By Peter Neilson*
One year ago today the Deputy Governor of the Reserve Bank, Grant Spencer, made a speech entitled “Action Needed to Reduce Housing Imbalances”. In that speech he said “while there are difficult issues and trade-offs to consider in this area, the Reserve Bank would like to see fresh consideration of possible policy measures to address the tax-preferred status of housing especially investor related housing”. At that point, the median house price in Auckland was already over eight times median earnings.
The 1989 Reserve Bank Act was drafted recognising that while the Reserve Bank would be delegated responsibility for delivering the Government’s inflation target and protecting the stability of the financial system, the Government was expected to play its part with fiscal and other policies that would not frustrate the Reserve Bank in its roles.
In his speech Grant Spencer explained what the Reserve Bank was doing within its own mandate while also pointing out where the Government had levers to pull to provide monetary policy with mates.
The Government did respond putting in place a capital gains tax on property investments held for two years or less and also requiring overseas investors to provide more disclosure regarding their ownership of property and their tax status.
This appeared to take some pressure off the Auckland house market for a while, as the Government sought to increase the availability of new sections in Auckland.
Recent data from the Real Estate Institute suggests the price pause is over and double digit house price increases look like returning and not just to Auckland.
It seems that investor expectations are such that investing in Auckland residential real estate is still seen as one of the best investments for capital appreciation available. With interest rates now going negative in some countries, Auckland will remain one of the destinations of choice for yield hungry investors around the world.
So what more could the Government be doing? As the Reserve Bank Deputy Governor pointed out last year, investor owned housing is a particularly tax favoured investment class.
Contrary to popular opinion the effective capital gains exemption is not the major tax subsidy for rental property investors. The main tax subsidy derives from the full tax deductibility of nominal interest rates paid on geared up investment properties. The part of nominal interest that compensates for inflation is simply returning the capital of the lender so only the real part of interest (above inflation) should be allowed as a deduction or counted as income.
Here two changes would make a difference in the relative attractiveness and thus demand for investment in rental property and reduce the prices that owner occupiers need to pay.
One, allowing only the real component of interest to be deducted on new rental housing investments and phasing out the deduction of nominal interest for existing investors over 3 years so that only the real part of interest becomes deductible.
Two, deeming a rental housing investment for which an interest rate deduction is claimed to be a business for which capital gain will be taxable no matter how long it’s held as is currently the case for corporate property investors.
The current housing tax concessions in revenue foregone to the Government are much more expensive than what the Government spends on social housing and accommodation benefits combined.
In the meantime the Government could also ease back on immigration levels so that they are more compatible with increases in the housing stock it can achieve.
The Government will also need to accelerate the access to green field and brown field sections for more houses and apartments to be constructed to increase the supply.
The German Finance Minister recently called for a phased exit from the current low interest rate monetary policy being pursued by the European Central Bank.
The IMF and OECD are both pressing governments to move from relying on inflation targeting using quantitative easing which is no longer effective and start switching to using expansionary fiscal policy and supply side measures to stimulate economic growth.
When New Zealand, in line with other countries, sees a normalisation of inflation and interest rates this will also increase mortgage interest rates and risks creating negative equity for many households.
If mortgage interest rates move back above 6% with a normalisation of monetary policy then many householders will not be able to service their current mortgages and house prices will fall as they have to sell up.
This is likely to produce negative equity where a home owner finds that their mortgage is worth more than their house is worth if they had to sell up. More action to slowly deflate the housing bubble is necessary to prevent the arrival of negative equity.
While the disputes with the miners and the poll tax put demonstrators in the street it was negative equity that really ended middle England’s love affair with Margaret Thatcher. If National wants to stay on and enjoy a fourth term it may want to restrain our housing bubble that will make negative equity almost inevitable when interest rates normalise.
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*Peter Neilson, an economist, was a Minister of Revenue in the Lange Labour Government and supervised the development of the Reserve Bank Act 1989 which established the framework for an independent central bank. Until recently he was the CEO of the Financial Services Council. The views expressed are his own and do not represent the views of either the FSC or its members.
154 Comments
I hope some form the National Party reads this , because if they do nothing ..... they're OUT .
Helen Clarke was thrown out ( in no small part) when Labour oversaw the devastation of the elderly between 2005 and 2008 with the collapsing Finance Companies fiasco ...... she did nothing to stop the activities of those un-regulated banks -in-disguise .
She could have done SOMETHING to regulate the sector , and chose to do nothing
It ballooned uncontrollably , and the rest is history
Every bubble has two components: an underlying trend that prevails in reality and a misconception relating to that trend.
Lots of property investors on these boards can't separate fundamentals from fiction and many more on these boards who damn well know there is a bubble but passionately argue it doesn't exist.
I often try to buy into an overpriced asset class when large bubbles are emerging - it just adds more fuel to the fire. The returns can be superlative but if you aren't too greedy, make a staged exit, and good luck to everyone else. Buying into a bubble is totally rational if you first accept that it is a bubble
Most property investors here don't accept that it is a bubble which is why they are dolts. And they will get the timing wrong and the moment the underlining trend disappoints the cycle will turn into a steep and total reversal. The pyramid that is the housing market - starting with the first house leveraged up to buy the second which was leveraged up to buy the third - it will all come crashing down in time - it's a mathematical certainty.
You know its a bubble when its gone on longer than you ever thought it would and people start to emotionally argue that its not.
