By Gareth Vaughan
As 2020 rolled into 2021 and housing affordability at times managed to replace COVID-19 as the main news story, I've wondered whether New Zealand will ever find a circuit breaker.
Will we ever build enough houses to really move the dial? Will land prices be forced significantly lower? Will attitudes towards renting and long-term renting options change to the extent a large slice of the population is happy to rent for life? Will there be massive wage and salary increases? Will banks' housing loan appetites be weakened by changes to capital rules? Or, most importantly, will enough voters demanding change exert enough influence in focus groups run by the two main political parties?
In the interest.co.nz office a few years back, when the housing market was on one of its many tears, you'd often hear one of us say; "You can't lose with property mate." Inevitably this was when the latest monthly Real Estate Institute of New Zealand (REINZ), Barfoot & Thompson or Quotable Value figures were released. We said this in a joking manner. But it's clearly a saying that's believed by many Kiwis.
I was reminded of the "you can't lose with property mate" saying this week when I read the Reserve Bank's regulatory impact statement on the reinstatement of loan-to-value ratio restrictions (LVRs). It was the paragraph below that jogged my memory.
We acknowledge that we do not currently have evidence from New Zealand to suggest that default rates are higher for investors than owner-occupiers. However, this needs to be seen in the context of the housing market having had no severe downturns in recent history (since the early 1990s at least). The absence of a severe housing market downturn in the last 30 years is not evidence that one could not occur in future, and data on investor behaviour in prior shallow downturns may not be a good guide to the consequences of a future severe downturn. Moreover, as discussed above, the recent growth in lending to investors has been significantly higher than lending to other borrowers, and a higher share of this lending is occurring at high LVRs. This suggests that highly-leveraged investors are playing a key role in recent rapid house price inflation, which in turn increases the risks of a future sharp correction.
This lack of a severe New Zealand housing downturn presents a challenge for the Reserve Bank. When making a case for the need for LVR restrictions, or any other curbs on the housing market, the central bank can point to examples in Ireland, the United Kingdom and United States all it wants. "But that didn't happen here... And that couldn't happen here... You can't lose with property mate," critics respond.
I'm now wondering whether the circuit breaker could actually only be a severe downturn, with all the pain it would entail.
The 1987 share market crash taught many New Zealanders a very harsh lesson. In fact it burnt an entire generation and helped push people towards becoming property investors.
Every month interest.co.nz measures housing affordability through our Home Loan Affordability Reports written up by Greg Ninness. The last three headlines have read: Falling interest rates a savage kick in the guts for first home buyers while existing home owners laugh all the way to the bank; Rising house prices more than offsetting benefits of lower interest rates on mortgage payments. And; House prices have risen 5 times as much as wages for typical first home buyers over 3 years.
That gives you a flavour of how challenging it is for wannabes to buy a home.
However, Statistics NZ figures show 65% of households owned their own home in the third quarter last year. Although that was down from 74% in 1991, it's still a decent chunk of the population. And it's this part of the population our politicians focus on.
Prime Minister Jacinda Ardern told my colleague Jenée Tibshraeny in December she wants to see small increases in house prices, and most people expect the value of their most valuable asset (their house) to keep rising. Rising house prices was also a path to success for John Key when he was Prime Minister. Key once described rising house prices as a sign of our success.
At the moment super low interest rates are making it easier for those who do manage to crack the housing market to service the mountain of debt most require to do so. But much of the lending has been going to investors.
Reserve Bank figures released on Friday afternoon, covering new residential mortgage lending by borrower type for the month of December, show investor lending up 89% year-on-year to $2.454 billion. Lending to first home buyers rose 39% to $1.686 billion. Total lending surged 48% to $9.652 billion, the highest monthly total since the Reserve Bank began collating this data in 2014.
Meanwhile REINZ figures show median national house prices increased $121,000, or 19.3%, in the year to December 2020 reaching $749,000.
No wonder Shayne Elliott, CEO of the ANZ Banking Group, said this week ANZ's New Zealand staff had been "run off their feet."
Recently I interviewed ASB CEO Vittoria Shortt. Among the questions I asked her was whether house prices need to fall.
"One of the concerns that I have in what are already pretty uncertain times, is that anything that happens in something as significant as the housing market needs to be very orderly. Because what we don't want to create [is] real concern, blanket concern across every New Zealander who has a house or who is investing in houses. So whatever happens it needs to be orderly. And I'm not sure that decreases in prices now would be an orderly outcome," Shortt said.
ASB is our second biggest home lender after ANZ. ASB's recent half-year financial results showed gross loans of $95.5 billion, of which $65.8 billion, or 69%, are home loans.
A significant fall in house prices would almost certainly be disorderly. Especially as such a scenario would likely be caused by a significant rise in unemployment and/or surging interest rates. Many recent first home buyers would be hit hard.
The concept of negative equity would get regular mentions in the media. It would be painful. But we might actually learn, the hard way, that house prices can actually fall. Doubtless those impacted would remember for the rest of their lives. And stories of the Great House Price Crash would be passed down through generations like tales from the Great Depression have been.
But given the dominant position of housing in New Zealanders' wealth, economy and banking system, would the Government and Reserve Bank allow it to happen? Or would there be bail-outs all around? It's hard to imagine there wouldn't be strenuous efforts, with billions of dollars splashed around, to prevent a housing meltdown. Because in a New Zealand context housing is simply too big to fail.
