By Gareth Vaughan
Australia doesn't have a housing bubble and there are "reasonably good reasons" why house prices are high in both Australia and New Zealand, says HSBC's chief economist for Australasia Paul Bloxham.
Bloxham, who joined HSBC last year and is a former Reserve Bank of Australia economist, told interest.co.nz there were lots of reasons why Australia didn't have a housing bubble.
In an unusual move last September Commonwealth Bank of Australia (CBA), that country's biggest mortgage lender and ASB's parent, issued slides rebutting the suggestion from some economists that Australia did have a housing bubble. CBA argued that concerns about a housing bubble were driven by a “superficial or incomplete analysis” of Australia’s property market.
The latest figures from RP Data show Australian house prices rose by a seasonally adjusted 0.4% in the December quarter last year and 4.7% over 2010. Melbourne and Sydney prices rose by even more, 8.4% and 6.6%, respectively. The median price in Sydney is A$525,000 and A$505,000 in Melbourne.
Although acknowledging Australian house prices were "relatively high" by global standards, Bloxham said he doesn't believe the country has a housing bubble.
"I think there are reasonably good reasons for why house prices are high in Australia," said Bloxham.
These include that a lot of the houses are in urban centres and are large by international standards meaning the quality of the housing stock is high.
"If you look around the cities like Sydney and Melbourne, you don’t see lots of apartment buildings you see lots of trees, you see lots of parklands and you also know there are lots of relatively big blocks in the middle of those cities. The urban density is quite low compared to Singapore, Hong Kong or New York," said Bloxham.
"What that says is that there’s high quality housing in the middle of those cities."
Moreover Australia doesn’t have particularly good transport infrastructure, especially in Sydney.
"So it really is the case that if you want to work in the city you’ve got to live quite close to the city. It’s these fundamental factors that mean house prices are high. People are competing for the same housing stock, it’s high quality, it’s near the city and they all want to be there."
'No fundamental change likely'
Unless these fundamental factors changed suddenly, which Bloxham doesn't believe they will, it would continue to be attractive to live in the middle of Australian cities for those who work in them.
"It seems pretty reasonable to assume house prices are high for a reason," Bloxham said.
Australian house prices have been growing in line with household incomes since late 2003 with the house price to income ratio reasonably steady for about eight years at about four. House prices had been flat for about nine months and this was likely to continue for a while because the Reserve Bank of Australia has been lifting interest rates, which are now "a bit above neutral" with the cash rate at 4.75%.
"I think from here on in they continue the trend they’ve been on for the past eight years or so and they grow roughly in line, in the medium term, with disposable income," Bloxham said.
"The thing that’s going on in the Australian economy is not in the housing sector. The really big thing in the Australian economy right now is in mining investment. Conditions are tighter for households because we’re making space for all this mining investment to go on. So that means house prices are going to track sideways," Bloxham added.
"If they were going to fall they would have fallen when there was the big aversion to housing assets back during the global financial crisis."
With income growth in Australia running at about 6% or 7%, this was the sort of rate Australian house prices were likely to rise at in the medium term.
New Zealand house prices to 'track sideways'
In New Zealand however, average total hourly earnings increased just 1.9% last year. On top of this unemployment was sitting at 6.8% as of December.
"Income growth is substantially slower here (than in Australia) at the moment," the Sydney-based Bloxham who visited Auckland this week said. "And I think that’s going to be one of the key features that means that house prices don’t rise for a while."
The latest Real Estate Institute of New Zealand (REINZ) figures, for January, show there were just 3,252 houses sold in January, - the lowest monthly sales volume since REINZ records began in January 1992. The median house sale price in January was NZ$340,000. That's down from NZ$352,000 in December and NZ$350,000 in January 2010.
The latest figures from government owned valuation group Quotable Value (QV), for January, show residential property values in New Zealand are now 5.8% below the market peak of late 2007. That compares with significantly bigger falls in other western countries such as the United States, Spain, Ireland and Britain.
Bloxham said there were good reasons why house prices in both Australia and New Zealand should be high because there are reasonably good prospects for both countries in terms of future income growth. There was "good reason" to think New Zealand's economy will improve this year with the "three R's" of the "food story" (high commodity prices), "football story" (Rugby World Cup) and "fixing the flatlands" (rebuilding after last September's big Canterbury earthquake).
