Housing affordability in Auckland and Tauranga is worse than affordability in Perth, the wider New York area and in Los Angeles, the 7th annual Demographia survey has found.
The survey of median house price to income multiples in 325 housing markets in Australia, Canada, New Zealand, Britain, Hong Kong and Ireland found Tauranga had a median house price to income multiple of 6.5, putting it at number 28 on the list of unaffordable markets.
Auckland was at number 32 with 6.4, which was above Perth on 6.3, San Diego on 6.2, the wider New York/New Jersey/Pennsylvania area on 6.1 and Los Angeles on 5.9.
The Demographia report, which was compiled by the New Zealand-based Hugh Pavletich and the US based Wendell Cox, found Hong Kong was the most unaffordable housing of the 325 urban markets surveyed, with housing at 11.4 times household income, followed by Sydney in Australia at 9.6 and Vancouver in Canada at 9.5 The survey included data up until the end of September last year.
Overall, Australia had the least affordable markets with a national median multiple of 6.1 times household incomes, followed by New Zealand at 5.3 times, the United Kingdom at 5.2, Ireland at 4.0, Canada at 3.4 and the United States at 3.0 times gross annual household income.
Atlanta most affordable
Pavletich and Cox pointed to Atlanta Georgia as the most affordable of the 82 major cities surveyed at 2.3 times income.
"Being an “open market”, Atlanta over produced market priced housing, but did not bubble," Demographia said, adding that affordable areas without price bubbles were those with multiples below 3.0.
New starter housing should be fostered at 2.5 times gross annual median household income with the land price being around 17-23% of the total price.
"The fringe is the only supply / inflation vent of an urban market," Pavletich said.
"There is a truism, well understood by responsible developers and real estate financiers internationally. If you get the land price wrong – everything else is wrong," he said.
"Due to unnecessary politically inflated land costs, housing markets are “very wrong” in Hong Kong, Australia, New Zealand, the United Kingdom, Ireland and some parts of Canada and the United States," he said.
Key rejects report
Prime Minister John Key queried the conclusions in the report in an interview on TVNZ's Breakfast programme (from 4 mins 50 secs on).
"Having spent a lot of time in New York, I struggle a little bit with that. I don't know how they worked that out. They got the median price in New York at US$389,000. From my experience in New York, you don't get an awful lot for US$389,000. You'd be a long, long way out," Key said when asked about the comparison with New York.
Key said two things drove housing affordability: interest rates and takehome pay. He said interest rates were near their historic lows and the government had improved take-home pay by cutting income taxes.
"Thirdly, we made some changes around the housing market which in the short term have dampened demand for housing. but long term are part of the reblancing of the economy away from consumption and very rapidly escalating housing prices through to an export led economy."
"I would argue within a couple of years we've made some progress, but these are long term imbalances and they take a long time to work their way through the economy."
Other affordability measures
Elsewhere, Interest.co.nz compiles its monthly home loan affordability report in association with Roost.
This report measures the portion of median takehome pay required to service an 80% mortgage on a median house, region by region and city by city.
It shows it now takes 56.8% of one median take-home pay to afford the mortgage on a median New Zealand house, which is improved from the 83.4% seen in March 2008 and improved from the 69.1% seen five years ago.
However, the Roost Home Loan affordability measure shows affordability still not back to the 40% levels seen in 2002.
No chart with that title exists.
142 Comments
MK, wage inflation over the past 20 years was just shy of 100% (during this "low inflation" period CPI was up about 70%). Therefore there's every expectation that with the higher RBNZ CPI targets than we had during the first half of that period (3%CPI is 81% over 20 years), that house prices will on average double, which means that in desirable and improving locations prices will rise even faster than that too.
So you would need to be cognitively impaired to believe that is improbable for house prices to double in 20 years. In fact it's likely in those improving central city locations where prices haven't already seen large growth that prices could quadruple or more over that period!
Impossible for now and here's why:
NO PRODUCTIVITY
NO MORE CREDIT
NO MORE FALSE ECONOMY GROWTH 'GLOBALLY"
The great ponzi scheme is over. As fewer and fewer people hoard more of the global wealth it actually becomes 'terminal'. Only if the poor and middle class ( the real engine of any economy) make a gain will there be a way out. And that's not likely for years and years and one or two wars. We are currently in 1930 all over again and you know what happens soon after that. History will repeat as things get worse.