Thus we may be waiting for some time for a circuit breaker to our housing affordability woes. So don't hold your breath.
198 Comments
Negative equity especially if leverage has occurred to buy more properties actually further devalues peoples savings. If banks create currency for financial transaction and property collapses then you have all this currency backed by nothing. And non asset owners have their savings earned through labour and work wiped out...
Rather than bail out your bank will fail and the 123k you had in the bank will dissappear. However the next day you will be told to download an app from the RBNZ.. and 123k of digital currency will appear. This will happen all round as banks will be allowed and set up to fail on purpose globally as central banks take over. All foreclosures and properties the banks have will be transfered to the govt to house people and UBI will be given to all.
I think in general terms what you have descried is the way the currency end game will play out. The govt/central bank ends up owning more, and more of us become drones on govt life support.
I don't think NZ can do much about the trajectory because we are so constrained now by the debt-fuelled ponzi. I watch the steady demise of the USD for clues of how quickly we transition to a world dominated by the CCP, but I don't have much idea what that looks like.
Hard to argue with your analysis there, Gareth. We got our first home in late-2017. We thought we were forking out significantly then, but have looked on with astonishment as its value has soared past wage and CPI increases. This is so destructive to NZ inc. Surely it is better to pop the bubble sooner rather than later?
It's Alright - I'm HERE~!! What are your other 2 wishes?
Even if mortgage repayments are serviceable at these price levels - what about rates, insurance and repairs? How can rates not go up? How can insurance costs not go up? How can repair costs not go up?
Rates probably need to double, triple.. HIGHER? It's not like the purchasing power of the NZ Dollar is suddenly going to increase. It's not like tapped-out-renters can afford to cover excessive insurance costs and repairs.. is it?
If I buy a home, my expectation would be that prices would DECREASE and rates/insurance/repairs INCREASE. I live in Christchurch, so perhaps such effects wouldn't be so dramatic, however the Northies FOMO gives me pause/shivers. Labour do love a bail-out I suppose.
Rise in high house price has offseted the low interest rate so now the amount of mortage paying on a weekly badus is still higher or may be same but the total mortage amount is 20% to 40% higher so it is a myth when RBNZ and FM or PM says that falling interest rate has helped FHB
Infact low interest rate, if have helped anyone is speculators and RBNZ and givernment is well aware of it but it suits them and is also what they want, hence silent when everyone is talking about rising house price.
Vote for Jacinfa Arden.. Lol
Regardless of what they do, there is so much money sloshing around at the moment that some of it will be invested in property. It’s easy to blame the RBNZ etc, but I think the main problem is that we have a large demographic (boomers) at the richest time of their lives. The bigger problem will come when they all cash out!
Yup - and the issue is they'll probably cash out just around the time the millennials reach retirement age, meaning those millennials who have been able to buy a house will see values drop just when they hit retirement. And they won't have experienced such stratospheric rises in values as the boomers have, so will be less likely to be able to cope with the loss.
Some Gen x ers will be the biggest beneficiaries of this debacle. I am a good personal example. Born early enough, so that by the late 80s, it was clear (to me) that driven mainly by the new phenomenon of mass immigration, our house prices were almost guaranteed to skyrocket over the next few decades due to the creation of massive and continual excess demand. So while railing against what I said would divide and destroy our country I bought a handful of properties in the places most of these immigrants were flocking to.
In addition my parents had their own home, a holiday home and rental properties. So, in summary, by the time this mess is over and my parents have passed I will have massively (and unfairly) double dipped. By the sheer good luck of being born into a (multiple) property owning family my kids will be OK. But this is not OK for NZ. Immigration must be slashed as one of the major steps towards addressing the problem.
> But given the dominant position of housing in New Zealanders' wealth, economy and banking system, would the Government and Reserve Bank allow it to happen?
Is the implication here that our government and central bank are somehow more competent, benevolent, or omnipotent than others around the world, who just sit idly by and "allow" economic crises to unfold before them?
Is it a question of competence or a question of credibility. Over the past few years it has become increasing clear that the credibility of politicians, business persons and other so called leaders has reached rock bottom and they continue to dig. IMHO the internet has made this clearer as people are readily able to search for what was said in the past and contrasted to what is being said now (the classic example is Key's statement on housing affordability over a decade ago contrasted with his actions when in government).
It is no surprise then what is happening in the USA. My worry is that it is happening in NZ.
Ever since man wanted to vacate the cave and live in a solid home built by hands I doubt that homes have ever been cheap enough for everyone to have their own one. But really we all know, as much as we know anything these days that it is a truth which all parents should be told to persistently whisper into the sleeping childs ears at night "you cant lose with property"
7 percent doubles every ten years... places like grey lynn would be 7 or fewer years therefore 11 percent cagr PLUS rental income streams. Friends commercial property here in far north sold last year for 350 percent of 2013 purchase price, how is that for an unleveraged capital gain. Maybe right place right time. He's reinvested the funds into dairy industry, good move because even JA has changed her attitude towards agri. Regards Auckland property, suburbs like Hillsborough and Mt Roadkill are selling for about 2500 per sqm land area. 1000 sqm property costs between 2 and 3M. Those are average suburbs so the answer is YES. The worst suburb of all, Otara properties selling 1M plus and people are screaming as it dawns on them whats happening
I was referring to the maximum in your range, which is a period of ~6.5 to ~10 years, as you say.