That said, the New Zealand housing market was likely to "track sideways" for the rest of 2011 and perhaps into 2012.
Affordability issues for first time buyers 'fixing themselves'
As for housing affordability, Bloxham said the key question is whether houses are accessible to new entrants and they're certainly less accessible than they used to be.
"The difficulty then is how to fix that. The only fundamental way you can fix an accessibility/affordability problem, is to reduce house prices and having house prices fall is not particularly a happy outcome (because) when the ownership rate is quite high, you’re going to do quite a bit of damage to the population," said Bloxham.
The best way to fix the affordability problem was for house prices to not grow for a period of time and for incomes to grow, meaning you grow your way out of the housing accessibility problem.
"And I think that’s exactly what’s happening, particularly at the moment in Australia," Bloxham said. "In New Zealand house prices are flat and income growth weaker than Australia but still positive. If house prices are going to travel sideways for a while that’s going to fix the accessibility problem and that’s the only way you can do it."
See the latest Roost Home Loan Affordability Report here and a Reserve Bank of Australia report Asset Prices, Credit Growth, Monetary and Other Policies: An Australian Case Study co-authored by Paul Bloxham here.
* This article was first published in our email for paid subscribers earlier today. See here for more details and to subscribe.
62 Comments
"HSBC's Paul Bloxham had shifted his (previously correct) November hike call to December, and (was) so got wrong-footed..."
So he might be right...unless he's wrong. Economists, eh! (PS: Sorry, muzza: took me a tick to find what I was looking for! There's heap more on this chaps miscalls...but it's wine time!)
But Australia is different
I think he's not far wrong with his prediction of NZ prices tracking sideways for a couple of years (losing significantly in real terms of course), although I think they will fall slightly rather than be flat.
ANZ are also of this view, it just remains BNZ and Westpac who see house prices going up again second half of this year
and I think he might be right on Aus, unless China slows down markedly
A fellow further down the beach from me , is a Canadian , a real estate agent from Vancouver ....... He seemed non-plussed when I ventured that there was a mighty big property bubble right under his nose ....
... However , after a trip to Hong Kong , I realised that Vancouver is a bargain , by comparison .
- - - - - - - - - - - - - - - - - - - - - - - - - - - - -- -- - - - - - - - - - - - - - -- - - - -
And if there's alotta hot Asian munny slopping around the planet , why would it not slosh into NZ & Oz property ?
Vic - in 1980, we went into global 'overshoot' - the point where we started chewing into natural resources at a ratenot repletable. Not sustainable. Not maintainable.
Written well by Catton (Overshoot).
By 1984, that morphed into a lack of exponential-growth opportunities - hence the global trend to grab public assets.
One of the ways to get your hands on public assets - particularly taboo stuff like foreshores and conservation land/crown land - was to give (sorry, Treaty-negotiate) it away to the Maoris, who would mis-manage it, and it would end up in the aforementioned private hands.
I was writing in 1986, that it was no coincidence that the Tready-settlement process had accelerated post 1884 and Douglas.
Now, of course - it's a matter of demographics. The Maori reproduction rate projects their vote to surpass that of the pakeha at some point - so it's a political suicide for anyone to ignore it.
And - race aside - there will be as much greed/personal selfishness in that demographic, as anywhere else.
here is that good article Hugh:
http://www.bayofplentytimes.co.nz/life-style/news/dreaming-of-a-home/3941139/
Hugh - do you have any info on personal savings in Texas? Presumably with the lower cost of housing people can save more. Do you have any data?
I have tried to find data on that too, and can't. One interesting point is that "discretionary spending" tends to be higher where house prices are low:
http://www.allbusiness.com/banking-finance/personal-finance/14245106-1.html
This is not a bad thing, either.
The latest Westpac Economic Conditions Overview contained a very valid challenge about whether we really need to focus on "quality of investment" rather than "quantity of savings". It is possible to have high savings rates and serious economic distortions that are net negative in their overall effect.
So............yet another bank economist from(HSBC) the main bank that gave the 4 biggest aussie's banks most of their abroad lending just happens to think there is no property bubble.
Well........I wonder why he wants everyone to believe that? Could it be that second largest bank in the world has allot of it's own debt at stake here and in Aussie?
