I’ve seen this wheeled out on a number of occasions by commentators to highlight the extent to which house prices are over-valued.
While I fully agree that house prices are over-inflated, I don’t think it’s to the extent that this ratio suggests.
The pivot point is around 1980 which to me is when modern laissez-faire economics took hold.
- Top tier income tax rates dropped from circa 65% to 39% and we introduced GST
- Inflation targeting began to lower interest rates long-term
- Deregulation, liberalisation of international trade
- The start of the knowledge economy (internet and technology)
- Manufacturing pushed offshore (outsourcing)
The issue with all fast growing cities is their ability to keep pace. With globalisation we have transitioned from manufacturing sector growth to tertiary/service sector growth. We have liberated trade and labour and capital. Cities at the forefront of globalisation and tertiary sector growth tend to have the same immigration and housing issues.
At the same time, economies have had a massive fiscal and monetary easing over the past thirty years. This is a combination of lower interest rates, lower income tax rates, and the liberalisation of lending.
Globalisation
Let’s start with something fairly simple around land supply. If we draw a 5km radius around the Auckland CBD roughly 46% of it is water. Even with a circle at 10km it doesn’t get much better. That’s one of the challenges of coastal harbour cities, many of which are at the forefront of globalisation.
Land supply is an issue for Auckland. That is a function of the geography (water and volcanic rock) but is amplified by local government planning and policy that limits development.
The Demographia survey looks at the most and least affordable cities across a number of countries. It is often referred to for benchmarking affordability.
A quick look through the survey shows that almost all of the most affordable cities had declining populations. They are industrial cities that have tended to have higher unemployment rates and lower income growth as they transition to modern cities. I’d argue that they have been more open to change and have had urban plans designed to attract growth. Interestingly, on reading up on these cities, they were referred to as “boomtowns” in the early 1900s as hubs for manufacturing and domestic trade and transportation.
| City | Price/Income (Affordability) |
Location | Population | Industry |
| Buffalo | 2.6 | Inland/lake | City itself has reduced from 580,000 in 1950 to 292,000 in 2000 | Industrial and trade |
| Cincinnati | 2.6 | Inland/river | Industrial and trade | |
| Cleveland | 2.6 | Inland/lake | Lost 2% population | Industrial |
| Rochester | 2.6 | Inland/lake | Population falling since 1950 | Industrial |
| Pittsburgh | 2.7 | Inland/river | Population falling | Industrial |
In contrast, all of the highest priced cities have high population growth, fuelled by immigration and tertiary sector income growth. They also have coastal ports and have all been driven by global trade.
| City | Price/Income (Affordability) |
Location | Population | Industry |
| San Francisco | 9.4 | Coastal | Increased 90,000 in 2015 alone | Services |
| Auckland | 9.7 | Coastal | 1.75% per year | Services |
| Melbourne | 9.7 | Coastal | 2.1% per year or 91,600 | Services |
| Vancouver | 10.8 | Coastal | 1.86% per year | Services |
| Sydney | 12.2 | Coastal | 1,600 people per week. | Services |
| Hong Kong | 19 | Coastal | 0.8% per yeay | Services |
The table below shows the make up of employment in NZ. The shift from manufacturing to the tertiary sector doubled in speed after 1981 with the onset of the latest rounds of deregulation and globalisation.
Fiscal and monetary easing
While we are looking at incomes lets start by recognising that income tax rates have dropped. The biggest benefactors of this were those on higher incomes (more disposable income.)
At the same time GST was introduced. GST effectively increases the cost of building and land development. GST disproportionately hits the discretionary income of those on lower incomes. In terms of home ownership, the changing of the tax system favoured high income earners and in particular the baby boomer generation.
Baby boomers are the single biggest generation in history. Harry Dent (financial newsletter writer) refers to generational spending cycles a lot in his macro economic analysis. He hypothesises that Boomers experienced significant growth in disposable income as their kids left home in the early 1990s which coincided with the height of their income earning capacity. “Savings” was diverted into property.