Please allow me to ask: do you think these properties are becoming 7-11% more valuable as a form of shelter (in the same way that an iPhone becomes about 10% better year on year)? Or has New Zealand just become that much more productive? What is driving this increase, in your opinion?
Whats driving it... There are multiple and varied reasons. I am not going to pinpoint one thing, but maybe you'd care to. FYI I am satisfied with ZERO capital gain so long as there is good cashflow. But it seems almost every buyer of every thing, property, shares and other assets is motivated by whether they expect the price will go up otherwise they're not interested. Some here have boasted about how much they profited from capital gains of various assets yet hypocritically pounce on property investors.
My narrative goes as follows: most of the run up over the past few decades was due to artificial restrictions on supply, and a skewed tax base. This latest inflection was caused a transfer of wealth to the home owning middle class via monetary policy (larger than any of fiscal covid relief measures), and is now being driven by FOMO.
That’s almost certain to be inaccurate, but I haven’t been convinced by any other explanation. Hence asking.
I would agree with that summary of NZ's housing market over the past few decades. I could add a few more details - the government exiting infrastructure provision that towns and cities need for expansion (MoW abolished) and switching housing support payments from capital support of new builds (public or private) to income support to tenants which landlord capture (Accommodation Supplement).
Something I find interesting - we had 74% ownership in 1991 and now have 65% in 2020. In '91 we had roughly 3.5 million and now we have roughly 5 million so that means there is actually numerically a pile more people who own - 45% increase in population but only 9% decrease in ownership. Pity the stats seem a bit blunt when it comes to ownership.
"This lack of a severe New Zealand housing downturn presents a challenge for the Reserve Bank."......"But given the dominant position of housing in New Zealanders' wealth, economy and banking system, would the Government and Reserve Bank allow it to happen? "
Need to define a downturn in % terms and the effect on banking stability. Isn't banking stability what Orr and the monetary policy committees concern is? Not the job of RBNZ to overly concern themselves about house prices unless it has a detrimental effect on the banking system. It clearly doesn't.
The PM saying a small increase. Neat, is a small increase 1% or 10%.
A downturn in house prices is in my book anything greater than 1% and less than 10%. Surely that's "affordable"
I take the Monetary Policy Committee to be a Labour patsie committee without any teeth. Maybe someone has a better insight into its workings other than a talk fest or rubber stamp with the Governor and one or two other officials attending the meeting.
nigelh... as I said the other day I believe that the powers that be are fully aware that any kind of drop in property prices would lead to huge catastrophic drops that could feed off themselves and pretty easily exceed 40 or 50%. The decision makers would be fine with a small, short term drop but the likelihood that an initial drop would spiral out of control is their big worry, and rightfully so IMO. A 10% drop (if it happens) would put us in a spot where it is better than even money that the market falls (at least) another 25%. And that IMO is why they are so determined to try to prevent the start of a small drop. If prices start falling (even a little) LOOK OUT.
If prices start to drop even a little they just pull the lever the opposite way! Yup! RBNZ already proved how quickly they can pull open the parachute. I'm sure it suits Beetroot, Mr. Greedy and Bad Jelly for people to think a tiny correction would be calamitous and beyond repair
You've heard of the concept of a "moat" in investing where an company can gain an advantage in high returns that endures the test of time? In effect the government (through the RMA among other policy instruments) and local councils (through zoning) are a regulatory moat around investment property.
The only risk is that a Government comes along at some point that scraps the RMA and zoning requirements completely for a number of years which would genuinely instigate a building boom. However in New Zealand that's a very small risk as Governments here are predominantly administrative and occasionally incrementalist.
Agreed Westminster.
Prior to the GFC dairy land going gangbusters with land being converted to dairy - e.g. Southland and the forestry area on SH5 north of Taupo.
Rather than contrasting that dairy land boom to housing I feel that there are some comparisons.
At the time of the dairy boom, there was considerable outcry as to how dairy farms were over priced, there wasn't the return and it was all about speculation . . . exact same call regarding housing now.
As I have previously posted, I think that the housing market will be flattish for a considerable period of time (with some minor correction in the short term possible) as with dairy land. Like the folklore around the dairy boom, there will be a time when there is a similar folklore around the housing boom.
Although dairy land did show some minor corrections, the key for the bank was that farmers meet their mortgage obligations. I see that happening with housing as well; banks will likely force a mortgagee sale where payments are not being met, but it is not in their interests to have widespread mortgagee sales in instances of negative equity but mortgage payments being met, as that would lead to a collapse of the market and compound their debt situation. Nor to I feel RBNZ who have tried to stimulate the economy through low interest rates both GFC and Covid are going to take actions which undo that work.
So dairy land serves as a great example of a likely scenario for housing . . and those who think investment property is about capital gains rather than yields, or homeowners who think that their home is an investment rather than a home as it should be, are like dairy farmers who bought for capital gains post GFC then they are going to be waiting some time.
https://www.interest.co.nz/charts/rural/farm-prices-dairy-land. Notwithstanding some marked regional differences, and notable foreign purchases.
Cowpat
To get a handle on what has been happening on dairy land as referred to by Hummy the interest.co chart does not go far enough back as it shows only recent minor post 2017 fluctuations.
1990- 2000 average dairy land was around $14,000 to $16,000/ha
2008 pre GFC it was $40,000/ha - about a 250% increase in a decade.