Did you not read the article? Why are you so short sighted? If this situation is not brought under control, even just to a small degree, property owners such as yourself will be ruined when interest rates go up. You say it has never happened before here in NZ so can never happen but if it spirals out of control for the next 2 years it will be devastating. The young people's time will come in terms of property ownership but they may be struggling to get the job to pay for it. Wake up Doublegz.
I suspect mortgage rates will drop over the next year. Yet there's pressure on for OCR increases in the US and now Germany is starting to pressure the ECB. I think there has been a realisation that they don't want to end up like Japan. Rates will start going up above 0% globally. It will probably take a few years for the effects to kick in but it'll force change here.
Some property owners here have low or no mortgages. I've got a mortgage that I'm paying down rapidly but that's more to reduce my future interest costs and to counter ended up underwater with negative equity.
There's people here who want to deny that things will change that's fine people can believe what they want. If you have a mortgage take advantage of the low rates and pay down your debt quickly. That will reduce your future risks.
Correct DG well done
Charity =
"the act of giving money, food, or other kinds of help to people who are poor, sick, etc.; also : something (such as money or food) that is given to people who are poor, sick, etc.
: an organization that helps people who are poor, sick, etc.
: the organizations that help people in need
Seriously .............. one full year ago to the day Wheeler flagged this as being in need of action .
Nothing has been done , and in fact in the past 365 days, my home has gained more in " value" than my income for the past 7 years combined if the recent sale in our street is anything to go by.
Honestly , I think we have left it too late .
There is frankly little correlation between Auckland house prices and the intrinsic vale of land and the leaky wooden shacks we have built on them .
The value is just not there , so its got to fall when the market comes to its senses ...... as it will
I detect an ill -disguised disparaging undertone in the question ........... for the record I studied economics while reading for a London based Royal Charter Institutes examinations for which I now hold a Fellowship.
It was so many years ago we even studied Marxist economic theory back then. Academics and others ( mostly ideological lunatics) saw it as a viable alternative,
More recently in 1999 I completed a Post Grad Diploma ( Wales ) and wrote an Economics paper for that
Note I used the word "intrinsic value " in my comment , and I mean intrinsic in the economic parlance sense
I claim neither to be right , nor correct.
I simply know from experience , some occasional reading, and a good few hard knocks that nothing goes up and up forever, not shares nor equities , not oil , not gold , not iron ore , coal , nor tech stocks , inflation , or milk powder and certainly not property .
I am simply saying that in my view there has to be a day of reckoning and it will come when the market turns .
In my view it has passed that point already , there is fundamental disconnect between what Auckland houses cost and their intrinsic value.
Boatman I understand that it may be too late to prevent the negative equity situation arising in the future but surely, for the sake of people who may enter the market between now and the big correction, it has to be worth doing something to prevent another year or 2 of prices spiralling upwards?
As long as there is too much money chasing too few houses, the bubble will go on. And that is what migration and hot money coming into NZ are doing for the last few years and this will continue as long as government policies are favourable. Only a catastrophic event outside of NZ or a radical government turn around will burst the bubble, as per all current signs. Remember, there are heaps more home born, home grown Kiwis wanting to buy their first homes..and that too in Auckland, where the jobs and income are.
That's not what you said. You said "They have done nothing". The RBNZ has tried something. That did work for 5 months. It doesn't mean they wont implement more policy going forward.
My personal view is that the deposit requirement will al look really silly when sales eventually slow and prices do stabilise. Watch those speed limits come off straight away along with FTB schemes.
..I have wondered for a while why the opposition, nameley labour, is so silent on suggesting a remedy to the housing mess. Then it struck me..... are they waiting until the election run up before they make a major policy release? Leaving it so late that the Nats will be unable to react in time without making it look like an embarrasing u turn?
no because just as many of them are landlords so why would they want to hurt themselves.
worse still they use your taxs to help pay for it. it works like this older members own a flat of house in wellington and new members rent off them paid for by Government housing expenses.
as well as the many electoral offices arounf the country that the sitting MPs own that we pay to run.
until you get Mps to stop troughing you will not get laws to advantage FHB's over Landlords
its a gigantic purple slug. The difference only moves a little at the margins. If you are a beneficiary or wage worker you vote labour. Their immigration is usually uneducated, poor and given half a change more than the minimum required amount of unintergratable refugees. But they will all vote labour forever. If you earn a salary or own a business you vote national. Their immigration policy targets educated wealthy people who will vote for them. Both sets of politicians own rental properties so dont expect too much change there. Remember if you earn more than 60k you're a "rich pr1ck" in labours envious eyes
More sticking plaster over old sticking plaster. But it is good that all rentals be classed as a business and are taxed as such. But the big local players, are probably already registered as business's anyway so minimal effect. None the less necessary changes. Limiting immigration? The only effective requirement would be a ban on any non-resident from owning residential property. the limitation on the level of immigration is another debate and as far as housing is concerned, a red herring. I have long advocated that the Government also needs to put a cap an how much can be charged to rent a whole house.