How true .. I have said this before .. I will say it again .. the banks have the govenment in a head-lock with a half-nelson .. if the government does anything that threatens to deflate property prices in any way the banks will respond with the toe-over-throw-hold and cease evergreening mortgages, start un-loading toxic mortgages, start aggressively foreclosing on marginal clients etc etc .. the banks have the upper-hand .. the government has no control .. welcome to the world as we now know it
People who live in the real world actually Tim, not doom-mongers. And the real world is house values creeping down regularly for years to come as people either avoid debt or minimise it. Just look around you. Rentals on the market all over the show. In New Plymouth 200 empty rentals. In Hamilton over 1000. The writing is on the wall. People are either not coping with their basic daily costs of living or they are just coping. People are not going to be magically in a position to pay more for houses unless incomes in NZ have a major rise and we know that cannot happen while businesses are struggling to make profits.
…and PM - have you noticed supermarkets and wallets are getting smaller - because every supermarket bill seems bigger than the one the week before
http://msn.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10701584
None, not even his own home! Check:
terranet.co.nz (need to be registered)
one of his companies owns some Greymouth property. Check:
companies.govt.nz
Even BC Hickey owns his own house, if nothing else (even if he does need a goat to mow his volcano top hideaway!).
Bernard - it should also depend on whether there will soon be no goats left.
Irreplaceable finite resources make a mockery of economics, as it was taught.
You'd be better to turn it into garden, and be a bit less vulnerable to ramping food prices, driven by ramping oil prices. Increase it's resale value, too.
Lol. Any chance he can get, Pavletich bangs his one-sided drum. Even if land is given away free, this will not affect the replacement cost. House prices in NZ are largely driven by commodity prices (and over-paid builders). Why should I be forced to live in in a 'quarter acre dream' in an ugly sprawling suburb with a 1hr travel to work time, just because Pav thinks it's a good idea.
In any case, productive farmland should be used to grow food on, not to plonk on lots of little ticky tacky boxes.
Wolly - you have got it in one !
The MAIN focus of John Key is ensuring the banks and his banking mates are kept in clover !
For **&%^%$$$%^ sake !! who really cares about overseas bank shareholders, when a country's economic livelihood is at stake.
As we struggle along, many of us paying well over 50% of our net income in mortgage or rental costs, how can this country ever go forward !!!
I have got a little saying about this nation of ours ......."as long as the folks in Remmers are happy, nothing else matters" .............
Yes, I agree .... however, do you think Wolly the sheeple of this fine land will succumb to a financial life without credit .... it is now engrained in the western werld and culture.
Cash is not King, credit STILL is.
I have a credit card for convenience but NEVER in 25 years have I paid interest on it.... I wonder how many others could say the same thing !?!
Anyway I think the sheeples are finally waking up to the credit trap....look at the plight of the retailers .....
As for the pollies .... they just have their own interests and agendas to maintain, nothing more needs to be said about them !
Some will learn and go cold Turkey CrazyH but most will carry on being dumb acting dumb. The banks know this and cultivate the behaviour just as a crop grower looks to his soil.
Credit and the ease with which children can get it, indeed are encouraged to use it...will remain a drug of choice for those who want before they can afford. The culture of debt has been nutured over the years and the banks are employing their special forces to make bloody sure it remains like this.
Your dumbo Kiwi is up against banks, advertising, poodle media 'news', RE liars, QV BS, peer pressure, retail advertising and their own inability to think. Guess what the outcome will be.
I have a slighly different perspective. Houses are not just overpriced in this country, the other contributing factor is that peoples incomes have been falling in real terms. Its a combination of both these factors that has lead to the unaffordability.
Sadly though the focus is on property prices rather than incomes, mainly because talking about incomes is too inconvenient and too troublesome to fix for politicians (especially in election year).
Matt it doesn't Matt er which way you look at it....and to think govt gives a toss....ha...people have to understand they don't matter in this day and age....it comes down to what policy will buy the votes and what policy will the banks allow.
This economy is owned by the banks. They are the suppliers of credit. They are supported by govt and the RB. This state of madness exists because Kiwi are mostly poorly educated people who absorb the shite in the poodle media and consequently believe going into debt is the way to go. Add a helping of greed and you have what it takes to produce this unbalanced economic joke.
But the problem now for the banks is that the demand has dried up. Noone is willing to take another hit. The street pushers are becoming nervous. What they need right now is for the big guy, the Don, to smooth the way for the international cartels to get their product flowing back again on our streets... lower the price.