Today it is still around $40,000/ha
My dear Printer, if one uses a hoof to move the cursor at the charts base, Interests chart will take you back a little further. If the link pasted does not enable such , I appreciate your comment. As you may appreciate, we originally had dairy interests in the Waikato, such as been my multiple postings of Shanghai Pengxin in the past and the implications of significant foreign ownership, and rising prices. We own land but no dairy presently.
That is the big problem with farming, we are getting left behind and essentially having our wealth deflated.
Just think how many houses you could have bought for the price of your farm in 2008 and how few you could buy now.
Even the price of cows/cattle has been fairly stagnant or declining. The average 50/50 share milker probably wouldn’t have enough assets now to retire to a modest house in town without taking out a mortgage.
Have just sold our farm after owning it for 10 years. We were lucky to get back what it owes us (2011 purchase price+improvements), had about 10 offers and only 2 of them would have seen us get back what it owes us, many offers were significantly less.
Just a Farmer
Agreed - frustrating.
And that is what those purchasing houses at the moment are likely to experience over the next decade.
Those buying property at the moment need to remember that their house is a home, and investment property should be more about yield.
Good article here from Damien Grant -
https://www.stuff.co.nz/business/opinion-analysis/300234438/whos-to-bla…
Dont have to be a FHB
Previous home owners in NZ or overseas may apply for the First Home Grant. You can only receive the First Home Grant or its predecessors, the KiwiSaver HomeStart grant or KiwiSaver deposit subsidy, once. If you are a previous home owner wanting the First Home Grant, you need to meet the standard eligibility criteria, and you must:
1. not have received the First Home Grant or KiwiSaver HomeStart grant/KiwiSaver deposit subsidy and/or first-home withdra…
It's shallow and basic. He thinks that adding back in LVRs is bad because they mean it will lock in ownership only to those that already have houses. He fails to think about the wider picture, that LVRs are there to protect the financial system.
Unsurprising that a libertarian thinks this: "The smug paternalism of our governmental class is astounding. They believe they know better than you on what economic risks you should take." - yes they do, because we are quickly becoming a nation of overpaying idiots regarding housing. It's one of the functions of government to moderate markets, both the highs and the lows, understanding that pure market capitalism can be destructive for a society. Libertarians of course take the contrasting view, but there is yet to be a successful libertarian society. The attempts to make one have failed miserably, under the realisation that society requires some form of governance, which is against their mandate. So it falls into a state of anarchy.
He does get this bit right though: "The Reserve Bank has made housing expensive with its reckless monetary policy. This is by design. Increasing property prices makes homeowners feel better off, so they spend more. When this has perverse effects on people struggling to enter the property market, they introduce more regressive policies to try and unwind the effect their first one had."
But I would prefer not to listen to this convicted thief who runs a parasitic business. Why they give him a platform for his uninsightful views is beyond me.
"the only way New Zealand will get a circuit breaker to our housing affordability woes will be if there's a severe housing market downturn "
Correct.
It shouldn't have been this way, but it is.
It could all have been expediently managed during the last several crises, without political damage, but it hasn't been. ("It's not our fault property prices have adjusted. It was The Earthquake or The GFC or COVID-19 etc")
Now. We stare at a political landscape where no one wants to take responsibility, so proverbial can-kicking happens at every hint of economic instability. (You have perpetuated this Financial Market Instability, Adrian. You.)
We all know what's happening. We all know that risk it being piled on top of risk on top of risk.
Article writers on here know it; commentators do; the RBNZ does; Jacinda Ardern does (that's why she took her turn at can-kicking with her recent set of comments), but one day, just as surely as night follows day, The Inevitable Crash is coming.
All we don't know is, when.
But one thing's for sure. When it happens it will be at the most inopportune of times; when can-kicking doesn't work and the devastation wrought will be horrific.
Share Market 87' stuff indeed or Finance Company stuff of 15 years ago only far, far worse.
One day, my friends, one day....and no one; not Gareth or me or you, know the exact day it will arrive or why, until it does.
Then, it will be too late........
Yep. And a crash - say 25-30% - would only take prices back to where they were a few years back, still very high relative to income.
The only way NZ will get affordable housing for FHBs is by the government initiating a large scale leasehold housing program for FHBs.
Fritz' Yep. And a crash - say 25-30% - would only take prices back to where they were a few years back, still very high relative to income...
Fall of 25% to 30% will take us back to few months or a year and not few years.... Thank all time favourite PM - Jacinda Arden and wrll supported by Mr Orr and hus deputy.
"" A significant fall in house prices would almost certainly be disorderly.""
25-30% would seriously hurt a small fraction of home-owners and they would only hurt when they needed to move. If they die then the bank would pick up the outstanding debt. A crash would be over 50% and you don't have to look hard to see places in the world where it has happened.
'Gareth Vaughan wonders whether the only way New Zealand will get a circuit breaker to our housing affordability woes will be if there's a severe housing market downturn'
Gareth it is impossible as housing market in NZ is not running under free eceonomy and the very though of it falling, sends shiverers in power be it politicians - in government or in opposistion or RBNZ or bureaucrats or many experts as the only real economy in NZ is housing and all decession makers have vested bias interest so........
Government and RBNZ have themselves put in a situatuion where will be blackmailed by their own doing with the very thought of downturn in housing market (ups and downs are healthy in any economy as per economist) and will be forced to support and do anything and everything to avoid slowdown in housing market.