Yes, I believe so. HSBC were giving Westpac Billions everyyear to sell mortgages
Well spotted, Justice. I understand that certain international hedge funds are "shorting" Westpac and the other Aussie trading bank that is over-exposed to residential mortgages, as hard as they can.
What this Bloxham twit and the other bubble obfuscators cannot deny, is the large and rising "discontinuity" in the price of land at the urban regulatory boundary. This does not just affect housing affordability, it effects the whole efficiency of urban form and land use. The London School of Economics has several people focusing their research on this right now. They have recently concluded that Britain is suffering a serious disadvantage in international economic competitiveness due to 5 decades of "Town and Country Planning Act". High land prices, high living costs and hence wage demands; REDUCED efficiency of urban form and "location" of businesses, employees, and customers. (I have explained why at length on other threads).
Australia can't sustain this nonsense for long. They are not Britain, with its empire, economic history, financial centers, population, and proximity to Europe. Neither can we sustain this nonsense. If Australia and NZ choose NOT to use their one major advantage - abundant land - we deserve an economic international Darwin Award.
" If Australia and NZ choose NOT to use their one major advantage - abundant land - we deserve an economic international Darwin Award. "
Good point. NZ is a similar size to the UK - we have 4 million, they have what about 60 million? We have plenty of land on existing urban fringes to free up for urban development. Crazy how precious we get about the countryside when we have goddam so much of it!
We have 100 million in the Philippines , in a total land area not much greater than NZ's ........... And as you drive along , it appears that the country is one giant city , 'cos most people live along the sealed roads ...
... But when yo do a fly-over , you see that vast swathes of beautiful countryside are largely uninhabited .....
... So where is NZ's problem with freeing up more land ( just don't waste it on those idiotic 10 acre blocks ..... most folks only want a half acre or two to care for ) .
When I read spin like this I always wonder to what extent they have taken into consideration Australia's exposure to what's going on in China. Same applies to us of course.
(especially from 5 mins onwards)
@ Phil B/MiA-just been out around Hamz(dipping toes in the water).
Prime examples of this BS:- went to one section advertised with Harcourts, "Mortgagee auction- 8000m gv 205k-suit pole house, on a bend in the road.
When we saw it, you would need poles the size of the Eiffel tower-Martha mine shallower!!
We might have the same landmass as the UK, but, not the same RE standards.
thank you Hugh. It would be great if someone can enlighten us on savings rates in Houston. It is surely going to be higher with less money paying off the mortgage .
It would be very interesting to find out - if we can establish generally higher rates of savings in places with lower house price to income multiples, then we can argue to the NZ govt as it looks at this country's savings problem that fixing the housing mess is even more important!
Leith might be able to help
While I'm normally the first person to advocate for housing being overvalued is it reasonable to expect a 25 year old couple on one income with three kids should be able to afford to buy a house? Maybe in times gone by that was achieveable but its not even close to that now, you could hardly say theyve made the best financial choices (even if they were the best for other reasons).
Surely a better starting point would be a couple of that age who intends to have kids in the future (median age to first become a mother is 28 iirc) and currently has low expenses and a double income and needs to get a foot hold before starting a family. Its those people being cut out of the market I'm more concerned about.
G'day Matt. I have searched high and low for Texas' savings rate but can't find it. However, I have found info on their housing cost index, which is well below the US national average. Note the reasons provided in the notes at the bottom, including: plentiful land available for low-cost residential development; minimal delays and costs involved in permitting and development processes; and limited land-use regulations.
Common sense would suggest that if Texan households are spending far less on average on housing, then they are either spending more on consumption and/or saving more than average.
Us Aussies and Kiwis could learn a thing or two from Texas. There is no reason why our housing should be more expensive than theirs.
Cheers Leith
thanks Leith, as you say it stands to reason that Houston residents have far greater potential to save / invest than their counterparts in high priced housing cities. It would be nice if there was some data somewhere to help prove the point though
Hugh / Leith - I know these median multiple measures exclude interest rate consideration, but given Australasian interest rates are far higher than American interest rates, a 6 to 1 median multiple here would in reality be far worse than a 6 to 1 median multiple in the US.
Yet we jump up and down when are interest rates are at 6% !!! Oh sooooo low!
We really are getting screwed down under!!!!!
