NZX for capital gain. When you own shares listed on the NZX there is no ongoing cost of ownership, with property there is rates maintenance etc and you cannot pay for these with capital gains so you are cash flow negative.
When the oil price dropped that was blamed for low inflation, if the oil price was to double we would start importing inflation I would think (and the oil price is far beyond the RBNZ's control) and interest rates would rise. If I am right about the link between house prices and the oil price, how high does the oil price need to be to do the housing market damage?
ARB property with positive returns is the safest investment in NZ.
Apart from the capital gain you also get a higher return on the rents than what most shares offer.
The share market is blatant gambling and as we have seen the value of the share is governed
By other people's selling and world events.
Might as well invest on the TAB
What about 1987, oh the share market crash - and housing markets don't crash.... Sorry you haven't provided any evidence that share markets are like betting at the TAB. All you have done is point out a correction. I can point to any number of housing corrections over the decades to say that investing in housing is like betting on the TAB....
What people did with shares in the 80s, they're doing with houses now. There's no such thing as a safe investment while human bubble psychology persists. Thing with houses, as opposed to tulips or empty websites or comic books or schemes for extracting moonbeams from cucumbers or South Sea shares or Billy Bunter first editions, is that with houses it's easier to delude yourself that it's real.
The NZX performance has more or less tracked the Auckland housing market over the past few years. Both have been boosted by the lower interest rate cycle.
There is 12 TRILLION USD of negative yielding debt in the world. The world changed 8 years ago and it won't be the same again.
We will probably look back and say QE was the worst policy to ever introduced as it just compounded a problem. It might take another 10 years for things to unravel.
I know a lot of people here want action on foreign buyers etc (which I support) but I have just came across a fun video on the housing supply issue -so hopefully I will be forgiven for adding it in to the conversation.
So, um what was the story with sewage and grey water with this little "mini" village, septic tanks would not cope with that many people in such a concentrated area. Grey water I guess you can use for gardens but this kind of idea is not workable if there is not a sewage system to connect to.
power, water, internet, public transport, roads, building regulations (perhaps you'll arbitrarily pick an urban zone and copy the rules it uses?), waste disposal, recycling, storm-water, education infrastructure?
add roughly 10 million - 50 million for each of those infrastructure elements and then divide the resulting figure by the number of houses you plan to build on farmer Jo's land.
Much like the 100,000+ lifestyle blocks that NZ has freely allowed to be created around our existing towns and cities there would be regulations which could be applied to the more denser village developments -that would give villages similar freedom to develop if they meet minimum standards.
Why is it ok for farmer Jack to break up his farm to lifestyle blocks and sell those to rich individuals, but not ok for one of those lifestyle blocks to become village? Is it because rich people buy lifestyle blocks and poor people live in villages -is the fear of 'slums' really just fear of giving poor people the same freedoms that rich have? When I have investigated the restrictions on intensification it is pretty obvious the opposition is being driven by those who fear the 'wrong' sort of person moving into the neighbourhood. It seems this process applies to all possible affordable developments.
Sadr001 the video wasn't about practicalities -man has been building villages for eons -I am sure we have not lost the ability to do that. The video was about freedom and fairness.
-Compost toilets. You can buy a sophisticated version that rapidly dries out your poo with hot air, creating an odourless powder at the bottom of the containment that's very easy to manage. And a good fertiliser for the garden.
-Catch your water off the roof. Going through a dry period? Toilet doesn't use water. Worst scenario, drench in the shower for 15 seconds. Turn off the water. Wash yourself. Turn on water and 30 seconds to rinse off....whatever.
-Unsealed roads for the last 50 meters (or so). Drive carefully. Use a small diesel car if you're worried about the fuel bill. You'll be fine.
-Small generator for power, if you must. Build with aluminum/styrofoam sandwich type walls, and double glazed windows. Heating will be easy. You won't need much power.
All of this sounds a lot less painful than a million dollar mortgage, don't y'all think?
-Thanks Brendon for posting my video.
I can just picture the resulting slums with no regulation as to density, no provision for sewage (unless you add tens of millions on for appropriate facilities), no running water, electricity, public transport or even road infrastructure.
read this document to get an idea as to the cost of infrastructure
Admittedly a big chunk of our council budget gets spent on art and culture but no where near enough to make the kind of difference to house prices that you are describing.
As I wrote above my suspicion is Sadr001 your opposition to the allowing people the freedom to build villages on farmland is not because they would lack amenities like public transport (I have never read anywhere your support for rolling out more public transport). I suspect you have other motivations that are the opposite of fairness and freedom.