So everyone can blindly borrow as much as and gamble as government and RBNZ have more to lose and worry than individuals borrowing... So everone should take a chill pill as your borrowing is government and RBNZ headache and earlier one is a part of the ponzi better as this as per Jacinda Arden as mentioned by herself is a one way street and she will never let the housing market fall.
Today if one looks around everyone who can has put their bussinesses in silent mode and only concentrating on being a builder or speculating in housing market for tax free fast money as they trust in Jacinda Arden as she has mentioned and assured that under her, house price will never fall
This is this site's favourite subject. So many articles and comments about the possibility of house prices falling and the effect on our society. Isn't it worth reviewing those places in NZ where well built houses are standing empty? I found the Otago rail trail a shock - one ghost town after another. Some of those houses were less than 50 years old.
Owning my house in Auckland makes me a millionaire but if half of Auckland's population chose to live elsewhere I'd be happily living in an emptier city with less polluted beaches and no traffic congestion but when I died my children would inherit a house worth peanuts. If council rates are high enough it would just be abandoned.
Having the world's highest rate of legal immigration is not a help especially since sociologists discovered foreign immigrants prefer living in cities. However house prices in cities in countries with minimal foreign immigration (Japan, Korea, Taiwan) also have gone up. Much of our problem results from Kiwis moving from zombie towns and rural areas into our cities.
The property market needs people, and NZ always gets a quick population size boost via immigration. Most of our new builds were sold to Kiwi Indians since 2018, for instance. Coincidentally, the most common family name registered in New Zealand in 2020 were Singh, Kaur, Patel
If it weren't the Indians, we would not get our parcels delivered either, and the supermarket shelves would be empty too. Being an Asian immigrant myself, I support other immigrants who work hard to contribute to NZ. And I also believe Asians, as the second-biggest minority group (in a broader sense, Chinese, Koreans, Indians etc.), deserve more in NZ. All I want to point out is immigration is closely tied up with the property market, especially when we keep building new houses the locals can't afford in bigger cities. Immigration NZ is again looking at attracting wealthy foreigners.
The root cause of the housing crisis is mass immigration but I don't know anyone who blames the immigrants themselves. They are just trying to improve their lives. The fault rests with successive governments who have introduced such lax border control. Clark, Key, English and Adern should all receive a public flogging.
Just in between the last two census Nat govt managed to increase the Asians ethnicity population by 400K (increase from around 300k to 700k), You only dream to be in NZ as Asians? is best to become a landlord, RE investors.. and do hard but low quality work/wages. Asians is the third biggest ethnicity behind European(first) then Maori(second), the fourth is Pasifika. The third largest ethnicity is subject to be squeezed by long NZ history (around 150yrs), so yes. Before moving to meaningful life across the ditch with your NZ passport? Stay there, invest in multiple properties. As surely NZ won't buy that Sinovac vaccines (low quality/efficacy) - And right now? you're a dead duck if you want to join a Healthcare sectors, despite the Asian demographic ethnicity also craving for the 'ethnicity support?' - NZ only focus on giving free educational seats for Maori & Pasifika, job placement and other PR stunts - good luck, even if you do have excellent brain capacity as Asians, that broad Asians ethnicity counted just as superficial support platform for the rest. Wait until you get really sick there, all those wealth was nothing compare to health support. But I agree with you, to stamp out that Aotearoa bigotry? NZIS must ease up of cheap $ to enter NZ, if dirty a bit? trick launder into RE, .. then the natural 'magic weapons' will slowly flourish.. (CCP describe that 'magic weapons' as the diaspora spreads of their citizen worldwide, procure local lands, then growth the cultural affiliation, economic activities which cycle back to the root of culture, tradition of momy's land).. it's one way cultural association.. you won't see them tied up to US, Russia, Brazil, India, Saudi for example.. nope, but you guess is right there.
The real reason for housing crisis is not only immigration, interest rate or supply but support from government and RBNZ a s is evident :
- Where is RBNZ and government when house prices are rising in double digit if not weekly definitely on a monthly basis
- At the same time see how fast and prompt government or RBNZ was when in May they fely that the market may fall
Market had not fallen in May last year but just a fear that it may fall made them act overnight and now when the house prices are actually rising.. are silent. THIS SUMS UP GOVERNMENT AND RBNZ IN NUTSHELL
The immediate contributor is not immigration this time. However, immigration is always part of the formula. Once COVID is over, I am sure we will get a big jump in immigration numbers, and it will push properties further. NZ is an attractive place for Asians and South Americans.
I sincerely hope you are incorrect. Flooding our country with immigrants has done enough damage to NZ already and the property market is just one example of this. We should only welcome immigrants who are genuinely a net positive for NZ which would reduce the immigration settings by about 90%. Yes, NZ is an attractive country for Asians and South Americans, most of whom are escaping third world countries with extreme poverty.
Third world, but the one moving here? is at the top chain of their country mass cheaper production. eg. China or India business (only few top can go here) millions of their poorly paid workers? not a chance, the same with South Americans.. err.. I liked their genius way to make the boat turn into.. mini Sub, for their goods transportation, bit primitive, the heat signature still visible. But with the growing of enterprise, who knows? as NZ & OZ are clearly on top of the world being targeted for their products, as the price locals willing to pay is still profitable.