The biggest shift however is lower interest rates, and liberalisation of lending particularly for housing all of which occurred over the same period.
Long term interest rates have been in a steady decline for 30 years. The graph below shows NZ government bond rates. US interest rates follow a similar path.
If you combine lower debt servicing costs (from lower interest rates) with the ability to borrow more (and disposable income growth in Auckland) then it is little wonder that people have bid up the value of property.
Essentially property owners have bid away discretionary income and pushed up house prices.
While I understand the arguments for taxing property, I don’t think tax on property would have changed this trend. Sydney and Melbourne are among the least affordable cities in the world and yet Australia has a capital gains tax.
Property has simply been an excellent investment. The same is true of shares and bonds over the same period. With falling interest rates anyone holding income generating assets has done exceptionally well.
We have run through an unprecedented period of “housing stimulus” of 30 years of fiscal and monetary easing. At the same time as the biggest generation in history has passed through its highest “savings” life stage.
Little wonder property as an asset class has performed incredibly well over the past 30 years.
The first is the assertion that house prices always go up (based on the last 30 years of data) is idiotic. This isn’t an Auckland “city” problem, and not a NZ problem. It is a global problem.
My second assertion is that you can’t apply the same basic rule across cities that have very different compositions. In the same ways as you don’t expect all companies to perform the same way or have the same P/E ratios. Auckland will rightly be more expensive than other parts of the country. Using a baseline income/price multiple of 3 for all cities is like comparing apples with oranges. Globally orientated cities with immigration, free flowing capital, and income growth will look different and be significantly more expensive.
To summarise succinctly, I think where we find ourselves is a function of failing economic orthodoxy and the inability of our leaders to keep up with the increasing pace of societal and technological change.
I personally believe that the biggest issue the world faces is that our systems of “organisation” be it government or economies or even law, cannot keep pace with the rate of technological change and that is only going to get worse.
We have to get more adaptable and agile. We have to become less mechanic in how we organise ourselves. Imagine if your brain tried to control your body simply by increasing or decreasing your blood pressure!
John Bolton is the "Chief Squirrel" and CEO at Squirrel Financial Services. This articel was first posted on the Squirrel Mortgages blog, and is here with permission.
70 Comments
missed some key items
- Investors 46% buyers
- Zero % property purchase tax - lowest in the world
- foreign buyers 39% of sales
Canada and Australia only just brought in Stamp Duty on foreign purchasers so too early to tell if it worked. Will be interesting as BC Canada have set it at 15%. 15% would take out all but the mad/very brave baby boomer investors.
Both Canada and Australia have had "stamp duty" (a transfer tax) for many decades. What Vancouver BC (only) and Victoria AU (only) have done recently is add a 15% transfer tax to foreign buyers (who are not resident). Neither apply it to locals/residents. Vancouver isn't applying it to high net worth migrants either.
In New Zealand "foreign buyers" don't make up "39% of sales" generally. If that is true, it will be so only in a very few specific neighborhoods and probably only in Auckland. Any evidence for your number claims as I would be interested? "Foreign" can never include local residents.
Agreed it is a complicated kettle of fish and we really need to get to the morrow of what is really driving our property market currently. And in particular for Auckland.
David is there any chance that we can have the soon to be released figures from the LINZ, regarding the buying and selling New Zealand property?
I believe the new figures should be out in the next few days according to their website.
http://www.linz.govt.nz/news/2016-05/property-data-released-for-first-t…
LINZ will release this data each quarter, with the next release planned for July 2016.
Here's their contact details for the media.
Email: media@linz.govt.nz (link sends e-mail) or phone: 027 566 5251
If by foreigner we mean overseas buyer, foreign student and any short term visa holder ( except cituzen and pr) than it would be more than 38% atleast in Auckland and to prove will have to depend on data from LINZ but as under government may play with words or may manipulate in one way or the other to hide actual fugure and mislead.
Tax by any name specially to Auckland is welcome does not matter if called stamp duty or transfer tax or land tax to all non resident.