I have a private commissioned report in my pocession currently which is being used to move a sales/marketing department from NZ to a Texan city. Interesting to note...regardless of the lower of cost of living which is clearly outlined in the report, the client will will be paying simliar remuneration packages as they have been in NZ: 120-200K NZD vs 130-180K USD.
Finance being secured on mortgages at 4.5% term 10-20 years, interest tax deductible on private residence makes it less than 3% as an effective rate. Although they appear at a low point currently.
The middle class in the US are more oriented towards equity investments so in this group they will have more savings/investments as the toys generally cost a lot less as well.
Note: The key staff involved are all keen to get going...
Leith, I liked this article of yours that Hugh has referred us to:
http://macrobusiness.com.au/2011/02/us-treasurys-housing-report-gets-it-half-right/ Great stuff. You say: "A better model can be found in Texas, which has adopted both an open market-oriented approach to land-use regulation (see here for details) as well as stronger consumer protection laws and underwriting standards, [robust use of LVRs] which ensured that credit demand was kept in check whilst other states were gorging on easy money." So if by comparison with Georgia: "This is not to say that Georgia is an ideal housing market – it’s not. Whilst Georgia had the supply-side down pat, its consumer protection laws and underwriting requirements were inadequate, leading to prolificate lending and a high number of bank failures. Nevertheless, Georgia’s responsive housing supply was able to mitigate these credit excesses, thereby limiting the overall damage to its economy." ..... so then, if by comparison with Georgia, California had maintained it's more restrictive approach to land-use regulation, BUT, adopted the Texas approach to credit growth with, "stronger consumer protection laws and underwriting standards, which ensured that credit demand was kept in check whilst other states were gorging on easy money." ...... is the probability higher or lower that California would have experienced a less intense property bubble? Especially considering: "It is no surprise that the epicentre of the US housing bubble/bust – California - has nearly 50% share of Jumbo (large non-conforming) mortgages, despite accounting for only 10% of the US housing stock. The reason lies in California’s strict land-use policies that limits home construction, thereby ensuring that extra credit demand feeds into higher prices instead of new construction." Summarizing, is the probability higher or lower that California would have experienced a less intense property bubble if California had maintained it's more restrictive approach to land-use regulation, BUT, adopted the Texas approach to credit growth with, "stronger consumer protection laws and underwriting standards, which ensured that credit demand was kept in check whilst other states were gorging on easy money." ? Apologies for the clumsy question, but am just trying to stitch some logic together to better understand the individual influences of restricted land-supply and restricted credit growth. Cheers, Les. www.mea.org.nzLes - I'm sure Leith will reply, but my take on your question is yes California would have been better off with the Texan approach to credit growth, even with its restrictive land use policies. One policy is demand-side, one is supply side. If you influence one side of the ledger then you will have some impact.
But I think the most compelling agrument is for an approach that reduces land use restrictions AND better regulates credit growth
So its an interesting mix of less regulation on one side, and greater regulation on the other! So Texas is a great example of a pragmatic appoach to issues, rather than an ideological one. So people are mistaken when they say Texas is a libertarian's dream, in fact (Hugh correct me if I'm wrong) I think they are Democrat- led
Thanks Matt.
I've got no problem with the AND solution. However, my concern is that we ignore what benefit could come from one while concentrating on the other. In this regard I'm thinking we are ignoring the effect of prudential controls on credit, while we spend a lot of time talking about deconstraining land-supply, which I'm in favour of by the way, so long as it's appropriate.
In comparison, legislation for prudential controls on credit already exists and so such tools could be implemented relatively quickly. The same is not true of deconstraining land-supply, but that shouldn't stop us addressing it, but it should make us aware that another part of the solution is worth doing because we get the benefit faster. Which probably seems quite an odd thing to say with the economy in the shape it's in right now, BUT, I'd like to see some prudential controls implemented asap, with settings LOOSE, (tighten later and with less policy lag) so that we could drop the OCR, now. Sure we import some inflation, but the compensation is lower cost of cap and we start rebalancing the economy. Plus, don't panic savers, in addition to a variable LVR regime, say, one prudential measure I think would be useful, is to specify the maximum proportion of foreign funds lenders can us, so that domestic savings are not displaced with cheaper offshore funds - so your rates wouldn't go through the floor.
Anyway, oink, oink, flutter, flutter.
Cheers, Les.