The average wage in this country is circa $55K, but the median is circa $38K. I have advocated using the $55K figure, but if we look at the median (half of all wage earners fall below this) then they only have somewhere around $500 - $600 per week to live on total. So arguing that 25 - 30% of available funds is reasonable portion to spend on accommodation that would limit max rent in the vicinity of $150 per week. The Government is currently spending $2 billion in accommodation supplements, effectively subsidising land lords and the housing crisis. Homelessness is an increasing issue across the country as is begging. By capping the rents, the government would save huge amounts of money, deal a significant hit to the housing crisis, and do a lot about poverty all in one act. But no, they're too invested in Freidman's Free Market Economy, and blind to damage it has done and is continuing to do, and they're afraid of the banks, and the money - no balls.
its a joke that a rental house can be classed as a business but then the loss can be attributle to the owner/shareholder who can use the loss to claim back on their personal income.
please explain to me any other business that can do that even a contractor can not pay himself a wage then claim the losses from his business to offset it
Like every business? Any contractor that makes money on one job and loses money on another pays tax on the total income - not just the profitable jobs.
If Apple/F&P/Toyota makes a profit in one division and loses money in another there's no way they pay tax on the full amount they made without deducting the loss first.
Obviously you must have positive income to offset a loss from somewhere else - there seems to be a misconception that you can claim a loss and the government will just give you money. The situation that seems to upset people is that a PAYE earner can claim losses against PAYE income. If that was ring fenced the first thing any sensible PAYE earner would do is to arrange their employment so they are a self employed a contractor - then claim the losses as before (as any other business does).
Good grief lets bring back 1980's style reforms NOT!!
Building Act, RMA, LGA is where increasing house prices come from.....does Neilson think investors would invest in housing if there was a chance that there could be an over-supply of houses built?!?......if you want to bring the price down and deflate what you call a bubble.....then surely common sense would tell you to build more houses anyway you can......regulation is what is keeping the shortage and prices moving higher but don't suggest ways of dealing with the real problems aye!! The latest figures out have the average price of $2050.00 per square meter to build and no one wants to address that little problem do they!!
Why would any investor build a house if they weren't entitled to deduct all the interest ????
There is perhaps no greater manifestation of the wealth gap in this country than who owns a house and who doesn’t, and yet it’s so unnecessary. Ignoring land prices for the moment, houses do not cost a lot of money to build – a quick search online shows you can buy the materials for a three-bed timber-framed house for less than £30,000; in China a 3D printer can build a basic home for less than £3,000 – and the building cost of the houses we already have has long since been paid. How can it be that, in the liberal, peaceful, educated society that is 21st-century Britain, a generation is priced out? These are not times of war, nor are they, for the most part, periods of national emergency, so why should one couple be able to settle down and start a family and another not, by virtue of the fact that one was born 15 years earlier than the other?
http://www.theguardian.com/commentisfree/2016/apr/12/house-prices-money…
Its not so much the cost of building that is the problem, but the cost of land (see shacks in good areas selling for $1mil+)
It is the availability of land and the cost of creating the sections to build the houses on (excessive costs for subdivision) that are causing the problem. When it is costing over $150k a section just to convert one large property (i.e. farm) into a new subdivision, this is either creating very high cost land for sections or being so prohibitive that people are deciding not to subdivide.
In Australia the developers aren't worrying about oversupply and they are building at a crazy rate that probably will produce oversupply.
Here, you are right there are massive problems, it's a complete pain to get consents for any work. Major delays in processing at the large 3 Councils don't help either. Because they are overloaded they do whatever they can to delay consents and add costs. Compliance costs are incredibly high and the National Party have tried to reverse all the progress that was made with the Building Act in 1991 and made a mess of the Building Code itself in 2012. The costs are all National's fault.
Any better ideas? The majority of people commenting on this website will be invested, many heavily, in the property market and are therefore vested in protecting their interests.In the mean time it is ordinary kiwis who can't afford to rent or buy unless they are prepared to accept a huge debt mountain and be incredibly vulnerable to banks and interest fluctuations. The homeless in this country are a direct result of this and this is entirely unacceptable and a shame that we all must own. What are you doing about it, other than adding to it. The Free Market is the problem- it must be regulated to return balance and must recognise the average persons ability the pay. Currently that does not happen. It is the Governments role to represent the ordinary people of this country, regulate to protect them from the predations of the greedy. They are failing, as do we when we do not call them to account for it.
Have a look at the assets owned and disclosed by our politicians including the so called opposition who are supposed to be there for the workers. There is no way they are going to get rid of negative gearing or anything else that might stem housing valuation growth. Politicians are there for themselves first. Some years ago while we all slept they voted on all stages of a Bill that gave them their generous superannuation scheme. When we work up it was all passed. Then they gave it to the patsy GG at the time to ratify. Says it all really. That is why they are down their with car sales people and RE agents in popularity stakes.
Exactly, why do we continue to tolerate it? The media is the main way the majority of people get educated in this country. Why aren't they all over it as the voice of the people as opposed to being the voice of the politicians? The media can shape and focus public opinion and often try to, but in the end they over look that we are all being ripped off by the people we voted into office.
Exactly, why do we continue to tolerate it?
I think the answer to that murray is that a large majority of NZ want and strive to do the same. So....they let it slide. The rest are "second class" citizens it would seem sometimes for wanting a more equatible society like we once had.
The problem with "House Price Crashers" is that they have do double down. If you thought prices were too high in 2010, then watched prices double over the next 5 years you must feel silly for not getting involved. At that point they start spouting off numbers like 50-70% drops that would spell the end of the world (where you wouldn't be even able to go to a bank to get a loan) to make their stance sound reasonable. If they do get this drop it only takes them back to the price they thought was too dear 5 years ago!