Speaking of which, the RBNZ is up again this week.. should be fun.
But the problem now for the banks is that the demand has dried up.
Nope they are just loading it up on us (and our kids) via a Sovereign Debt Enema.
Tax takes fall as collective economic activity declines - social costs stay static or increase - governments borrow freshly minted QE funds on your behalf at a nice premium to the lenders - the big boys win regardless.
If that starts to falter - they'll send ye to war - creates another nice big generational population spike - and starts the consumption engines afresh.
The debt money-go-round is THE hidden end game of all consumption based economic activity for us peasants (read: all economic activity). Sucks eh......
Bugger, I sound more like Wolly every day...... :-)
If you get the land price wrong , everything else is wrong ! .......... There's the crux of Hugh's piece . The availability of sections is restricted across NZ . .........So section prices rocket upwards , and the cost of construction of an abode is merely tacked onto that .
Demographia - Wikipedia - Wendell Cox
Wendell Cox is an international public policy consultant. He is the principal and sole owner of Wendell Cox Consultancy/Demographia, based in the St. Louis metropolitan region and editor of three web sites, Demographia, The Public Purpose and Urban Tours by Rental Car. Cox is a fellow of numerous conservative think tanks and a frequent op-ed commenter in conservative US and UK newspapers. Cox opposes planning policies aimed at increasing rail service and density, while favoring planning policies that reinforce and serve the existing transportation and building infrastructure. Cox presents his positions as based on an opposition to what he considers waste in many public transport schemes and on the belief that existing transportation and building infrastructure reflects what people prefer, while his opponents argue that his positions are based more on a belief that road transport and low density are inherently superior.
"Auckland was at number 32 with 6.4, which was above Perth on 6.3, San Diego on 6.2, the wider New York/New Jersey/Pennsylvania area on 6.1 and Los Angeles on 5.9"
That seems to tell us that income to price ratios are a measure of desirability more than anything else.
Obviously no one wants to live in the Detroit's and Columbus's of this world!
I would question the validity of the calculations and data anyway. Christchurch's household income is given as what works out as a houshold with one fulltime worker on the median wage.
The June 2010 HES gives Canterbury's average household income as $75,000 and the average household paying $10,090 in housing costs - just 13% of income that doesn't seem to be a situation that is severely unaffordable.
All the Survey shows is that there is no relationship between median income and house prices - and having a range from 2 to 11 proves that!
If median multiples were any indication of where prices are going to move then you would expect these median multiples to oscillate around the so called affordable level of 3 - chart these numbers for any town over any timeframe and you will see they won't - there are too many other factors to consider such as interest rates, demographics of the city etc etc.
Look at just 20 years earlier in the ChCh example, I can't find HES data for back then but estimating:
Average household income was just under 1.4 times the average full time wage so in 1990 that would be $39,000. Say $8k of the $10k household expenses were for mortgage then at today's rates that's about an average $125k mortgage or 35% of the average house price. With 15% interest rates in 1990 and an average price of $107k the equivalent figure works out at about $7,000 in average housing costs - that's 18% of income - 40% higher than today!
Multiples are irrelevant nonsense peddled by the disingenuous (or perhaps the delusional) and believe by the feeble brained.
I don't think multiples are irrelevant if they are considered in the context of the the research design and the limitations of the multiples are expressed. Sure, they are great for emotional responses driven by media reports, but they are probably paid more attention by those in NZ or Australia than in Houston.
Understanding that different data sets can be used to explain different things is important. Demographia is used to do just that, while Westpac will produce a report to say something entirely different.
$10,090 per houshold in housing costs?... $194 per week, when the median rent for Christchurch is what, Chris-J? (Even a 3 bedroomer in Kaiapoi is $400 p.w. where I doubt the household income is much beyond, if at all, $75k) And to switch from "one fulltime worker on the median wage.." ( regardless, it's the basis of all this reports locality calculations for comparison sake) to "household income as $75,000 " in your analysis is, likewise, an apples and pears thing.
That's the result of the June 2010 HES by Stats NZ. (Table 4):
http://www.stats.govt.nz/browse_for_stats/people_and_communities/househ…
Of course it includes the fact that some are mortgage free, some have small mortgages, some have large mortgages and others rent, but it shows the average cost which measures the housing stress in the community which is low at present.
