House prices are rising aggressively. No news there.
The level of economic output in our economy is rising too, and the V-shaped recovery puts that 'growth' in a category of 'quite fast'.
There is no special linked relationship between the two, but it may seem that they are complementary.
However, house price growth is in another realm.
For the 12 years from 1990 to 2002, the value of all New Zealand houses was about twice the country's annual economic output.
Then there was a burst until 2007, in the pre Global Financial Crisis frenzy, when these values rose to more than three times annual economic output. That was a jump of $350 billion of house price value over five years.
Following that there was another seven years when things flattened out, only to start rising again in 2015 through to 2016 with another $250 billion surge to then exceed $1 trillion.
That was followed by another flat period of about four years through to the easing of the pandemic.
Since then however, house values have risen $520 billion in just one year, the fastest jump in the shortest period.
From July 2020 to June 2021, total nominal annual GDP has been about $331 billion, a rise of $14 billion. During the same time, house values have risen to $1.65 trillion, a rise in the same year of $420 billion. In that year, the rise in house values will have exceeded the rise in economic activity in the country by an eye-popping 30 times.
It is little wonder there is growing scepticism about this renewed frenzy and where it's taking us.
91 Comments
What is remarkable with the New Zealand housing numbers is that based on very ( historically) low turnover. sales/stock.
And Knight Frank with the global list.
https://content.knightfrank.com/research/1026/documents/en/global-resid…
https://www.stats.govt.nz/experimental/covid-19-data-portal
Already happening - not many travel bubble connections, select travel then compare arrival and departure numbers
Current situation in Australia might make some hesitant however that won’t last. Also when the world is vaccinated don’t expect it to return to normal on the travel front…ever
This is a good metric / ratio to use for some perspective. The general vibe from Granny Herald is that this is all quite natural and Robbo / Xindy don't seem to give a rats. I'd say that even in the epic Japan bubble, the value of housing to GDP never got to these kind of levels. The 30x larger than economic activity should raise a few eyebrows around the BBQ or water cooler. Like a DGM's trump card.
Name calling is a classic Trump characteristic, and in my opinion evidence of a narcissistic, psychopathic personality to seeks to belittle the subject they are addressing or talking about. It is uncalled for and unnecessary if you have a credible perspective to put forward. If not, just keep doing it because it tells the rest of us who to ignore.
Call it what you like. I personally believe that the public should be allowed to caricature the ruling elite. It's nothing new. The media has done it since for a long time. No reason why the hoi polloi cannot do the same. Take for example the name 'Xindy'. This is just a play on Ardern's refusal to criticize China on a range of issues, even if it is at odds with her so-called kindness agenda and the wellbeing of the NZ public.
What about caricatures? Are they OK? Some brilliant ones of Hitler and Tojo, or is that unacceptable? Next this will fall under hate speech and Emerson will be locked up for his cartoons. I'm frequently labelled a racist, privileged, boomer, stale white male on this site. Can't argue with facts.
Thats unfair Bugger , the RBNZ has concluded its unclear if there is a relationship between low interest rates and wealth inequality
https://www.interest.co.nz/news/110370/rbnz-concludes-based-inconclusiv…
https://www.rbnz.govt.nz/research-and-publications/speeches/2020/speech…
https://www.rbnz.govt.nz/research-and-publications/analytical-notes/202…
Oh that is still to come isn’t it. First the Greens announce a wealth tax. Second build up property values massively. Third form a coalition government with the Greens. Fourth acquiesce to the Greens wealth tax out of ‘coalition necessity.” Finally reel in the tax on all of that wealth, ie capital gain, you have created. QED!
Up $520 billion in just one year. Unprecedented, and on top of a passage of prior extraordinary increase(s.) If any intent ( ie as per the Greens manifesto) to tax those gains retrospectively, proves to be only a conspiracy then cannot imagine that you of all people would be happy about that. :)
"Unprecedented rise in the total 'value' of our housing stock over the past year sees it streaking up 40 times faster than the rise in total economic activity, even though it too has jumped in the pandemic recovery...."