There's a simple answer to slowing down the housing market and particularly for Auckland. And that is to only allow Overseas Investors (Those who reside outside of NZ), to invest in the process of creating 'new build property only' and not be allowed to purchase existing buildings.
That should slow not crash the AKL housing market and not penalise NZ investors, which the current government would probably blindly do. We all witnessed how the Auckland property market significantly slowed after the new IRD requirement was introduced last October. So that proves just how much impact Overseas investors are having on NZ and the global housing market.
"Provide a service"? Rubbish! You can only claim this if you consider your tenant's ability to pay the rent! To do this you'd need to know their take home pay debt levels and other costs, and I've never meet a LL who did this. So basically to be reasonable, set a rent based on the median income and cap your property rents at $150 per week and then you might just be able to claim you're providing a service. Otherwise your are no more than a parasite, being greedy at other peoples expence.
What if you are providing accommodation for well heeled tenants? What if doublegz and I have quality houses in desirable locations? Do you also think all hotels should charge the same rates for their rooms regardless of the quality and location?
Why not base rents on the global median income? That should bring it down to around $3 a week.
When one tenant moves out I rarely have any time to work on a house as a new one wants to move in even though there are far cheaper places to be had elsewhere. Why is that happening?
Can you give any other examples of services that are provided and charged for on the basis of a client's ability to pay for them?
Hairdressing? Legal advice? House painting? Taxis?
No. You demonstrate that landlords are not providing charity, not that they are not providing a service.
This not a freely given service. People need a roof and LLs monopolise on that need. As to earlier streams, the so called free market is supposed to be about a balanced market, but the housing one is anything but balanced. LLs rely on the taxpayer to subsidise their income through housing supplements. This is entirely parasitic. Should LLs take into account a clients ability to pay? Damn right they should! that is the other half of the market, and if they won't do it willingly, then regulation is required! The alternative is that they are driving poverty - is that the type of country we want?
There is no suggestion to outlaw people renting out houses, but currently there is an incentive to place any money for investment into housing, thus causing greater demand and thus higher prices.
If such incentives were removed, demand would drop, prices would drop, rents would likely stay similar, and your net yield after tax would probably be similar (given any increase in tax would be offset by the lower price you paid for the property).
Most want to buy and many of them who would love to buy will never be able to as they do not have sufficient income to build up a deposit let alone service a loan. As I said earlier not everyone is born with the same amount of grey matter or ability. How people on minimum wages look after and feed a family is puzzling. I am lucky that I had great parents who encouraged me to get a university qualification. I was able to put myself through university as the fees were a lot less than today. And I was able to save for an early retirement the day I started working as my housing needs only required 3 times income in terms of servicing. The boomers and X were able to buy cheap assets with surplus income as houses and shares were cheaper to buy than they are today.
I own residential property in both Tauranga and Auckland , and both dont see it as a sure bet for capital gain, and don't see much likelihood of wholesale mortgagee sales.
Before we decide the sky is falling, a couple of points:
- banks lend on sensitised rates of about 7%. When rates are lower, people pay off debt faster and spend on other areas. When they rise, most home owners buckle down a bit, and consume a bit less in other areas. Rate rises to 6% are pretty unlikely to mean who leaks mortgagee sales by home owners. Residential investors might sell down as they did in 2009-2011 and free up property for home owners (I hope)
- Tauranga has been driven up in the last year by Aucklanders, who from my experience, all think Tauranga and Hamilton will follow Auckland. It won't - it has a functional council and good infrastructure, and house prices have now reached the level where it's worthwhile developing new sections. Tauranga will follow exactly the same pattern as CHCH over the last three years - a price lift leading to more section development and house building, and then a price flattening. Auckland is unique in its council disfunction, which is the major reason for rampant house price inflation.
It's the same old Auckland pattern as there is with traffic - lots of moaning, trying to make Auckland problems NZ problems and no action. Incidentally, Tauranga dealt with a big traffic problem 15 years at ratepayers costs too.
Functional Tauranga council???
Recently a property developer connection was boasting about the profit that he was making on his Papamoa development.
Selling price $250k per section
Nett profit per section $160k
I could quote other recent examples in line with this and my similar experience in the contracting industry for a company that develops land on a huge scale. Note that a lot of NZ property development is in the hands of comparative amateurs, and they still achieve the sorts of figures quoted above.
Any claims that these councils are functional or honest in the matter of land development is pure crap.
spot on. The whole of NZ uses the dysfunctional UK land rationing model. Every city in NZ is just an Auckland Cluster%$"& waiting to happen.
I would like to see the figures that show what percentage of the Auckland outflow to the regions is from families on the move, long term investors, or speculators. Anyone know?
That sounds like nonsense. What about the raw land cost? Selling for $250k is only $217k after taking off GST. Take off another $80k in development costs, holding costs and council contributions and the real taxable margin net of GST may be $60-70k if you're lucky. After-tax that is a modest $43-50k per section. Company tax is heavy at 28% plus 15% = 43% total.
Rural farmland is about $50,000 a hectare for good quality dairy land. 10-15 sections per hectare will easily give you traditional NZ suburbia. So raw lands costs are dirt cheap at $5,000 or less a section.
So if that developer bought farmland which he was later able to convert to residential -then profits may well be in the order of $100,000 +++ per section.