Correct Roy1, if the data to be relessed is not what government wants than may club international student with resident data though any non resident should come under foreign buyer as are not citizen or permanent resident.
Politic and it is for this reason that now people are also losing trust on agency which was not earlier in NZ. Now government and any person or agency under them have creditability issue. Thanks to national government.
Why depend on agency when know that they may twist the data to suit government. Journalists are suppose to bring truth out in public domain. They can do their own little survey in Auckland to get the truth - simply approach few different real estste office and get the data to know the trend.
Exactly how can David say Australia tax only non-Residents ?
Australia stamp duty applies to NON-Citizens and NON-PERMANENT Resident.
Poor reporting. Correct me if I am wrong however the link spells it out in Plain English
David, with all due respect you are incorrect again. I would ask you to please get your facts right especially as you are writing the articles and reporting to the masses.
Let us start with Australia I have provided a link below so please read it.
Foreign buyers are NOT just Non-Residents.
In Australia (as per link below and extract) Foreign buyers are Non-Citizens and Non-Permanent Residents.
Foreign Students and Temp Visa Workers are Residents, however they are not citizens or Permanent Residents.
Do you understand you can be a resident and not be a citizen or permanent Resident?
To me this is a simply concept I have no idea why NZ media including yourself fail to grasp it. Australians can surely kiwis are able ?
http://www.sro.vic.gov.au/foreignpurchaser
Foreign natural persons
You are a foreign purchaser if you are not:
A citizen or permanent resident of Australia,
Or a New Zealand citizen with a Special Category Visa (Subclass 444)
Here is evidence on your website.
35% of people ticked the box that they were either students or temp visa workers. As that is the best information we have then that is what we need to go on. Making excuses about what may or may not have gone wrong with the survey I don't buy. Hard cold fact is 35% of the survey said they were students or temp visa workers. Until the next survey we can only use this.
SO Non Residents 4%
Temp Visa Workers & Students 35%
Total is 39%
Unless you have another survey by LINZ with different results this is all we have to go on. Enough Evidence ?
"The survey found 24% of house buyers said they were on work or student visas and planned to live in the house, but LINZ said the survey results were inflated by permanent New Zealand residents and citizens who mistakenly thought the question applied to them. There were a further 11% who said they were a student or on a temporary visa and did not live in the house.
LINZ said it believed the survey results on whether buyers were students or temporary workers were also skewed because 35% of those who said they were on temporary or student visas said the home they bought was their main home, which would not be technically possibly if they were here temporarily."
http://www.interest.co.nz/property/81501/linz-says-3-home-farm-and-busi…
Global trend understand but in other countries government is taking action to curb speculative demand by introducing measures on foriegn buyer but here in NZ government is not and does not want to do anything. Not even trying is disgusting, government should act as no one measure is a silver bullet but than so is supply or lvr but atleast rbnz is trying that is more important.
10 000 baby boomers are retiring PER DAY in the US. ( https://www.washingtonpost.com/news/fact-checker/wp/2014/07/24/do-10000… ) - Old news.
That means 10 000 EXTRA baby boomers will be collecting social security payments EACH DAY!
Think about that. All that extra yummy money. Where's it going to go? Why do you think the DJIA is 18K+, property prices climbing. I love the boomers! Greatest generation to walk this planet!
OmwardsUpwards - I think you'll find that a very large percentage of them will be using it to put food on the table rather than becoming investors (for the first time it seems)
http://www.investopedia.com/articles/personal-finance/032216/are-we-bab…
And where do you think they are going to buy their food from? Probably a DJIA listed company.All their money, regardless of where they use it, will find it's way back to the stock market. All roads lead to the stock market.
EDIT: Just to be clear. I wasn't saying that they would become stock investors (some will). They will become consumers. They have no choice. Savings rates are too low. The system is beautiful.