THE MAN 2 - "property with positive returns is the safest investment in NZ." - you have not been in the game very long if you have not meet anyone that has lost money investing in property, but for a lot of individuals you would be correct. But I strongly disagree for NZ as a nation. If inflation were to turn up (which I suggest could be bought about by a rise in the oil price) and interest rates were to rise and house price inflation expectations were to vanish, those holding negative cash flow property will be wanting to dump there investments and run. Those invested in the NZX in a down turn should not be put into a have to sell situation by the security, where a negative cash flow rental property could force an owner to sell. It would be interesting to know how many negative cash flow rental properties there are in the country?
ARB - the other trigger for inflation could be protectionism as gobalisation is a large part of the disinflationary pressures over the last decade. And globalisation seemed to being blamed for all the ills of the working man at the moment, so protectionism is gaining ground politically where ever you look
I cannot for the life of me, see how it is that houses can become part of this whole globalization schtick. It is probably leaving them open to predatory behaviour from both foreigners and locals, that is making people less and less comfortable with the free market and globalization. Maybe if houses were carved off and kept separate from trade you might just get a few more people in favour of it. Mind you, all owning of land in other countries is something we should probably all have a serious talk about.
Arb! Been in property for 30 years and personally never lost money on any property, and don't intend to either.
That is why I am "The Man"
Of course there are people who lose money on property, but they do things wrong.
A positively geared property that is purchased at a good price does not need to be sold.
It is like any investment, there are good and bad.
Personally won't touch the sharemarket again as you have no control whatsoever over your shares.
Property purchased well (Not Dorkland) with positive returns will always be safer and outperform any sharemarket.
Ch.ch. market is stable and gives very good returns.
Once the "as is where is" property sales slow down the true average of Christchurch prices will be shown.
The overseas buyers are definitely moving to Ch.ch. to buy as they see the value compared to Auckland and
standard of living is superior!
And you seem to miss several facts. Currently according to TradeMe there are some 1955 properties for rent in Christchurch - why so many and why would anyone buy a rental in what is a saturated market. Secondly rental returns are declining in Christchurch. Thirdly there is an abundant supply of new properties on the market - there is no shortage of supply. Fourthly - you have the illusion of control - you can not control your tenants - they could run out owing rent, the could damage the property (intentionally or unintentionally) or worse they could use your rental as a meth lab.
You seem to ignore any risks / downsides of the housing market and make a lot of assumptions about what other people will do. You don't seem to provide any evidence for any claims.....
Pseudo science at best.
And the jingoistic comment at the end .....
Firstly, we own a substantial number of rental properties and have none that aren't rented.
We are professional landlords who have never had tenants not pay us.Reason being is they are checked out
properly.
Rents have come back a wee bit from the peak but all our tenants are staying on for next year.
Rents to remain the same but the slightly lower rents from a couple of years ago are well and truly covered by the massive reduction in interest payments
No trouble controlling tenants if you are a full time landlord.
4 weeks bond covers rent arrears but never gets to that stage. Regular property checks plus don't allow nillers in either.
Yes plenty of new houses being built which ensures that the lower to middle houses maintain their value as the new houses are so much dearer, and owners if they want to rent out need a higher rent.
Still possible to get a 6 per cent return and upwards of 12 per cent on ASIs where is properties.
Bought several properties this year and had no problem tenanting them with good quality tenants.
The reality is now is as good a time to buy in Chch. As they are only going to get dearer as the overseas buyers have headed to Ch.ch.
Someone must have properties that aren't rented because a lot seem to be empty looking for tenant's. Your comment about rent reductions is a little disingenuous and you seem to assume the interest rates won't go up (you imply a small reduction in rents but a massive reduction in interest payments). What proof do you have about the foreign buyers. This is the problem you provide no proof only speculation....
In the end we just have to take your word for it regarding your business but you are putting all your eggs in one basket / asset class.
You are part of the problem, you deny others the ability for others to buy their own home by constantly outbidding them at sales, thereby creating your own clientele,as you need to keep others unable to buy in order for you to succeed. Everything has been stacked in favour of the rentier class and that needs seriously redressing.
To refer to it as a business as any other is just a joke, being a rentier has far more advantages than actually running a proper business that contributes to society rather than subtracting from it. It really has to be seriously curbed, home ownership is a real cornerstone of a decent society. If we aren't to return to that, then we must address the terrible temporary nature of renting in this country.
The way has been smoothed far too much for people such as you, even to the point where the public purse subsidizes many of you via top ups etc. Sorry, but it is the truth
Of course there are empty properties, but if you are professional,and have well maintained property and put effort into obtaining good tenants then you will fill,them.
Rents dropped about $20 per week from peak but interest rates dropped about 25 per cent so landlords well ahead.
When Americas interest rates are so low and other countries have rates even lower, the only reason rates will climb is if there is huge inflation, and that isn't very likely.
Obvious signs in Chch that the overseas buyers are in Chch by purchasers at auctions I've attended and by speaking to people in the market.
Off course all my eggs in the one basket as that is the basket that I know produces a lifestyle that you couldn't obtain through any other means.