I think that you are right in respect of the GST he must have meant gross. But your costs are on a different planet. (perhaps Auckland) Taking the GST off, everything still remains in proportion; it is still 177% profit. As per Brendon the raw land purchase price is relatively trivial, but in reality not quite that trivial. Development costs are nothing like what you are saying. Papamoa - flat sandy land - very easy. Using raw contractors charge out rates for the tasks you end up with a very low figure for the costs. Off course you end up with a lot of hangers on taking their cut, particularly if you are not a civil engineer or contractor. Those must be Auckland council fees. The sub division cost that I remember from Auckland are quite old, but they were in the range of $30-$40K per lot. We were making an absolute killing. Clearly costs have moved up in the intervening period as the Papamoa example reveals his cost of development including council fees to be about $80k inc gst per lot. I believe that if he was doing it professionally on a larger scale then he would lower these costs further. The other thing is if you are quoting Auckland costs, they seem to require a lot of geotech ground re-mediation, but my example was Papamoa, not Auckland.
Here are a three examples of the selling price of new (ie reflect current costs) subdivisions elsewhere in NZ. They still have to provide all the same services, pay council fees surveyors etc. Their selling prices are around $120k inc GST and you can bet that they will still be making a good profit. In the case of the Dunedin examples, the civil engineering costs will be high because the land is steep, difficult, and in one case the access road only services properties on one side.
http://www.realestate.co.nz/2252674
http://www.realestate.co.nz/1422032
http://www.realestate.co.nz/2368321
I think the Tga average house price still has another 100k to go. 650k will be the average by summer next year. It won't be locals because most don't earn enough to buy in to the market at that price. It will be external investors looking for gains and yields as Auckland moves higher and rents don't keep up.
and how do you think people will be able to pay more expensive rents in Tauranga exactly before they decide to move somewhere cheaper?
Unlike Auckland, where there are quality and high added value jobs with good wages, Tauranga is a low salary area where many wouldn't hesitate leaving for greener pastures.
I can't believe somebody can seriously think that in a city where house prices are already more than 6 times the annual household income there is room for further increases when the productive economy clearly doesn't function well.
Based on what? holiday makers buying holiday houses?
I'm not saying it's right. I have to buy in to this market and it's a killer. I just don't think the steam is going to leave Tauranga for some time yet. Renting is fiercely competitive. I rent currently and it was not easy getting somewhere even with a good job, good salary etc. There were 10 other families that would've taken the same place. That is why I think prices will continue. A 400k house can easily get 400pw in rent. And that is a pretty normal figure. A lot of people will want in on that.
Sure you can get plenty of properties for under the existing avg of 550k. But you look at new builds in Papamoa or Lakes, Pyes Pa etc. That is all starting around 570k, Not to mention the desirable areas like Otumoetai, Matua, Bellvue, Judea etc not much for under 500k and those are pretty rubbish.
Good article as far as it goes, but there is a lot more that needs to be done
1 See comments above re council land development
2 The building material industry is full of monopolist behaviour that needs to be addressed
3 As mentioned above we also need to add tax deductibility for inflation portion on interest earned.
Also as mentioned above, we have gone well past the point were a plunge to negative equity can be avoided.
You guys think Bill or John or Graham read anything on this forum? See cause, if you do you're a delirious optimist. My point is, I think we all are here ranting to the converted , aside from a few usual suspects.
Also, I really don't see interest rates going up now ever. They can't aslong as they continue protecting the bubble they barely admit too by continuous lowering. Yes, this is making things worse but that has been obvious for awhile to all. So my question to all is what essentially you all see they are protecting and for who's benefit? Thoughts on this?
Any thoughts? no? nada? none?
Ok, I will start. I cannot for the life of me see the RBNZ or the Government creating a situation where all the price increases that have been "pumped" up just allowed or forced to deflate, thus massive negative equity for speculators and single homeowners! They will not allow that to happen IF they can control the situation. So this leads to the conclusion that we all are hoping in some way that 'natural market forces" will come into play here. Well.......they did.......in 2008. What happened?
Its simple logic: If the "right thing to do" is effectively political suicide...then it won't happen. This is exactly how politicians work is it not?
I would hesitate to say wait as the ramifications could be dire. What I assumed you were looking for was some specific advice on how best to use that money at the current time so the figure was important.
The other day I saw a traditional B&T single bedroom unit in Royal Oak go for 516k. This sort of place has a market for fairly well off singles and investors. Something like that would be worth considering. Ideal for planning ahead. Live there then keep it and rent it out when you move to your next house.
...busby everyone has an opinion and it's all guesswork. Some of the guesses based on highly sophisticated models created by highly paid analysts. History shows that some economist guess right, most guess wrong. But the profession survives because a few are shown to be right.. And of course some have to be right because there are so many guessing. Toss the coin and take your chance......
Buy 800 sq m Manurewa, you can get a 3 bd rm recently done up for low 600's, if you need more rooms then convert garage , if thats already done it may cost a bit more, buy near station. lots of first home buyers there now, choose the street well... close to train not too far into the suburb.
Contrary to popular opinion the effective capital gains exemption is not the major tax subsidy for rental property investors. The main tax subsidy derives from the full tax deductibility of nominal interest rates paid on geared up investment properties. The part of nominal interest that compensates for inflation is simply returning the capital of the lender so only the real part of interest (above inflation) should be allowed as a deduction or counted as income.