They eat already now so don't see your point - However, what is fact is that baby boomers as they retire are going to become lesser consumers than they are now, because on average they do not have the investments to maintain their current levels of spending - for many they're going from a salary to a pension only
Taking this piece point by point. Firstly, at least Bolton accepts that the geographic restrictions are made worse by the council planning. But Auckland was once affordable, at a time when it was growing within the isthmus itself. That did not stop whole suburbs like Mangere getting built and keeping prices affordable. Now Auckland has spread out of the confines of the isthmus itself, any supply of land "difficulty" should have considerably eased now, not "become the problem we didn't used to have".
Next point: "falling population" cities. Blatant cherry-picking. There are also cities that are the western world's fastest-growing, with stable affordable median multiples. Twice the growth rate of Auckland.
There are also cities in the UK, Liverpool especially, that are at least as stagnant in population and industry as the US examples, and they have median multiples twice those of cities in the USA that are fast-growing.
The obvious correlation here is the "compact city" planning system. It creates an economic-rent-sucking racket in the local economy, which continues to suck lifeblood out whether there is much to suck or not. In fact it is an obstacle to recovery.
"High population growth" cities: there are both unaffordable ones and affordable ones. Again, blatant cherry-picking. In fact the fastest-growing ones by a significant margin, are the ones with affordable housing due to supply being just as elastic as that of any competitive consumer good.
Remedial education here:
"Services sector" or tertiary sector economies: yes, some lucky cities have the back-history that has set them up for this kind of growth. But the evidence in the USA is that cities that do not strangle supply of land, are the ones where "re-onshoring" is taking place.
Cities will have unaffordable housing whether they are thriving or not, if they have utopian, land-supply-rationing urban planning. Some lucky cities among these will be thriving, while other cities that are not so lucky will be merely losing what they did have and not getting anything back. It is not possible for every city to be based on tertiary sectors, someone needs to do the heavy lifting.
The UK economy is probably the world's luckiest in these terms; global finance and media are as important to it as manufactured exports are to Germany, and primary produce exports are to NZ. And of course global finance and media are virtually weightless in terms of space and resources needed. However, there is grossly unequal capture of the benefit of this within the UK. They would be far better to have a few cities like Indianapolis, Salt Lake City and Raleigh instead of Liverpool, Newcastle and Nottingham. The USA has diversity of city types as one of its strengths. They do not try and all be mini-New Yorks, unlike Planning in the UK that assumes mini-Londons as the standard.
In the USA, at least population and industry can rebalance to the "opportunity urbanism" cities - away from the "tertiary success story" cities which in fact are simply exclusionary of everything else. In the UK, jobs are merely lost, and opportunities to replace them are foregone by the planning system, because every city is exclusionary of everything else.
Remedial education on this point:
http://policom.com/PDFs/FLOW%20OF%20MONEY%202013.pdf
It is even greater lunacy for NZ to adopt the same approach to its urban planing - we don't have London's history (the world's richest financiers did not flee here from Europe 200 years ago, we never had an empire, etc) and if anything, we are economically "Kansas in the South Pacific". Our assumptions are cargo-cultist, Walter Mitty stuff.
The correlation with low interest rates: again, there are dozens of cities in the USA where credit no more increases the price of housing, than it does of I-Pads.
NZ and many other western countries had eras in the past, of lavish government subsidies and inducements to first home buyers and the buyers of new homes. If these existed now, they would be getting blamed for capitalising straight into house prices, which is what happens when supply has gone inelastic. I recall Boomers were getting loans at 3 percent interest and not bothering to pay these back for decades. Furthermore, the Boomer generation represented "population growth pressures" that are greater than those today, that are getting blamed for "demand exceeding supply".
A crucial statistic is "build rates per capita" and in 1974 this was 3 times as high as it is now. As recently as the 1980's it was double what it is now. The Boomer generation and the demographic bulge accompanying them are the wrong evidence to use in support of "housing affordable then, not affordable now".
Mr John Bolton, One does not have to be an expert, we Aucklanders knows.
http://m.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11684…
Can any experts deny above and please no more discussion and experts analysis instead write and do things to make national party bosses see some sense.
"Mortgage affordability" incorporating rates of interest. Oh, yes, the unscrupulous lenders trap for first home buyers.