In the 2008 HES it was 17.1% of income in 2010 it was 13.4%.
Of course the fact that on average people pay so little of their income on housing demonstrates the benefit of ownership.
If you were starting out in ChCh a starter home with a $40k deposit and $200k mortgage would only cost about $15,000PA in total costs (incl rates, ins etc) plus principal repayments. Rent of $400pw in ChCh is high. Most average 3 beds in the city are about $280-$320pw.
The 2010 figure for Auckland region is $15,230.
Thx for the reply, Chris_J. But you know, as well as I do, that there is an implied cost to home ownership that cannot be ignored, no matter what sets of figures we all look at. So it really doesn't matter what % have a mortgage/part mortage or whatever. That $240k 'starter' you use as an example~ I haven't run your numbers~ has a cost just to having the deposit tied up, that isn't 0%.(That's assuming that a 'starter' has $40k saved up after whatever time of renting and student loans or whatever!). However, you'd be better placed than I to asses 'stress' in the market. Perhaps it's because I don't own, so don't have any, that I don't see it as neutrally as you. But I look at 'the starters' in my wider family, and my opinion is that they don't stand a cat in hells chance of getting going, like you and I did.
Finally someone talking some sense on this site!! This report tells us everything we need to know about urban sprawl - we 'should' remove the urban limits, create a crap city that no one wants to live in (like Flint or Detroit), and the houses will be cheap. Nice idea Hugh.
I also wonder with the US cities if they remove things like health insurance, indemnity insurance, etc from incomes - things that you have to pay over there but we don't have to here.
The fact is that we are supposedly so much less affordable than the US, yet the US has a much higher rate of forclosures, mortgagee sales, etc. So people seem to be able to afford to keep their houses in seriously unaffordable Auckland, but not in the Affordable states in the US.
Well Said Jimbo . Cheaply made houses targeted towards low income earners ,Doesnt sound too pleasant does it
I think that was the dream they had for Otara back in the 70's and as you can see that turned out pretty well...
Hugh your Idea's will never get of the ground. Who wants that demographic on there door step. The residents of the established suburbs boarding any planned low cost city fringe " projects " development will never allow it to happen .
Most people move to the lower density country feel leafy suburbs to get away from the crime and social problems that clustering low income earners and welfare dependants brings . And you think its a good Idea to build these mini towns for the poor , nice one
There is no shortage of land or houses in Auckland. There is a grave shortage of effective utilization with many empty and under occupied properties. More sprawl and more McMansions is not the answer with the ensuing cost of stretched infrastructure that we all pay for, and transport costs that the fringe dweller pays.
The high prices paid compared to income is a function of the huge foreign borrowings at ridiculous income multiples. Remove this foreign lender money pumped in by the banks and prices would rationalize to historic realistic prices relative to low NZ incomes. This will be done once banks and rating agencies recognise the income risk which has already occurred in similar countries such as Ireland.
Problem solved.
I agree entirely. His comment that net salaries and wages are "helping" people fund mortgages is plain nonsense. If he argued that disposable income is enabling people to borrow more, then he might appear more credible. Secondly, the low interest rate explanation is a weak link to his previous spiel that inflation is under control. Most economists and appratchiks will probably say say the same thing. The idea that "inflation is under control" can be made by anyone using CPI figures. Furthermore, how about the cost of borrowing on wholesale money markets going forward? I have no doubt Key knows exactly what that implies.
You are the one talking nonsense Hugh.
Past time you schooled yourself up.
I've called you before.
You - and everyone here - should listen to that Nine-to-noon interview (10.08 this morning) of John Fleming.
Think he's an idiot?
One of the smartest intellects I've ever heard, and it was a good interview, too.
Car-driven suburbia is in injury time - 5 years or so.
Clearly you ain't going to do anything to ready things - you deny they are happening/can happen. So who is left?
Elected Government, is who.
Get it together.
Tauranga is an interesting case in point, with its household income multiple of 6.5. Isn't the household income there skewed due to it being a popular retirement centre- sure the household income of retirees is not that great but they have brought their capital and purchased, usually motgage free nice modern places. A nonsense to say they can't afford to buy, because many have. Also, it is an attractive centre for beneficiaries like solo parents, again their household income is not great but many are renting, not looking to buy. Take these over-represented groups in Tauranga out of the equation and housing in relation to household where people are working is probably not that bad. I recently looked at a Property Press for the area and was amazed to see how you could still buy a 3 bedroom place with double garage, fairly easy commmute to CBD, say in Greerton or Ohauiti or Welcome Bay etc for around $250,000 and less. Yet to listen to the line we are being fed you would think it was worse than buying near central New York. Yer, right!