Peter ...are u joking...??
ALL business is done in 'nominal terms" .... No one adds an "inflation component" to their prices..
( sounds like u have just gone fishing to find some kind of reason to justify your idea of limiting tax deductability of expenses)
If there is a travesty.... It is that the nominal interest that savers receive is FULLY taxed with no allowance for either the inflation component of interest OR ..the depreciation of the actual Money due to inflation..
Why don't u sort that shit out first.... before creating another distortion... ( Do u wonder why savings as an investment is a mugs game..?? )
for me... u are going down the rabbit hole with this idea....
you might be better off exploring how the effects of unfettered money supply growth might manifest in an economy , over time , in varied ways, as economic themes change and economies evolve..
just my view..
owning an investment rental property is not a business, those that justify it as such have obviously never owned or run a business.
if they want to be treated as a business far enough, good luck with all the government paperwork and processes and costs associated with compliance
maybe you should check again LAQCs were changed in 2011 to bring them in line with normal business practices
For income years starting on or after 1 April 2011:
• LAQCs will no longer be able to attribute losses to
shareholders
Existing LAQCs will be taxed in the
same way as ordinary QCs.
https://www.ird.govt.nz/resources/f/1/f1640b8045a910009094bb7747109566/…
That was a complete balls up. The LTC rules didn't really change anything and only added extra compliance costs for a complete waste of time. Ideally LAQC's should have been removed completely and rental losses ring fenced against the future property sale. If investment/rental property is really a business it doesn't need taxpayer subsidies to fund it.
Peter have you seen the inflation rates at the moment ? Nominal or real is not going to make jack difference in the current environment and the current environment is where a solution is needed. What you are suggesting is far too complex and would have little impact especially with inflation so low. Perhaps this is an old article dug out from pre 2007 days ?
Removing the deductibility of interest expense would make more sense however would have zero impact on foreign buyers or investors that flip properties that are after the 10% pa gains in capital.
Stamp duty has to be the way to bring the cost up for investors and thus reduce their demand and ability to buy. Take that away and who do you have left ? First home buyers. Make the stamp duty exempt on new builds. People say stamp duty doesn't work quoting small figures like 5% or something. If you were to charge 15-20% you would see that it would work.
Average flip investor scoops a lower quartile property spends 30k doing it up and then adds 100k to the price tag. How can First home buyers compete with people that are buying houses for a living. While the first home buyer needs a few days to think about it the investor has already signed the dotted line.
The argument for a long time has been to drop rates because there is no inflation. But if we look back at times when we have had high inflation we have had high interest rates (presumably to slow things down). Can I suggest that interest rates need to rise for us to return to inflation. What has caused global overproduction? Cheap money. If you don't have a business or investments that can survive a hike in interest rates then you are living in a bubble.The financial system is stealing money from savers, along with printing money to be lent to the elites for free to grow bubbles and we call this an economy. World leaders JK included are, in my opinion, guilty of fraud.
that would be suicide! Our $ is already 20-30% over valued. Your suggestion works in a pre 2007 world where rates across all developed nations moved rather more freely than they do now. If NZ raised rates farmers would be squeezed even harder than they are now, the NDZ would be in the stratosphere and anyone exporting would be laying people off left right and centre. JK is not guilty of anything.
We need to bankrupt some farmers, and stop free money to corporate farming, to get milk production down so prices can improve for the ones who have the lower cost structures ( real businesses not these zombie corporates that can only survive on free money). Under the current regime milk prices will still be the same in ten years time, house house prices will soon plateau and not go up. Cheap money is a recipe for economic stagnation. Young people today will not pay off their massive mortgages , and will leave their children nothing when they die.
All that will do is make NZ farmers lose market share. You think the Indians, Europeans and American Dairy farmers will slow down production? Are you going to force Russia to start buying again? Your idea of bankrupting a few farmers lets foreigners come in and buy their farms on 1% loans from China. NZ farmers are already paying 5 times that. Im sorry but you're extremely naive on how the world works.
what on earth hare you talking about, I just rented a house to an awesome family with 2 kids on a 600 sqm section, they are really happy, they don't have to buy a house and just got to move straight in and I will let them stay as long as they want 5 or 10 years for all I care. we did up the house put in a new kitchen, painted it, mowed the garden, new carpet, great place for kids, on a quiet street, 5 minutes from town...these people are not desperate and these people don't want your sympathy, where they put their money is none of your business, so stop being a martyr for other people...
No don't buy it. A huge majority on New Zealanders always have and always will want to own their own house. It is part of our heritage. People immigrated here to achieve home ownership. It's human nature. Less and less are able to achieve it as time goes by. Greed has made it harder and it will get worse for them. You keep taking those pills KW .
You are out of touch KW. Many people live in vastly improved houses because they own them and did the work themselves. Wouldn't happen in a rental. Not able to happen either if labour had to be paid for.
Stop renting KW. You might find there are so joys in that beyond the mere economic you now know.
I am quite interested in micro homes and wonder if this could be some sort of solution to the housing "crisis". It probably doesn't suit everyone but with the increase in numbers of permanent singles and childless couples there certainly is a market. I'm not at all claustrophobic and have been pondering converting a shed at the Zachary Smith estate into a high quality tiny living space just as an experiment.