Repayments are about the same now as "when housing was affordable"? if you cherry pick the data points, maybe. Certainly not on average. And as a proportion of income over the term of the loan, it can easily be 3 times as much as what actually happened for your Boomer parents or grandies. Good luck providing the same discretionary stuff for your kids as your parents provided for you, when you are still on the mortgage repayment treadmill after the decade or so of elapsed time where they had largely nailed it. And what are the chances of mortgage interest rates going up for the current borrowers, versus the chances of them going up for the Boomers cherry-picked as comparisons? Logic hint: when they are low there is more chance of them going up. The generation that had high rates, also had high nominal income growth (because inflation was high, and the cause of the high interest rates) AND the interest rates fell for refinancing.
Young people should be getting honest advice about all this. Tony Alexander's comments the other day re Generation Y were spot on: "you should expect to NOT own your own home for decades yet".
Where is Mr John Key and his council of ministers.
When will they understand that current housing crisis is more a doing of speculators than supply. They do not want to do anything but at the same time cannot show that are not doing nothing as a result have taken cover behind supply issue as they too know that supply though is one reason but main reason for rampage in housing crisis is speculators. As they are their friends and well wishers do not want to take any action hence all this nonsense.
Exposed yet shamless in denial and their cover up.
PRIDE LEADS TO DESTRUCTION AND ARROGANCE TO DOWNFALL.
More and more journalist are bringing truth out but national party boses are so expert that now with exposure will pass the blame. STILL NO ACTION BUT FOR HOW LONG MR PM
http://m.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11684…
Another reason John, why the house price is rising.
25% rise in one day and still Supply is culprit and not so called investors.
http://www.stuff.co.nz/business/money/82645342/auckland-house-buyers-ma…
This shows that market has gone amok.
How can the government be so admant in supporting speculators and blaming supply. More to be done by journalist, media.
Still blame only supply. Is it real reason or cover up
That two bedroom unit in Te Atatu was a bit of an anomaly though. It was a very good buy for 390k and the sellers sold too cheaply. 450k was more like what it was worth at the time. I remember looking for something near there in May that year. The next buyer for 500k may have had a particular reason to really want this unit or perceived that the market for this entry level house in this area was on the rise as it was. Maybe it could be turned into a three bedroom or something. An awful lot of people would be willing to pay 500k now.
Who knows? What I do know is that unit can be rented out with rent covering the mortgage interest. It is in an up and coming area with greatly improved motorway system. It was a #goodbuy at 500k.
This is how it works - look for bargains in up and coming areas.
All entry level suburbs in Western premier cities are up and coming.
Well the future is unknown but if we look back on the last two years we can see this is not myth but reality.
We can observe an increase in wealth accumulation among many individuals in the Asia/Pacific region. We can observe increased migration flows and heightened activity in the property market. Similar places abroad have led the way. We can observe Sydney and Vancouver. It's not unusual for people to have business interests in one country but have their family living in another.
We can observe that many Asian people want to give their children a Western style education and upbringing. Take a look at the private schools and you will see something like a 70/30 mix of European Asian students.
Auckland is growing, largely through immigration. Auckland is also improving its motorway system and developing ring roads.
All the indicators are for either the status quo or increasing property values in the main centres of NZ.
You seem to string together a series of statements (some of which are difficult to prove) - and seem to weave a narrative that fits your particular world view . I think you are assuming causality were none may exist.
Never argue with a person who believes his own lie.
BadRobot.
Its called pacing and leading.
Car dealers do it.
System consultants do it.
Pick up artists in bars do it.
Girls learn to recognize such language tricks. Boys take longer, but show much more anger when they realize the cheap trick.
MUST SEE LINK:
https://youtu.be/BJs_L7yq5qE
I think BadRobot might be a girl.
Also things might be mythical but myths are powerful. We need myths.
It's also called presenting an argument.
Basically it is this:
In a global property market the rule of location, location, location will mean entire cities will become hot property.
It just seems logical.