The thing is that we are very fortunate to be living in NZ and if you are prepared to put the effort in and learn from informed people then you can achieve more than you think is possible.
"Off course all my eggs in the one basket as that is the basket that I know produces a lifestyle that you couldn't obtain through any other means." Yeah, by denying others is the only way you can do this, and don't give me the whole anyone can do it, no they can't, if you own a 100 houses then you NEED 100 people/families to be unable to, for you to gain your lifestyle, easiest way is to make sure you price them out of the market. No wonder you like foreigners coming in and buying, they aid you in that particular quest.
All these comments discuss the many facets of this issue and point towards one simple requirement; the Government MUST regulate to control the market. they have a responsibility to ensure housing is affordable for ALL kiwis, not just a few. Protecting asset values is a folly of putting a few ahead of the majority, and is a fundamental betrayal of all Kiwis. This problem has now become so large that relatively simple regulation is no longer possible to put the brake on it. Taxes, prohibition of foreign buyers and dare I say it, price controls on rentals are all required now. Unfortunately some first home buyers are going to get burnt, but that will be cheaper than just letting the market crash.
One way for a reset in housing is for all, repeat all , renters move out on a temporary basis so eliminating all rents.
This would take a lot of organisation and good will from people who would give them a temporary home, a little rent may change hands, under the table..
(National could organise this, in the National interest).
People could stop paying taxes to support the 2billion donated by National, into the give renters a free home...subsidy.
You would of course have to ban all rich immigrants from coming in to stay in their off-shore investments. and holiday homes.
Not that National would not oblige, in the National interests of their countrymen.
If you do not understand sarcasm....the above was it.
Or one could fiddle the books....With net operating loss.
http://time.com/4516001/donald-trump-taxes-twitter/
http://edition.cnn.com/2016/10/01/politics/donald-trump-taxes-report-hi…
That would Trump all other losses.
PocketAces, I do not deny anyone from buying a property.
Firstly all the property I buy are under what I consider market value, but I won't go into that.
Secondly Chch property is cheaper to own than rent at the moment if you are advised by the correct people.
It is not hard to make good money and retire early with property even now if you are prepared to work.
Opportunities are always out there.
Don't listen to the man. You should have a variety of investments including property and equities.I retired in my fifties based on income from equities. No tenants, no worries and no costs. Dividends come in six monthly and if there is a short term dip in any prices I just buy more as they always bounce back. Anyone who has not been in equities in recent years has missed out on huge capital growth. There is always money ready to buy into weakness. Everyone seems to be forgetting NZ is on emergency interest rates mortgage wise. We will see who can swim when they start moving up to normal levels again. The Fed is expected to raise US rates in December as the USA is slowly but surely recovering as Yellen said last week.
As I consider landlording (the way we do it in this country) to be parasitic I have chosen not to go down that path. I have some ideas of how it can be done so it is something better than farming people (which is what I consider you do) I am going to be putting some energy into getting something set up to perhaps see it happen one day.
Don't listen to Gordon.
Equities are fine if you are prepared to gamble that your share company isn't going to go broke like many have over the years.
If share brokers were so sure of shares then why are they still working if they knew which shares to buy?
Guarantee there are far more property investors able to retire or take things easy than share investors.
Known many people including myself that have had shares that are now worth toilet paper.
Interest rates have been tipped to go up in the U.S.A. For ages and nothing has happened.
Just back from the States and things are not That flash over there and with Trump or Clinton in power do you really think that is a recipe for USA to prosper?
Even so rates won't move much at best anyway.
Holding a diversified set of index funds (i.e. Exchange-Traded Funds or ETFs) is a good way to spread risk in shares. Yes, there is still fund risk itself, but as an individual ETF holds a basket of shares in anywhere between 10 to 7000 different companies, the diversification significantly reduces risk compared to holding shares directly in a company, which sounds like what you've done. There are also treasury and bond ETFs available, although now's probably not a great time to buy them, if interest rates are going up.
The key is diversification and understanding asset-class correlation, and I note that someone else has already mentioned that you're pretty concentrated in real-estate. Cash in bank is a good diversifier, but these days it's too closely correlated to real estate for my liking (like what happened in 2008).
You do need to have a bit of intelligence before you get into shares the man. As I have said in previous posts on this site it is my experience from dealing with property investors over 30 years that they generally were average people with very average incomes that needed to get into a steady as she goes investment like property. To get into shares you need to have a decent income and some level of financial skill and financial intelligence. Of the estates I dealt with over the years the ones that held shares were easily the biggest. If you want average returns buy houses for investment. They are easy to buy and that is why their returns are smashed by shares. Horses for courses.
One thing I suspect about landlord's is that they are conservative investors, yet the housing market in the recent past is acting more like a speculative market with rapid gains. What I suspect is that the housing market is acting more like an aggressive market - which is prone to periodic "revisions" and landlords as conservative investors are uncomfortable with the risks that are becoming apparent.
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