Could we ease up rules on these sorts of places? If a really nice micro living space could be built for 50k these could be used to construct small estates surrounded by beautiful garden areas. Perhaps have rules like no property investors and singles and couples only under a certain age can purchase. Controlled by a vigorous and forward thinking body corp. Maybe have micro shops, cafes and restaurants too as eating out will be common for the inhabitants.
Micro dwellings could be used to enhance existing properties by adding an income for FTBs. Or even minor dwellings for adult children who can stay in them while they save for their very own micro-home. If a micro-home with land could be bought for 200k they wouldn't need to save for long to get the deposit and mortgage repayments would be small. They could be trucked in or dropped off by helicopter. Fitted out with high quality micro appliances and fully Internet connected with ultra fast fibre.
Currently there is no minimum size in Auckland Ithsmus Mixed Use zone - however anything that makes proposal discretionary in that zone gives Council power to stop small homes. The CBD has a 30sqm minimum plus 5sqm deck. Once the PAUP comes in a minimum 40sqm plus 8sqm deck plus discretionary power over almost everything comes in.
So if you want do do microhousing there's a few months left before the opportunity is gone.
Bob... U sound like you know... heres a question.
How much of the current house price rises do you think is a reflection of the revaluation of land prices that results from the Unitary Plan ...??
The Unitary Plan is a pretty Major change... It goes way beyond the "infill housing" paradigm of the last 20 yrs...???
Maybe we are going thru a massive revaluation of Auckland land prices.... that will level off and then stay steady for a number of yrs as development happens, to get the maximum utility from that land...???
eg.. Lots with Single dwelling lots being developed into lots with 3 to 4 units.... etc..
I'm not saying this is the only reason for the current boom.... BUT... a unique , kinda one off, policy change that is like adding petrol to an already raging fire...??
( ie...BAD timing... Council might have had the vision to do all this before we got into the middle of an extreme boom )
I assume by question you mean you're making a statement that the PAUP is somehow responsible for pushing up prices? My opinion is:
None. Nobody knows what form the PAUP will finally take so no one yet knows if revaluations will be up or down or by how much. Many sites will will go down in density with the PAUP as there are rules other than the 'density' provisions that dictate what density ends up at. I see people paying high prices because land is limited irrespective of what comes out of the PAUP (and money is cheap and NZ is 'safe').
My understanding is that PAUP doesn't encourage traditional infill housing. If you read proposed PAUP rules increasing density is dependant on street frontage length or comprehensive development of large sites so each house faces the street. Manukau general housing zone at 1/300sqm and Ithsmus 1/375sqm zones tend to become MHS under PAUP at 1/400sqm so without frontage or large sites density is reducing in many suburban areas.
I'd say boom is not caused by PAUP at all. Once PAUP is operative then values will adjust in response. If they manage to keep some increased density in it without making it too hard to do with ancillary rules then overall the opportunity for some cheaper housing may be there. I have a house on a one unit site which may end up being a 3 unit site. If that occurs each of those 3 houses would be much more affordable than the current house (I'm expecting around 30% less). Yes the site is worth more if the zoning is increased - but not 3X - so dwellings are cheaper.
You know your not in a bubble when the prices just keep going up and show no sign of stopping. I'm sure people on here were saying we were in a bubble 5 years ago. Basically you don't know your in a bubble until it pops, whats to say that housing is not just going to continue to go up or even just plateau and stay where it is now for another 10 years ? really its anyone's guess and is also subject to what happens in the rest of the world, not little old NZ. There is NO POLITICAL WILL to change the current trend or the immigration taps would get turned off overnight. Everyone who owns a house is as happy as your landlord.
My family sold a house approx 8 years ago for 235k.
It is now back on the market at auction on 21/4/16.
Been to the open days ,changes include
new heat pump,
new carpet
new stove
tree's cut down
new toilet
painted all the inside,including textured ceiling,
new garage door.
It's been rented out since it's been sold,Agent tells me that they are looking for 450k.
I estimate a 30k spend at the most.
I wouldn't go near the auckland market right now, the downside risk is just massive. I would just continue to save and wait. The correction is coming it is inevitable. It might even take another year or even two but that means you will have even more saved and will be sitting pretty when things tank. Auckland doesn't have the salaries, infrastructure and quality of living to sustain these ludicrous points of entry. Its all panic buying with massive unprecedented and cheap debt. Dont follow the herd.
I would suggest that the current tax rules (around deductibility of interest expense for investors) were originally implemented to encourage private property investment (and rental housing for those that the state cannot house, through lack of sufficient rental housing stock). The country needs private landlords as the state cannot afford to provide all the housing stock that is needed to satisfy rental demand. The lower interest rates that we now have will result in smaller losses (or even profits) on investment properties so the tax refunds (from IRD to investor) will reduce - and some investors will start paying tax on profits. The overall cost to the taxpayer will be reduced. The Government / IRD have to balance the need for privately-owned rental housing stock with tax fairness. The societal value of property investors' rental housing stock cannot be compared with other forms of investment that provide no such benefits. Removing the ability for investors to offset rental investment tax losses against personal incomes might be an option worth considering as it could deter some short-term speculators from entering the market.