All. I have written a detailed report on the Demographia Survey here:
Personally, I believe that Hugh and Wendell have done a fantastic job once again. Hopefully, this report will place added pressure on policy makers in both Australia and New Zealand to fix our broken planning systems once and for all.
Cheers Leith
I think Mumbai is one of the most expensive cities in the world - so how come that bubble hasn't burst yet? It just goes to prove that it is possible to have cities where the average person can't possibly buy the average house - not saying that is a good thing, just saying that it can and does happen. It is wage disparity that causes high house prices, and I bet if you graphed wage disparity and house prices in Auckland over the last 20 years, you would see a similar trend. The more rich people you have, the higher property prices go...
Leith - I found this a useful read:
http://www.unconventionaleconomist.com/2011/01/truth-about-us-housing-market.html
You said, "By all means, let's crack down on the destructive speculation, predatory financing and financial alchemy that has fuelled the world's housing bubbles. At the same time, let's not ignore the supply-side barriers that have enabled the credit-fuelled demand to feed into skyrocketing house prices which, in the case of the United States, later collapsed once the artificial demand evaporated."
What ideas do you have to, " ... crack down on the destructive speculation, predatory financing and financial alchemy...."?
How about a robust LVR regime, similar to the one used in Texas, alongside their more liberal land supply regs.? If Texas did not have such an LVR regime, how might it have affected affordability outcomes there? By how much'ish?
Cheers, Les.
Leith - Steve Keen comments on the survey are here:
"I reproduce below Demographia’s press release, which lays the blame for housing unaffordability on land use regulations. As regular readers of this site know, I see finance as the core problem in house price bubbles rather than land use regulations, but every Ponzi Scheme needs a plausible story, and land use regulations provides one (which has been used to great effect in Australia) while the absence of regulations takes the wind out of a Ponzi yarn."
Whether or not land use regs are the sole root cause of the problem, is it not the case that even with restricted land supply, if credit is commensurately, and prudently, restrained then a bubble market will not eventuate? (Thereby avoiding the volatility that your analyses illustrates.)
Cheers, Les.
When housing demand depends on housing demand it takes just one small stumble for the whole stinking pile to go down. How many rush into Auckland demanding accomodation and wanting to be a part of the bubble...wanting the quick rich returns...
So consider the approaching aussie property collapse...and the rising interest rates....and the realisation that the recession is set to go on and on...what happens when that day arrives when no amount of BS and media spin can keep the Auckland bubble inflated.....?
The main reason why this 'house price to wage' ratio is flawed is that your basic living expenses do not increase linearly with income - so if you earn 45k in Palmerston North and your food / living costs are 30k, you have 15k to put towards a mortgage. If you earn 70k in Auckland and your food / living costs are 40k, you have 30k to put towards a mortgage - so you would be just as well off in Auckland if your house cost twice as much as Palmerston, even though your wage is only 1.5 times as much.
Granted your costs are a bit higher in bigger cities - but not necessaraily linearly higher. And you can't include 'lifestyle inflation' and then say houses are 'seriously unaffordable' - it can only be 'seriously unaffordable' if you cant afford it after paying for basic necessities.
While i am sure your point was well intended Jimbo...I afraid your numbers just wont stack up on a 70k Gross if you can find the 30k to ring out on a mortgage your either eating dog food or not paying a number of your utility bills........and while the same applies to the 45k scenario it would probably be better to live somewhere where your eating habits would go unnoticed.....and had less of an inclination to ...Envy your neighbor.
That is just Soooooo damn true HW it's just disgusting is what it is.....same for lamb....milk products.....beef.....shellfish......and now even the stinking chicken is 17.99 a kg (breast).
A guy was bitching to me on the phone the other day that chicken breast had just jumped up to 11.00 a kg AUD................uh huh I said.......
On behalf of the meat...fish ...and grocery industry ...... thanks John Boy it's all going swimmingly ..if somewhat in an ever decreasing circle.....leaving Joe average feeling a little flushed.
Unfortunately Dear Wally the use of such run of the mill weapons for the damned is prohibited in built up areas and the gas money for the drive to a suitable venue would be prohibitive to the landed gain of the fare you have in mind.