I understand what you are saying - our society is full of "pacing and leading" - in many forms - but are people lying to others or themselves.
http://www.cbsnews.com/news/10-lies-managers-tell-themselves/
This is how you start off, kind of neutral if possible, positive would be great but it is rare if you want to buy in a desirable area. The years pass by and you get richer, the property goes up in price. You pay a bit of a lump of capital off at interest review time. At first the project looks kind of rubbish and the figures hardly work out but in the end it reaps rewards. Works well if you are a couple with two good incomes. By retirement time you have got a nice little earner or two for very little pain.
Zachary Smith and other leec... I mean people like him require a constant supply of more people that he/they can outbid in order to create his/their own clientele that he/they can rent back the contested house to. He/they needs more than one such client for each house (family or couple or flatties, few solo renters) so you can quite reasonably say that for every house he/they own approximately 3 people are required to pay his/their mortgage. Are we beginning to see something wrong with that picture, especially when you hear some of the ads on the radio for these property investing companies.
I see this as very similar to these gatherings years ago for pyramid schemes.
You are being assumptive again - I never said anything about wanting a price crash - but as prices become more out of kilter with economic reality it becomes more likely. My comment is more about your rosy picture of the future and that nothing could go wrong....
I still ask who are you trying to convince - me or yourself....
"Foreign" can never include local residents. (Per David above)
Here folks is the problem with NZ Media.
The Media and government are constantly trying to downplay foreign purchaser figures by excluding students and temp visa workers.
IN Australia however foreign students and temp Visa workers are labelled foreigners :
"Foreign natural persons
You are a foreign purchaser if you are not:
A citizen or permanent resident of Australia,
Or a New Zealand citizen with a Special Category Visa (Subclass 444)"
NZ problem is they focus on Tax Resiendency so Students and temp visa workers are classified as NZ tax residents.
Australia focus is on people who are non-Citizens or non-Permanent Residents.
Huge difference.
"LINZ said it believed the survey results on whether buyers were students or temporary workers were also skewed because 35% of those who said they were on temporary or student visas said the home they bought was their main home,"
I have no issue with migrants and permanent residents buying. SO they should.
I do have an issue with students and temp visa residents buying especially when supply is so tight and they make up 35% of the demand.
I work for a very prominent Global company and our management team have absolutely no idea about technology, the irony being our company initially became successful due to technology but now we face the 'toner head' analogy that Steve Jobs coined in one of his videos where we are now run by sales and accountants and not product or IT managers
.. toner head referring to Xerox and how they blew all their technology away as the successful Sales people were promoted at the expense of the people that created their success, the product managers
Once again a very Good Article John, keep up the good work.
Property prices in most urban centres have been going up for the last 50 years and have created property wealth to most of the BBoomers around the world.
The two Herald articles yesterday have done few commentators heads in believing that the world has to stop for everyone who wants to buy a house until they are ready .. this is preventing them from looking beyond the headlines and apply some logic. Until we get balanced and responsible reporting, this will always be the case or agenda! Speculators are traders, not criminals and they are being taxed!
Yes, Tony Alexander might be correct about house ownership, he might also be on the money saying that Loan to Income restrictions will also come soon this year and that house prices will keep rising for the next 12 -18 months before flattening for a pause (his piece in the Property Press).
In addition to the blunders of Auckland City Council thus far, A huge imbalance happened to the Auckland market by letting a large amount of Foreigners in so soon and allowing them to buy properties ( but no one could stop them, for so many reasons) ... these were the very same Foreigners we desperately needed to support our economy amidst a deflationary world which we are part of and compensate for the decline of our primary exports.. Yes, the same money injection needed to keep the jobs going and (expanding) in the country.