In relation to the credit, fuel analogy, it's difficult to ignore the problem is multi-causal:
http://en.wikipedia.org/wiki/Fire_triangle
How much more quickly can "fuel" be turned off, than land-supply switched on?
How much more of the economy needed to be incinerated before RBNZ might have realised the OCR regime wasn't working and to implement some prudential measures?
Re. Texas, worth a look:
http://en.wikipedia.org/wiki/Texas
See the politics section. It's why I find the contrast between liberal land-supply regs and restrictive credit control regs quite interesting, given the strong lean to the right, as a state.
Cheers, Les.
Hugh, have to agree regarding increasing the housng affordability gap with Aus. I'm living in Melbourne, earning good coin ... but the prices here are obscene. And contrary to your earlier comments Matt in Auck, it aint sustainable. I've been looking at houses in Auckland via trade me, its not cheap, but 800,000 gets you something decent (and when I think in AUD terms, even better). So cheaper housing is a strong motivator to return home.
Going forward I think this might be one of the key problems for Aus (and a lesser extent NZ). What foreigners can afford to buy a house in Aus any more (let alone Aussies)??? Certainly no one from the UK, Europe or the US. By interntational standards it is prohibitive and unlike other countries where one or 2 cities are prohibitive (eg UK London, Canada Vancouver, US NewYork) in Aus it is prohibitive across the board. Mind you it does not help having a govt with even worse policies than NZ - every time the market is about to correct the govt pump primes it ket (eg first home grants, then extensions, RBMS purchases, govt guarantees, massive immigration etc). Interesting to note that smaller lenders are at it again after govts attempts to increase "competition" (hmm maybe debt) via more RBMS purchases and allowing covered bonds. That said, I think there are limits to what artificial stimulus can achieve (eg Japan) . ... conversely it is nice to see NZ taking steps towards removing the tax favoured status of geared assets (which benefits ppty the most) and have to applaud Goff for mooting the removal of neg gearing even if he sat on his butt while the housing bubble exploded. Better late than never.
Aus govt and opposition does not even want to acknowledge there might be a bubble and that household debt NOT bank interest rate margins are the reason for household mortgage stress. The Greens have finally made housing an issue and are putting neg gearing on the table, so fingers crossed this can get some air time. Interesting the author of the article on this blog used neg gearing as a JUSTIFICATION for prices ... as though govt policy cant change!!!!
Jimmy - to me Aus doesn't look sustainable, but I've thought that for so long now and there's been no real correction. So I don't know what to think about it over there! It seems to defy the odds!
You make a good point about immigration. 10 years ago Poms talked openly about our "cheap housing" . And it WAS cheaper relative to England. But now the difference isn't great, especially with the exchange rate as it is at present. I've noticed recently quite a few pommie immigrants coming here and then going back. They seem to realise its not cheap here now (not just housing but general cost of living), and many I have met struggle with the culture here (especially the professional culture which seems vastly different). It is a big move, and especially now that the cost of living reasons are basically wiped out, a move is less compelling. So far from family remember too! (although I think some who come here can make it work cos they have dysfunctional extended families!)
But having said that, I think Aus will still remain an attractive destination, especially if England's economy continues to be weak over the short to medium term and Aus's relatively strong (China is the big questoin in this respect isn't it?). NZ less so - our economy is way weaker
good ponits Matt. Remember though that Aus is even less attractive than NZ from a Europeans perspective. I have a Serbian mate here who was living in a spacious apartment in Belgrade, close to the city - now he has paid 3 times as much to get a tiny flat 30ks out of the city in a rough area. I asked him why? He said he is not sure. The quality of life sucks in Aus right now if you are not already established. Great place to earn some dosh and enjoy the big city attractions (like I used to think of London), but not a place to bring up your kids. Well at least not in Melbourne. Traffic is now worse than LA apparently. Its an economy built on immigration/students and nothing else, with obvious consequences on infrastrucutre. I'm trying to convince my wife to return home. My other mate over here, earns 150k plus, he's returning to Tauranga end of the year. He's done a simple comparison of what 500k aus will buy you in NZ versus Australia. No comparison even though he will earn 30% less in NZ.