Perhaps you could lay off eating the already poisoned ones as it's not doing a lot for ....your ....disposition.
No wonder some multinationals call NZ "Treasure Isalnd". My wife picked up a block of Coles homebrand tasty cheese, made from NZ or Australian product so it says on the back for $7.95 AUD last week. She reckons she was paying up to $16.95 NZD in Pak n Save last year for a block of 1kg Mainland Tasty. And chicken used to be cheap but couldn't help feeling that prices went up when Tegel fell into the hands of the PE greedy crowd and suppose it just suited Brinks and Inghams to follow suit by all rasing prices and fleecing us even more.
No wonder some multinationals call NZ "Treasure Island". My wife picked up a block of Coles homebrand tasty cheese, made from NZ or Australian product so it says on the back for $7.95 AUD last week. She reckons she was paying up to $16.95 NZD in Pak n Save last year for a block of 1kg Mainland Tasty. So the argument from Fonterra that local pricing is related to overseas markets is utter BS in my opinion. The same could be said for Snapper and Lamb and Beef. And chicken used to be cheap but couldn't help feeling that prices went up when Tegel fell into the hands of the PE greedy crowd and suppose it just suited Brinks and Inghams to follow suit by all rasing prices and fleecing us even more.
You know you are getting ripped off because when things are on special they are so much cheaper. The other day I got three packets of chips and it was cheaper than if I bought two (when they scanned the third packet it took money off the total!). So if you ever pay the full price for anything in a NZ supermarket you are being completely ripped off. What would be good is if there was a supermarket chain that never had specials and always had everything at reasonable prices - then you could actually buy what you want every week instead of the hassle of buying what is on special!!
Why hasTauranga the highest house price to income of the cities in NZ listed?
Some would say you simply pay more for highly desirable areas to live in. But reading the thread, Muzza suggests it's because the Demographia data is flawed as Tauranga has a greater than normal retired population with lower household income, but that hasn't meant that age group didn't have capital to readily purchase property there. Also suggests that there is quite a beneficiary sector in Tauranga (if you are a solo mum live somewhere nice on a good accommodation supplement?) with a low household income, but renting rather than aiming to own. Therefore Tauranga average household income is skewed and hence the higher ratio of 6.5. Is this correct?
Hugh - well done.
I think the young people in this story would also be thankful for your efforts:
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10701624
However, is there a snowballs' chance of meaningful change?
Look up an article by Rob Stock in yesterday's SST entitled 'A peek at how the other half lives' (not online) It makes a comparison between the finances and wealth of MPs and the general public. You can imagine how it looks. What interested me was the comment about the releatively high proportion of MPs using trusts and directly involved in property investment.
Is there a snowballs' chance of meaningful change?
I very much doubt it.
Steve Keen is plugging you here:
Like others he believes there's more to it than just land supply.
It's important, and referring to Texas it seems clear they think similarly too, with robust use of an LVR regime. Kinda funny that, on the one hand very liberal in terms of land supply regulation, but on the other quite the opposite, in fact very prudent, regarding lending/borrowing:
http://www.cnbc.com/id/36134970/The_Lone_Star_Secret
"Not everyone loves the state’s rules. Financial services companies have periodically lobbied to scale back the restrictions on home-equity borrowing, noting that the costs of compliance increase borrowers’ interest rates. But another reason the loans are more costly is that the Texas rules are unique in the nation, giving borrowers less opportunity to shop around. As Texas is now discovering, increased costs are a small price to pay for one of the lowest foreclosure rates in the country. ""
Looks like they take no nonsense from lenders, pardner!
If only RNBZ were the same, Chelsea and David might be finding a life a little easier. Let's hope they don't give up an piss off to Australia - like so many others.
Cheers, Les.
Very interesting thanks for the link. So it seems the rules were different for Texas borrowers. The pro-sprawl advocates would have it that Houston prices never boomed because of a lack of planning regulations, but it seems it was mostly about availability of cheap credit.
Is there a city in Texas with an MUL and stricter planning that did have a housing bubble? I wonder how Austin fared in the 2000s...
what, piss off to Aus where the housing is even more ridiculous?
The Demographia report kind of kills the logic (in the "general" sense) of wanting to emmigrate to Aus to better make ends meet, when their big city house price to income ratios are even worse than here.