This is not the time to pick up fights among ourselves and throw around blames - it is actually time to think productively and logically. ... No one is going to give NZ a pay rise big enough to buy a shed in the next 10 years ! unless we undo what we started 3 years ago albeit slowly and smoothly .. and that will not happen tomorrow! neither by NATs nor by Labour .... taxing your landlord will increase your rent, taxing yourself will drive you more into poverty and you might be forced to sell your own house ... so robing Paul to pay Peter will not work. Taxing the Foreigners might have dire consequences ... so until such time that ANY Government can afford to tighten the immigration flow without too many self-inflicting wounds or be brave enough to tax whoever slips in and dares to buy a property, then we will catch a sigh of relief and hopefully the supply will catch up too to satisfy more property or FH buyers... Until then give up on your daily $5 coffee fix or pack of smokes .. and keep saving, I say !
However hard, one tries to block but truth like water will flow.
http://m.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11684…
Now most experts have seen through national government design of spreading lie and bliaiming supply alone to serve their hidden agenda.
No arguments as
Never Argue With Someone Who Believes His Own Lie.
Supported by many now that National only talking about supply is nothing but a farce as to tackle the crisis government has to take step to controldemand.
http://www.whaleoil.co.nz/2016/06/washed-brit-mp-knows-new-zealand-hous…
its funny that the article in your link does not support your views ...
this Brian Gould sounds nothing but a loser according to the link above :) - not my words
even the article's author mentioned that "he's fool" ... "His view of history is tinted as red as his political beliefs" .... wow!
More than the article it is the comment that interest me. As even people writing the article have bias view and in the comment can see how greed overpower logic.
Am not an expert but history proves that what goes up very fast comes down, by how much can be debated and is a question mark but the current housing boom can never be immune to that correction.
Have made a little fortune in property but can say with authority that it will correct and my wealth on paper will diminish a little but all that is a part of the game and just how rich I am is only on paper at this stage, similarly fall at that time will only be in paper.
First Home Buyer and Investors should not worry about possible correction but speculatiors will have problem and this market specially Auckland is flooded by them and overseas buyers. Can see the writing on the wall.
It will come and than all experts and politicians will jump in with I said saw and the blame game will start.
John, I hope you don't give the same type of mortgage advice based on your very selective 'cherry picking' of the data readily available. You have been on this site long enough to know what data is available and Philbest's comments maybe new to the new comers but you have been exposed to this evidence many times over.
And there is a huge difference in failing in keeping up with change, rather than wanting to keep the status quote because it supports your vested interests. Why argue, or think about why you are successful when to do so could create moral reflections.
A pretty reasonable and informative article by John Bolton. The important question that is missing is what happens now? Because yes - globalisation, financialisation, and demographics have obviously provided a gigantic boost to GDP and asset prices, but *** they were all one time events *** Particularly financialisaton, I mean you cant go off the gold standard twice.
Put it this way; In the 1980's Madonna was hot, you had low asset prices, sound money, and high interest rates and a powerhouse 20-30 year old demographic full of justified optimism driving the economy. Nobody cared about China.
In 2016 everything has changed! Money is cheap and people in their 20s-30s have been financially eviscerated to the point they cant even afford children. Financialisation has meant that rents, education, healthcare, electricity and all the basics of life are now so expensive (relative to wages) that you cant get ahead like the previous generation did. China seems to be simultaneously exporting wage deflation and asset price hyperinflation which reminds me of the misery index. Everything even politics seems more corrupted that ever before and you can feel the anger and resentment building in society.
I don't know where that all leads, but I wouldn't trust upward linear projections.
NZ property of up to 5ha is on the World market. Anyone, anywhere can buy up to 5ha no questions asked other than a few size limitations on beachfront and off shore islands.
NZ is for sale to highest bidders on the planet.
We also have huge pressure from population growth due to our immigration policy.
Thats why real estate is so expensive.
Working class Kiwis are competing on World market with NZ incomes to purchase in NZ.
Personally I don't believe the graphs on affordability. In the early 1990's I completed an apprenticeship and was on now what I consider GREAT money, $32K in my early 20's. but I still couldn't afford to borrow enough money to buy a house or even an apartment then. Fast forward nearly 30 years and the salaries in the same field have not even doubled. Basically wages in this country have not even got close to keeping up with housing, perhaps this is what needs focusing on and what has caused it.
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