Hi David, Why is anyone surprised....is this not what likes of Robertson's and Orr's of NZ wanted. Otherwise every week new data suggests that housing market is touching new height still no action and following wait and watch policy. So am surprised as to why you are surprised and wondering where it will all lead.
"It is little wonder there is growing scepticism about this renewed frenzy and where it's taking us."
It is taking us to the moon, exactly where Jacinda Arden government and Mr Orr wants it to go.
Wonder, why are you surprised.
Da
One interesting thing to me is that Treasury and the Reserve Bank seem to consistently under-estimate house price rises. Clearly their models are broken or very incomplete but they are never asked to account for their massive errors. They may as well be throwing dice at this point given their forecasting ability.
Treasury's admission that officials use "professional judgement" to predict house prices, rather than a solid economic model, has shocked Green, National and ACT MPs, who are demanding answers.
https://www.newshub.co.nz/home/politics/2021/07/treasury-s-professional…
Oh the old neoliberal argument about public institutions not working. Keeps popping up every now and then but it is just another way of favouring the private sector, however in this case is a dangerous thing to do since it directly attacks trust in democratic institutions. Must be careful with that since that's how populist are born.
I have heard through the grapevine (I work in FS) that economic models did predict the house price increase off the back of the interest rate manipulation (est ~+20%). But they chose to overwrite that number because they expected covid to have a more adverse impact (just koz). What they failed to consider was that people seek 'safe haven' investments during times of uncertainty, real estate being one of those. They should have just trusted their models, without throwing some unfounded 'professional judgement' into the mix.
Did you miss out by much or a lot... must be a frustrating process. So that's why, despite having determined competition I just kept bidding, 6 weeks ago. I felt at the time I had overpaid, the selliing agents even kept rubbing it in, but not worried about it now. Anyway, it was 20 percent... not much... over 2018 CV, and 250k under estimated market value which is still rising
Similar. 95 square metre very modest but nice 1969 house on a 600m section in Birkdale, needing lots of upgrading went for almost $1.37million last night. Would have been hard to develop section without demolishing house. Agent said interested parties mostly were family home seekers rather than investors or developers. The 2 bidders left at end well outbid a group of Chinese buyers, and looked to be older gen x types. It’s mania out there.
That's a shame. It seems to be the rule rather than the exception now that's there's too much money from QE, chasing too few properties as a result of a decade at least of poor planning. Also with much reduced options for safe investments providing a reasonable return and hedge against inflation, property was logical.
There are a load of highly paid civil servants who's job it is to match infrastructure and social requirements against immigration planning and population trends. Clearly they've either failed to do the numbers properly or they have but they've been ignored by successive governments.
From houses, to petrol, to brocolli.....its all going up. With all the QE/printing, governments cant do a thing
about it. Zimbabwe 2.0.
Fiat currencies are, and will, continue to loose value, pushing prices up for everything.Wage and salary earners need to start demanding way way more to keep up.
There seems to be an aspect of the NZ political scene that is not being noticed or discussed much. National seems to be the party for the wealthy. they actively promote and suck up to big money in all of it's forms. They do try to sound like they are for the ordinary Kiwi, but even the barest of scrutiny's reveals their inability to deliver.
Labour , however, the traditional supposed representative of the working classes, has become more an agent for the dependent classes. But while they are doing this, they too are sucking up to the wealthy, apparently ignorant of Maggie thatchers aphorism; "The problem with socialism is that sooner or later you run out of someone else's money!"The pathway that Labour is taking, I suggest, is more dangerous than Nationals, in that by seeking to increase dependency, they are entrenching demands for Government handouts, att eh expense of building substantial, robust economic growth.
This leaves the working classes mired in the middle with no one effectively representing their interests. since the 1980's working conditions, and wages have been systematically undermined and pulled down. Inequality, and the gap between the wealthy and poor has soared. Political alternatives such as TOP, only offered policies that supported the upper end, but would have increased costs for the middle and lower echelons of society. It seems we are tracking inexorably towards George Orwell's 1984!