Of course individual circumstances can dictate the merits of the move. Truck driver Bill gets 40K per year here in Auckland, can get 100K in Queensland and a house is the same price as here (and better). So despite the big picture stats, he is much better off.
If contemplating re-locating to Australia and purchasing property you need to build into your budget the cost of "stamp duty" on your purchase .. about $75k on $1m or nearly $40k on $550k and it's non-refundable .. it's the price of the ticket to get in the door of the casino.
Hugh .. I don't want to rain on your parade .. but I'm really not sure what you're talking about .. I had my very first home built, in Auckland, in 1968 .. total cost including section was 10x1 my annual income. Had to get a second mortgage, work two jobs, and my wife worked also, until we paid off the second mortgage.
Treasha Lim, a strategic property adviser at financial advisers KlearPicture, says many people are raised with a strong mantra to buy their home and not pay rent.
"Parents struggle through their mortgage and always say, 'don’t buy anything unless it’s your home, don’t pay dead money on rent'. The kids see it as such a hard task so that is ingrained in them," Lim says.
Lim has six properties around Melbourne and has mainly chosen to purchase off-the-plan where she saves money on stamp duty and doesn’t need to pay the full purchase price until a future date, and rents tend to rise in the meantime.
"I was fortunate that I had a few friends in the same boat; we all paired up and rented so we could keep investing so we could use as much of our tax dollars as possible. My rent has never exceeded A$850 a month and even though my pay was rising a lot every year, I didn’t change my spending. With some people the more they earn the more they spend, whereas the more I earned, the more I invested," Lim says.
Lim says the key to success is the compounding growth of property, compared to holding cash in the bank – which is not only tempting to spend, but also grows at a smaller rate than property.
"If you leave A$45,000 in the bank and you’re only earning 5 per cent, then you earn A$2250 a year and you have to pay tax on that at the end of the day. Whereas if I use that A$45,000 on a 10 per cent deposit on a A$450,000 property, let’s say it grows at 6 per cent, then you’re growing your net worth by A$27,000 a year not A$2000 a year."
LOL, I love that last paragraph of utter SHITE!
Borrowing 300 million a week people! Yeah we are just doing great! eh John? Blow it out your............... NZ is thucked. How long before the majority realize the disaster this country faces all because a majority of mugs out there can't see a 'ponzi scheme' written all over the Real Estate agents face? You fools, you have ruined any future your kids had.
Bastard..!! wash your bloody mouth out this instant...!...we wuz robbed....ambushed...poisoned ....er and apart from that sissy Jane Randel easily the best team wot never won....save 87.
now you say three Hail Henry's and straight to your hammock....no rumbo's for you.
Bet we don't! And yes I hate what rugby has done to this country. It's become a sport for the dumbed down binge drinking brainless ego thugs who infest this country and ruin every friday and saturday night
Rugby has alot to answer for. I won't drop a penny into this over hyped event. The world economy will finish the job good and proper and once it's proven as one of the country's biggest ever flops along side the America's Cup I will then lead a campaign to make our local mayor personally responsible.
Justice, Your words epitomise that we as Kiwi's are lost...rugby and booze focus are the easy options. .... No disagreement there.
Maybe we have a major volcanic eruption just prior to Rugby World Cup. All international flights cancelled and we get cheap tickets to all games...YES... finally an opportunity for the All Blacks to win. No international teams arrive; so the All Blacks play Poverty Bay for the World Cup. Poverty Bay wins....
Justice, are you getting confused with the rugby league people? Rugby is a true cross section of Kiwis, you will find profesional people, tradesmen, farmers, blue collar workers all fronting up and playing with and against each other. I was involved playing and then refereeing for many years, club, sub union and provincial and amazing how various social groups and races all met as equals on the field. Don't underestimate the value of this for NZ society.
I realise why Hugh has not included interest rates in the study, they fluctuate to much.
However, it must be said that NZ has some of the highest interest rates, or cost of debt of the studied countries, and has had for a long time now.
This coupled with high price/income ratio pushes little old NZ _WAY_ down the scale for home affordability.
For goodness sake, a home is just a pile of wood, timber and concrete, and a bit of land. Why should it Joe Bloggs spend most of his working life to pay it off?
The report clearly shows how out of touch the authors are with reality.
Who says that that 6.5 or 9.1 or 3.5 or whatever should be the right way to calculate the price for a house?