How are you going to measure the real interest rate vs nominal? Secondly, if you do move to that model then surely you would have to introduce the deduction for all home owners whether principal or investment home (like the US) Once you have done that then just watch the rents spiral out of control as people wont even bother to rent their place as there is no tax incentive. P.s. I am a big bad property investor that allows good people, clean and warm housing close to city amenities, with off street parking, with multiple houses in 4 major centres in New Zealand, with not one day unoccupied. Better yet lets just hand back our houses and let a Labour government run soviet block ghettos...what's such nonsense is I allow 20 to 30 somethings a place to live while they study or work, there is nothing stopping them buying a house in a smaller town for $350k and building some equity. I have never lived in a house I own, and I am nearly 40, why would I? there is not tax benefit!!! that's what I find the biggest joke is the fallacy you need to own the place you live in...
Gosh you don't sound like you have much fun kw. So serious. So focused on making so much money every day. I take it you are single no kids. The woman I know would not want to be a permanent tenant. Always having to move on when the landlord sells . Surely you have a little bit of spare capital that could be wasted on a simple house to live in. Either housing is your religion or obsession or you are another typical spruiking fraud we have to contend with on this site. Lighten up. Live a little. Life is short. Time goes by quicker as you get older. And what are you doing posting on here at 4pm. Working on your books?
Fair enough, comments and tone do get a bit skewed on forum's and for the record, what I offer is quality accommodation, warm, clean I even throw in a gardener (tax-deductible) a lot on this website see landlords like Monty burns from the Simpsons, sorry mate, kids, wife, car and boat, all good my way, only because I have made it so
"Because I made it so." So smug. So easy because you and I were born in 1955 and 1976 or so respectively. Assets were cheap. We had the easy years. You could not miss . Here is a challenge. Imagine you were born in 1992 . You are leaving university with a student loan and are starting work. How would you achieve getting your first home let alone a portfolio. And you will be getting married and having children also. So smug and arrogant. No regard for those starting out now or who have not even started working.
I note no response from KW yet. He will have no answers for those born in the 1990's. He thinks he is clever but he isn't . All he has known is cheap assets, cheap interest rates and a rising market. He was lucky to be bought in the 1970's just as I was lucky to be born in 1955. He would not feel so smug if he was born in 1992. Some of those in Auckland born then are feeling pretty scared at the moment possibly even suicidal. The houses they need now are being bought by the baby boomers and X to add to their portfolio. The RB need to look after the less fortunate, the unlucky ones who are only able to hit the market now when assets are so expensive.
Gordon, Right now in Palmerston north you can buy a 3 bedder with 8% yield for $250k, stop spouting BS that people cant get on the property ladder or there are no cheap assets, in taupo you can buy a 3 bedder in wairaki for $160k....plenty of cheap assets, just got to look for them.
true...the problem is while you work full time for someone else's business you really cant run your own can you? hence why property is such a popular investment vehicle in NZ...certainly better to own property than to rent like some of the economists on this website and as poor old Equab predicted in 2012
You predictably miss my point. How can someone in Auckland starting to work with a student loan buy the family home and in due course build up investment assets like you and I did?They were born there, have family and friends there, work there and are therefore entitled to stay there. And don't say rent only for family purposes and buy only rentals. People generally want to live in the house they own. You were lucky in relation as to when you were born like me. You think you were smart. You were lucky. If you were 15 years younger you would be angry with what you were facing house costs wise. Show some compassion.for those a generation younger than you.
If they are smart they will move out of Auckland. If they really want to buy a house.
All cities in NI are drivable for family visits.
I have colleagues overseas who commute 5 hours across country.
No kiwi is born with an entitlement to buy a house in Auckland.
You voted in an international currency trader, what did you expect?
NZ is a desirable country with a good heritage, which is now on the international market.
A 25 year old now pays no interest on their student loan, a quick check on trade me shows me plenty of houses under 500k and i saw one even in pakaranga, so a single person can buy a flat or a married couple can buy a small house in Auckland even today, but what you will hear is how people are locked out of housing because of one income and two kids, well that's just bad management of what's in your trousers, man up and take responsibility for you life, plenty of affordable housing in auckland, just too many socialist dreamers that think a 400sqm section in Ponsonby as a first home...
A boat. But that is not tax deductible. In fact they cost a lot to run. Wow you could probably have another rental if you did not have a boat. Two if you did not have a car. You do not add up. No family home but a cash draining boat. yip another fraud on this site.
http://www.trademe.co.nz/property/residential-property-for-sale/auction… under $200k and rent it for $300 a week....suggest someone born in 1992 buys it, unless of course they have bought the latest iPhone and just gone on holiday to the GC, all about your choices, not what year your born
Navigator you comment is true for new builds however investors buying and selling existing housing stock is doing nothing to help those needing to rent. In fact it is likely increasing the amount of people that have to rent as they are priced out of the market. I read somewhere that the govt subsidies 50% of the rentals at the moment to some degree. More tenants less owner occupiers means the costs to the govt are likely to rise in the future also with rents increasing as house values continue to climb.
Stop the circus. Stamp duty for investors 15% unless they are building/buying new property.
It would be interesting to see economic research on how much less money would have been borrowed for mortgages if house prices had increased at a much lower rates in Auckland - money that would then have been available for other investments that help the country increase its productivity, exports and economic growth. (And hopefully growth based far less on people buying consumer items like a new TV, another car etc etc). That is, the housing situation has an opportunity cost for the rest of the economy.
A suggested additional element for a long terms solution to the housing problem: If there was compulsory super, like Australia has, people would have a viable alternative to saving for retirement.
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