The TOP policy as I understood it applied an imputed rent on the family home which resulted in a tax for home owners. "Wealthy Asset owning classes" is a term that opens the door to jealousy based policies, but increased costs too broadly to people who were not wealthy. To suggest a home owner is wealthy because they own their own home is a specious, seriously flawed position. Many home owners, myself included are far from being wealthy, and such taxes would effectively force them into poverty, possibly pleasing a few.
The theory was murray that for the average working home owner the tax affect would be nil - or that was the goal.
The other 'fairness' was that non home owners with equivalent cash invested were paying tax on interest and paying rent with taxable income.
A home owner pays no interest on the income invested on the home.
An alternative to imputed interest on the home would be to allow tax free investments up to the value of a home for a non home owner.
It' about correcting a blatant unfairness that exists against non home owners.
And forcing land bankers to either sell or develop.
The assumption was that homeowners only experience financial benefits from living in their homes. But this is not the case. All home owners as a minimum face rates, insurance and maintenance bills. Most also have mortgage payments too. For an arrogant political party to come along and say there should be an imputed rent for which you should be liable is unconscionable, and establishes a precedent hat literally has no bounds. If they got away with that, what would stop them saying to car owners, that there is an imputed taxi fee that they should be responsible for?
What they are ignoring is many home owners, myself included, sacrificed an awful lot in lifestyle to get to own their home. They are responding to people who are saying "I chose a fun lifestyle, but I think it is unfair that someone who forewent that life style now has their own home but I do not." This is just a sense of entitlement and jealousy, and is frankly BS, and should never get past a start line.
I get it that today many non-home owners are on the short end of a stick, but that largely is not the fault of home owners but of the Government for not effectively managing the economy.
But what you and the boomers forget Murray was that you were at the start of the line with little or no hurdles and the property ladder laying at your feet. Those coming after you had to jump higher and higher as all sorts of hurdles were placed in front of them, had to run faster and faster, and then just when they thought they arrived at the "property ladder" you pulled it up higher- always out of reach.
Not to disagree, but seriously. Would you like to be coming out uni now, with no savings, a 50k student debt and house prices (in Auckland) like 12x the average household income?
When my parents (boomers) were early 20s a 2nd working parent was a lifestyle choice. Now people are choosing not to start families because they simply cannot afford it vs the property dream.
We existing asset class holders, whilst perhaps not directly responsible, need to be very socially aware that we are benefiting hugely in this money scramble at the expense of a massive sacrifice and disadvantage of the young. This is also before we factor in the upcoming costs of climate change etc.
Directly or indirectly we are screwing them over. Just my opinion but This country is fast becoming ripe for a new political movement.
Boomers voted Muldoon in a sweeping victory because he campaigned on abolishing a superannuation scheme that would have seen them putting a little bit of their own money away for retirement. Many of these very home owners today have decided that the right to shelter is their superannuation scheme, funded by the next generations, because "oh shock horror the pension doesn't pay enough".
It the only party that has the lead policy targeting debt speculation on land. Their party vote last time was low and have to say the media certjanly didnt help get their message out.
Speculators will never vote for TOP, but they dont vote Lab either and that is democracy. It's a solid option for those being held hostage by the ponzi (renters, fhb'ers etc). Also those that own their own home and want their grandparents kids to be in NZ.
This "wealth" is about as paper as you can get. To access this wealth you need a willing borrower and willing lender with space on their balance sheet and there is no plausible case where this could total 1.65t. We would need a 6 fold increase in housing lending (at 5 times GDP income can't really offset this) to cash everyone out.
You have to be in first or wait your turn to get access to this "wealth", around 10b a month is what can currently be accessed.
Sooner. Boomers are starting that process now.
Also as a gen x/y, when I consider my friends/family, most own property, but most if not all have been given money from boomer parents at some point. We have created a society separated by class along property lines.
Still prices won't move down unless the money printer stops.
My opinion is that it's likely going to come hand in hand with a wider asset/bond collapse, so careful what u wish for and all that.
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.