Your work has been great Gareth but you failed to ask Vittoria Shortt the follow-up question to:
'ASB CEO Vittoria Shortt's response to the questions I asked her was whether house prices need to fall..needs to be orderly. And I'm not sure that decreases in prices now would be an orderly outcome," Shortt said.'
So as long as we get an unorderly outcome up then that is OK, but not when it goes down?
Dale... problem is that an orderly drop of 10% is so likely to be followed by a disorderly crash of at least another 25%. This is why the banks are now starting to protect themselves. Why would they care about a 10 -20% drop? They wouldn't. They are scared of where that drop could lead (or end up).
Agree, but my point is they make it sound like some Good 'orderly' management when it goes up, but not when it goes down. And yes you are right they are starting to protect 'themselves with an orderly PR campaign and management decisions. And most of those decisions mean that the end-user is left holding the total can for the banks and Govts. policy.
When it comes to things that affect them, there is nothing disorderly about it. In a crash, they are just as likely to record profits.
Don't give up! So much more work to do :-).
The ActionStation organisation;
https://actionstation.org.nz/campaigns
Is a great one to follow (and donate to!) regarding their work on inequality and housing. They put together this report in 2017;
https://drive.google.com/file/d/19eZenoJ9A6qj3HJj8EerRI1p2rq4B45n/view
Which I believe had a great deal of influence in terms of government policies in relation to changes to the Tenancies Act. They also campaigned hard on mental health - and again, with good success.
They've just surveyed their supporter database (and you get on it by simply signing any of their petitions - in other words, no donation needed) regarding the 2021 campaigns of most import to their base. And of course, my Number 1 priority was:
#rentcontrolnow.
:-).
I was having a conversation with a long-established property investor last week (block of 6 units and 5 stand alones), and he said:
"I'll bet you didn't think this was going to happen, did you?!" - (the continued rise in property prices.)
"No, I didn't" was all I could say after having expressed my views to him over many years.
But what he followed up with was interesting:
"Well it doesn't matter to me. If prices fall 50% I'll still be ahead"
This is the first time in all of our conversations that he's even contemplated prices falling, never mind about "50%". It probably means nothing. But it looks like at least some investors are doing their sums. I wonder why!
The only way a significant fall will happen is
1) Labour require greens to form govt 2023
2) Greens don't turn out to be a bunch of gutless losers. Who sell out there housing/taxation/economic policy for a few ministerial positions.
Odds of this happening is about 10% IMHO
So smart money says buy high, sell higher!
I suspect that is the attitude that helps raise prices, as I'm hearing anecdotally that some (dare I say it) boomers are listing properties at super cheeky prices just to 'see what happens', out of 'curiosity', but they are in no hurry to sell and don't need to sell so reducing the price is not a factor - these sorts of sales are surely contributing
https://www.newshub.co.nz/home/new-zealand/2021/02/what-it-ll-take-to-h…
Wherever one looks, news of rising house price is splashed everywhere BUT still Prime Minister and Finance Minister are ignoring and it is this very issue that made them PM and FM in the first place...it goes to prove that politicans of all breed are .......
Headline in newshub :
Another week, another demoralising confirmation New Zealand's housing boom has put homeownership out of reach for more desperate Kiwis.
Real shame that Jacinda Arden was voted on the very same issue, which now is ignoring and supporting.......
Pretty much every question time National and Act ask questions about rents or house prices or the size of the housing shortage. Greens ask if the government has considered a wealth tax given how the monetary stimulus has increased inequality via rising house prices. They also ask government officials similar questions in select committee.
Yes that is a real possibility. When a large sector of society needs are not reflected in the political process then disengaging from politics is the obvious response. If that happens in NZ then a large cohort will become susceptible to populists, conspiracy theorists, Trumpism...
Past is okay to look on rear vision, to say bye.. climbing up, rocketing vertically to the moon, until.. some realisation that you're on normal airplane (hell, can be on most advanced fighter jet even to Stratosphere).. but yea, it's still not a proper rocket though.
I bought my first place in May 2020, right when everyone thought the market would crash, what happened instead, dear me.
I'd like there to be a comprehensive study to see what (if any) correlations are to be found between productivity levels and a countries preference with particular investment markets, have a sinking feeling our obsession with property is a cause of our lack of productivity.
(edit spelling)
Hi Gareth,
Should one be surprised that everyone is talking about housing ponzi BUT the PM and FM.
AND
They are the same people who were shouting from rooftop and showing concern in each and every platform before comming to power.
NOW
NATIONAL PARTY UNDER JOHN KEY = housing crisis is a good crisis
LABOUR PARTY UNDER JACINDA ARDEN = Housing Crisis is a good crisis.
Here's the plan Grant...
1. Introduce dampening measures - pick something that eats *gradually* into yields - LTV ratios, purchase tax escalator on properties for rent, rates increase at 3 x CPI for all investment properties, etc)
2. Guarantee that Govt will purchase any residential *land* from any resident home owner in negative equity - providing all payment is used to pay down mortgage. Banks told sternly to waive any fees
3. Take same approach for any FHB - Govt buys the section
4. Govt leases purchased land back to the home owner (at discount rate until they sell their home).
5. Govt balance sheet pretty much unchanged (assets balance out the spend).
6. Banks get a significant liquidity boost - so no need for dumbass QE.
7. Govt owns increasing number of sections - creating options for redevelopment into pepper-potted housing for affordable rent.