... that said, its not looking so bad in Brisbane now, so I guess it depends where you look. But melbourne is obscene, no question ... and its no Sydney from a lifestyle perspective either.
yup - Aus is a bubble alright. I almost fell off my chair laughing last year when Bill English said one of the biggest risks to the NZ economy was Aus "realising" it had a housing bubble. Although not perfect, it does show our leaders have a few more clues than their Aus counterparts. The clear theme in current nz policy is to reduce over investment in housing. See the below http://www.smh.com.au/business/nonbank-lenders-grab-bigger-slice-of-market-20110219-1b0a4.html for early results of the Aus govt's latest attempt to inject more debt into the market and kick the can down the road. I really hope it blows up in that smug git Wayne Swan's face. His categorical rejection of ALL the housing related reforms in the Henry report last year would have to rate as one of the most despicable pieces of policy in history. A complete sell out of households trying to get established in favour of boomers / banks and property types. Sadly I expect no better from the libs.
Hugh,
Here is the government's answer to affordable housing.
I'm interested in your views and anyone else here who wishes to look a little closer at the development, specifically the Hobsonville development in Auckland.
Hugh, why is this only a distraction from the real issues?
I thought it highlights exactly that the government isn't serious about addressing any of the issues.
" "Housing Minister Phil Heatley has launched a new programme which will make it easier for first-time buyers and those on lower incomes to build or purchase their own homes. Gateway Housing Assistance allows purchasers to build or buy a property but defer payment on the land. 17 such homes are available at Hobsonville Point. All will be quality homes that are warm healthy and energy efficient."
The "affordable" property is a 2 bedroom (95m2) on a 209m2 section at a value of $395 (land value $126k and house value $269k). It is aimed at a couple earning $100k or less and they'll be expected to refinance $370k at the end of 10 years. This is outside the multiple of 3.
A cheaper 2 bedroom ($366k) is available on a 144m2 site but I don't know if this qualifies for the government assistance which only goes as far as deferring payment for the land anyway.
The rest of the development provides 3 bedroom properties ($499k - 217m2 section, $549k - 233m2, $559k - 187m2, $685k - 262m2), 4 bedrooms ($579k - 187m2 section, $609k - 250m2, $635k - 275m2, $750k - 223m2, $765k - 317m2).
All properties are a minimum of 2 levels and it looks to me like the intent is to fit as many houses in as small a space as possible. Does this mean we should be changing our expectations as to the type of property we want to live in? I've always assumed a single level 3 bedroom (90-100m2) on a 400-500m2 section was ideal for my family and I.
Is the government providing the land at overvalued prices to keep property values artificially high in the area? Is the government just propping up the building companies and what sort of profits are they making? Especially as the project has a 10-15 year timeframe. Are the construction costs ridiculously high - 10 years ago my parents had a brand new 4 bedroom (single level, 550m2 section) constructed for $300k incl the land?
If this is the government's answer to housing (at least in Auckland) then what hope do we really have?
I've looked at the newpaper article on Tauranga and it is a shocker for emotionally touting the Tauranga is too expensive line. I been looking at Tauranga for a while, and there are some misconceptions. Pity some reporters don't look more critically at things. Sure the so-called household income in Tauranga is not great, but factor in all the retirees, who mostly have motgage free properties(quite a few come with considerable capital), plus a considerable sector of solo parents- why not rent in a nice city with good schools and a good WINZ housing allowance? (sorry Wolly but they do milk that one). Yes there are some great properties along a magnificent beach that cost a lot (but a lot less than 3 years ago!),however the current median price for house sales in Tauranga was $320,000- that means half purchases must have been less. Can't see why a working household actually should have too many difficulties to buy an entry level property there. May be someone can enlighten me, but I consider there should be some great buys now in one of the nicest spots in NZ, and in one of NZ's significant growth areas - has biggest port in the country these days and it is about to develop a 6,000 university campus in central city. It even has 2 harbour bridges (3 if you count the rail one), thanks to a legacy of Winston Peters who insisted on that when he went into coalition with Aunty Helen a few years ago.
Yes, the numbers speak volumes, currently half the sales in Tauranga are below a median price of $320,000; any reasonable working household (say $80,000 dual income) in Tauranga should be able to manage buying an entry level house, unless of course you keep insisting that they must not have more than a price 3x their household income; around 4-5 x would do it. And if they can't, well we have historically always had at least a third of population who need/prefer to rent
Hi Hugh
What is the unemployment rate in Texas, Austin, Georgia, California, US vs. Aussie, Melbourne etc?