We have enough parasitic pro-homeownership policies . We should absolutely NOT bail anyone out when the inevitable correction comes. F*** that.
If people are stupid enough to listen to all the drivel about doing everything you can to “get on the ladder” and get into unsustainable debt, it’s their own fault.
b21, houses have not only been a place to live but a way to get ahead in NZ because working here is third world in terms of jobs and pay. So many things need to change to fix the problems and its simply not going to happen. We got where we are for a reason and its not just a problem in NZ, its worldwide, ultimately its population increase driving all our problems.
This is an absolute joke of an excuse to justify unethical behavior. Everybody is looking for the best for their families, blah blah blah, always the same individualistic neoliberal rhetoric which is driving many countries off the cliff. Heard this way to many times already to take it seriously. This is once again rich and powerful taking advantage of those who cannot afford a home.
Japan did not massively increase their ageing population by migration means, this thought to be the key difference.. say Aotearoa, let's do more of it. When natural progression being distorted, the law of supply and demand being artificially manipulated, watch how this play out.
The 1987 share market crash taught many New Zealanders a very harsh lesson. In fact it burnt an entire generation and helped push people towards becoming property investors.
I think that the state house selloff which started in 1991 and continued for more than three decades was a bigger driver of people getting into rental investment. Coupled with that selloff was the cancellation of income-related rents in 1991 - effectively levelling the cost of state housing with that of the private sector.
In other words, successive governments applied a 'push' policy to diminish the state's involvement in housing provision to its citizens. All very deliberate.
And don't forget up until this government, HNZ was also expected to provide a return (profit) to government.
In other words, the stock market crash was likely far less influential than government driven policy in terms of encouraging the private sector to get into housing provision. And generations of kiwis since 1991 have suffered the consequences.
https://nzhistory.govt.nz/culture/we-call-it-home/the-state-steps-in-an…
Can anyone argue that this graph does not almost mirror immigration increases with about a five year lag? Why can't we just slash immigration for five years to see what happens. We have very little to lose and so much to gain. The future of NZ moving forward as an inclusive society rests on it.
You definitely can't loose mate. It is this governments policy.
Recall Arderns recent statements that people expect prices to keep rising and she will never let property prices drop. So there it is, it is official. Our phony, duplicitous hypocritical leader is a worse property spruker than the National party. She is totally prepared manipulate the free market to sacrifice the hopes and dreams of all the people who voted for her in order to cling to power by appealing to right wing and middle NZ also. She cynically takes the disposed totally for granted. - Who else would they vote for anyway. Very reminiscent of the USA Democratic party. We need another political party. The affordable housing party. Solve that single issue and we would solve so many other ones also.
At least with Key you knew what you were getting.
I think that there was an unspoken expectation that Labour would would take measures that would stop the upward price march and engineer a mild retreat leading to a long term move to affordability. Her statements completely dispel any such hope.
It is interesting to note that people have woken up to her and been posting very negative comments for about a couple of months now, I have not seen anybody defend her. I suspect that she has blown her credibility across a pretty wide part of the political spectrum.
Probably not, but wouldn't that expose them for what they are. I wonder how the voters would react to that. As things stand at the moment Nationals place in the political spectrum is clear, right wing. Labours position supposedly left wing, but in practice further right than National. Labour have vacated the Left. They have no sensible place on the political spectrum the way that they are acting. Accordingly there is a gaping hole that could be filled by another party. For goodness sake don't suggest the loopy feather brained Greens.
It seems Labour are at least centre right on the stuff that really matters especially housing. When it comes to the small superficial garnishings like speaking a few words of Te Reo, supporting waka paddling and celebrating Matariki they are left wing which allows them to be so centre right (on the big things) without attracting much criticism. Love her or hate her Jacinda really is the consummate politician.
Love it or hate it we have the situation the majority of voters wanted.
Also... the money printing did take the majority along with them in terms of the economy booming. Rbnz knew there'd be collateral somewhere and boy did they get it. However what was the alternative to the path of least regret... aim for the lowest common denominator.
I dunno... I don't think they had much choice tbh.
And at the same time rates are needing to be increased by 20% plus per annum compounding over 5 to ten years to properly fund infrastructure.
Plus coming legislative changes needed for energy efficiency etc. will make most present housing outdated.
The 'Price' of a property is starting to fail yield, replacement, and market valuation fundamentals.
What could possibly go wrong?
Just out of curiosity. In the current situation would not any investment property held by Politicians or the uppers of the RB be considered a conflict of interest and therefore have to be recused from all economic policy or else liquidate their positions? What are the actual laws regarding such things?
Politicians do have to declare their pecuniary and other interests;
https://www.parliament.nz/en/mps-and-electorates/mps-financial-interest…
RBNZ staff - no.
By the time the next election is upon us everything will be flat, housing, jobs, GDP and immigration as productive young Kiwis will be out of here once they can travel again. Boomers will be cashing in and buying that retirement villa. We are going to need another dose of fresh fools to keep this Ponzi going as FHB's will be tapped out by then. Que.......the next round of immigration weather we like it or not NZ is heading for 6M+ by 2030. Maybe Luxon can muscle his way into the top job and take this hospital pass like a man!
"It is not greed that drives the world, but envy." - Warren E. Buffet
The hope in prices falling and resulting in an easier position for first home buyers (FHB) is one of the most fallacious assumptions that had driven many raging aspirants to their financial losses.