Serviceability of the mortgage has a large influence on the type of house you buy in general
With unemployment low in Aussie the ability to service the mortgage is better than say California or parts of the UK
Another part of the discussion is choice. I don't know anyone wanting to live and work in the USA esp Texas. Firstly it's miles away and I suspect the work visas etc is harder to get than say Aussie
I would love house prices to be 3 x median income, but as muzza pointed out 30% of NZs are renters and so not everyone needs to be able to afford a house/mortgage
Also is there any cities closer to NZ / pacific with the magic 3 x income ratio?
Also I notice you state that the demographic survey you have completed is the 'gold standard' for measuring housing affordability. As we have seen in medicine with the development of different technologies and advances the gold standard changes quite quickly. (not trying to be rude). If something is the 'gold standard' there is nothing to compare its validity against..hence the paradox of the gold standard :)
http://en.wikipedia.org/wiki/Gold_standard_(test)
Hugh, you are like a bible banger with this '3.0 ratio 'must be repected"
And there is something that doesn't quite gel with your constant reference to America. They had a sub-prime crisis, NZ did not. That's what happens when you entice people from the trailor parks to take out a loan buy a house. Too many Earl Hickeys (not Bernard) were given mortgages. The ability of those who get loans to service them is THE significant factor. We historically have a 1/3 who don't/can't get a mortgage, nothing to new about that. Our banks fortunately didn't go looking for people in caravan parks to take out mortgages. Some countries have an even higher proportion of those who rent, Germany would be one.
Coming back to the main point, a working household on a reasonable dual income in Tauranga can purchase an entry level property for under $320k, and that is seviceable, as it is for many of NZ towns/cities.
While I am an admirer of the median multiple, there are a few other things to consider re: the Tauranga article.
First, the US is a much richer country than NZ. Many NZers would be better off if they moved there. However, they are not able to so the question is not that relevant. Why not write an article about a middle class Indian family and how they would be better off moving to NZ? Even so, the lower end in the US is worse off than the lower end in NZ so if you had to draw straws for your lot in the US you might not be so happy with the outcome.
Second, the US is having an economic and especially a housing meltdown. This makes housing in some parts of the US look very cheap. A very interesting situation for the US, but not directly relevant to NZ (except as far as it impacts on a possible bubble pop here).
Third, housing is not the only contributor to the cost of living. To take just one example, Houston, Texas (often cited admiringly by Hugh), the median house price in Houston is NZ$280,000 and median property taxes are NZ$6000 - over 2%. In Auckland, median price is NZ$450,000 and rates $1,200 - 0.27%.
Hugh Pavlovitcvh is so full of good ideas.
We should just keep on building cheap tract houses on the outskirts of Auckland ad nauseum. Now they have invented cars we don't need public transport any more - eveyone can just drive everywhere they need to (except children and old people - but they can just be house bound). Manukau City are requiring 4 carparks per house on one project - such a good idea.
Petrol is cheap and there is an endless supply of it so it will always be cheap. Car dependant cities are excellent - putting in all the extra drainage, roading and servicing infrastructure that sprawl housing requires is good for the ecnomy and maintaining it even more so. Even if petrol does run out they'll invent something cool that doesn't use energy like on starwars.
Traffic congestion is also easily fixed - just build more roads. Sure new roads congest back up within 3 months (or sooner - http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10692749 - http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10680429 ) but building more roads is good for the economy and needed to maintain NZ's record of having the most roads per capita in the world.
Cities with endless sprawl planning are so good to live in which is why they are so cheap - Texas towns are soo nice as are other sprawl towns like Lagos and Mogadishu. I once met a camel driver who complained that he'd have to save for 3 years to be able to buy a house (well a mud brick hovel) - that's Hugh's 3 x ratio. His village was complete sprawlsville, but if houses were 3x income it must have been a wonderful place to live.
Hugh Pavlovitcvh, I kept on seeing your promotion about affordable housing in NZ.. Fair enough, nice idea, everyone will benefit etc... I love the idea but we aren't living in a ideal world. And forget Texas, I'd rather stay in NZ and pay 6-7 times my household incomes for a house.
Here's a hypothetical question for you. Are you owning your own home? if so, if you are selling it right now, would you sell at a price that equates to 3 x the average NZ household income.. or would you be happy to sell it at the highest offered price.
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