Assuming you bought a house 10 years ago, you need a market correction (currently) to be in the region of 43.84% just to bring back the price to the year 2010.
The decline in households owning their homes could be also explained beyond price issues. Factors conveniently not discussed are: life-style changes, labour mobility, increased decentralisation of workforce and developments in communication technologies. These factors are strong disincentives to owning an immobile property.
Of the 35% of households that do not own their houses, they could be further categorised into a few categories: willing renters (happy campers), FHBs that don't even have a deposit (dreamers), FHBs that don't have a viable deposit (strugglers), FHBs that have the deposit but are waiting for a price correction event (speculators).
From an economic perspective, the entire 35% of households not owning their their own houses does not constitute to any form of demand. The second and third groups are not backed by buying power, the first and the last one has buying power but wants something else.
The current government is right to not act on the false demands and noises from a few but loud individuals that Astroturf the housing debate. To give in to this minority is a serious blow to the democratic society where the appeasement of the minority takes precedence to the welfare of the majority. Such an action results in a pseudo-secularism system that may eventually collapsed unto itself when the majority decides to act on the perceived favouritism.
FHBs hoping for a market correction are also naïve to think that any form of correction will enable them to enter the property market with their current deposits. This misconstrued thinking will rear its end when they realise that in any downturn, credit crunch kicks in rapidly. The stress test standards will be moved tighter and qualifications for a loan will be upgraded and strictly enforced. The proverbial shifting of goal posts will once again come back to haunt the disillusioned FHBs who got the market correction but continued to be locked out of the market.
The current situation is not a relational issue within the scope of demand and supply but rather an issue with expectations. The entire pricing of the NZ housing market in its current form is beautifully check-mate through decades of planning policies that are based on extraordinary ideologies that has no practical beneficial impetus.
The government should keep their hands off the market to allow it to run its course instead of creating more deadweight losses through intervention- let the private sector correct the issue.
Consider the famous motto of the United States Navy SEALs,
"The Only Easy Day Was Yesterday"
Now get ready for work tomorrow!
FHBs hoping for a market correction are also naïve to think that any form of correction will enable them to enter the property market with their current deposits. This misconstrued thinking will rear its end when they realise that in any downturn, credit crunch kicks in rapidly. The stress test standards will be moved tighter and qualifications for a loan will be upgraded and strictly enforced.
What have they got to lose? In the event of a correction and credit crunch, the increased standards of lending might play in FHBers favour if they have stable jobs. Especially if the banks have a portfolio of distressed equity stackers that need to sell property to settle loans.
There are plenty of jobs out there that don't directly rely on the real estate industry. For example, Ireland's bubble burst resulted in 15% unemployment for a number of years, which is not good, however that still leaves 85% with jobs i.e. people who are not builders, real estate agents, mortgage brokers etc. The other difference is Ireland cannot print Euro, but NZ can print NZD.
Interesting how the conversation goes from credit crunches to your ability to "buy the dip", good for you but I don't see the relevance.
This chart debunks your theory completely.
The chasm between reality and fantasies can't be more startling.
I concede! Difference is the mortgages behind those properties were in Euros. Mortgage holders defaulting to banks with effectively offshore funding sources. If the NZD didn't exist and we borrowed in USD or AUD then it might be a different story. However I'm sure the Government and RBNZ has the capacity to step in and secure owner occupier mortgages meeting certain criteria, leaving leveraged investors to the market.
Since we're using Ireland charts to debunk theories, maybe we could look at an Ireland house price graph when people discuss the NZ property as a one way bet.
You're only looking at the situation through a very narrow criteria. Have you heard of the bigger picture? Heard of increases in crime, homelessness, anything like that, before? The expense on the tax-payer expense of propping up even the middle class - not ringing any ding-dongs?
Expect more QE soon by RBNZ, to be administered by govt in urgency to support: unemployment, climate emergency/carbon neutral, to support tourism towns (C'mon do you think they allow Q/town and Rotorua to tank?) & oh yea, .. the Cook is. sole tourism industry. Any significant correction, even in small rural town in NZ can spell bad for the rest of dominoes. Currently, this shaky ground being maintained solely by OZ bank cartel.
They do realised the kids binge can lead to death now, this will be minus future customers by their definition.
QE is just an artificial way to indirectly increase asset prices ie houses. It is pretty much interfering with the market in order to (try to) protect property owners at the expense of others. The massive negative effect investors have on NZ society is the main reason why investors are hated by so many. But Govt sponsored (tax payer funded) welfare to the well off like QE, LSAP and the AS (as well as the personality of the average NZ property investor) are also reasons why so many are so negative towards investors. But if it makes investors better off to think it is jealousy, there is no law against delusion.
Really guys. Get your calculator out and stop saying investors are dominating the market. Your article says total lending was $9.652 Billion of which investor borrowing was $2.452 Billion. My calculator indicates investors accounted for 25.4% of all borrowing and owner occupiers share was of course 74.5%. Bearing in mind the existing percentage of owner occupiers versus rentals this shows investors are not even keeping up with occupiers. Of course they usually buy cheaper so that might tilt the playing field a bit. Despite what everyone is saying investors are not causing house prices to go up it is dropping interest rates and improving wealth. This is a world wide trend helped along by the massive drop in international travel.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.