The only right number is that which is dictated by the market and the market has spoken:
"Survey finds more optimism - QV
More people now expect house prices to move in a positive direction in 2011 according to a recent survey.
The latest survey of the New Zealand housing market carried out by QV.co.nz shows considerably more optimism than six months prior.
According to the results released by QV there are now more people who believe that prices will rise than those who believe they will drop, a turnaround on the June survey findings.
In addition there has been an increase in the number of people intending to buy or sell in the next 12 months.
Some 61% of respondents agreed or strongly agreed that now is a good time to buy, with a net of 48% believing now is a good time to buy (up from 31% in June). Some 28% indicated they would build or buy within 3 months, 22% said they would do so within three to six months and 50% said they would act in six to 12 months".
And as if to prove the point:
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=107…
Not to mention:
Debt.
One thing struck me reading the commnets and it comes up again and again. Don't get into debt, or into too much debt or in the wrong sort of debt. Except to buy a house. Even then only have the right amount of debt. The trouble is that cheap debt changed everone's behaviour. Even if you personally do not want to be debt (too much or whatever). The behaviour of everyone means that as a nation we sat back and used the cheap debt to bid up the price of everything. Suddenly everything starts to cost too much. Food utilities, services, houses, everything. So even if you are the most prudent person in the whole of New Zealand you still loose. At this point individual action starts to look like it doesn't work. The 'Got to keep to keep dancing till the music stops' mantra of NY Bankers was really the game we have all been playing with houses. Affordability indexes don't really reflect that the amount we are having to borrow for the house is hundreds of thousands of dollars, these are enormous, dangerously large amounts of money. House prices reflect the amount of cheap cash looking for a home far more than they reflect the intrinsic value of a home, how else did every house in New Zealand double in value in 5 years not so long ago.
We need to decide within reason how much debt as a nation we are comfortable with. 'Affordability' as a measure is only part of the equation and really it is one sided. it is useful for the banks to make sure we can keep paying the interest, it does not say anything about the total size of the debt vs what it actually is that we purchased. One simple straightforward tool is asset to loan and income to loan ratios as well as inflation targeting.
Re:
More people now expect house prices to move in a positive direction in 2011 according to a recent survey.
The latest survey of the New Zealand housing market carried out by QV.co.nz shows considerably more optimism than six months prior.
The interesting idea contained is that somehow 'up' is a positive direction for House Prices and this reflects optimism. Ther is no reason why the price of something going up should be positive except it seems houses. Oil going up in price is positive for the owners of oil fields and I am sure that they will be optimistic as a result. as for he rest of us I am not so sure.
The trouble we have with very expensive house prices is that it drags the cost of everything else up with it. Builders, lawyers, materials as everyone wants to be in on the game and to get a good clip of the ticket.
But it does not make us richer or any more able to pay our way in the world.
Debt is debt is debt and THERE'S NO SUCH THING AS GOOD DEBT.
Property debt is no better than any other kind of debt.
You don't own the property until the debt is cleared: until then you are a tenant, paying huge rent to the property's owner.
Debt is bad, no matter which way you try to look at it.
A little off topic, but what about this "good debt" rort?
A University student living at home, Daddy paying for everything including course fees. Student borrows the maximum living allowance from the government at 0% interest and puts it in the bank. At the conclusion of his or her studies, they pay off the full amount of the loan, minus the 10% voluntary repayment bonus, leaving them with a tidy sum of taxpayer money..
The debasement of the dollar this year is set to be 5%. It means that since the start of the recession in 07 to the end of 2011 the currency will have fallen in value by about 17%...!
The question not being asked of the govt.....what have you done to erradicate the 'capital gain from property disease' that brought us the bubbles that are destroying the economy...what have you done?
I think they have done bugger all. I think the govt decided to ignore Treasury advice and to go with that from the RB...which gets its advice from the banks....which are determined to protect the debt laden bubble economy because deflation would destroy their balance sheets.
By the end of 2021...the currency will have fallen in value by nearly 50% since the start of the recession......50 bloody percent. This is grand theft govt.
You're dead right, Wally, and this is why all those here that say "cash is king", "save save save", "the debt CAN'T get any bigger", "bail out of property, stick it in the bank" will be even more bitter and twisted in 10 years time. Nice of the government to devalue my mortgages by 50% over the next 10 years though ;)
Governments have been inflating away debt for centuries and I haven't seen anything that makes me think that is about to change.....
How does the Government devalue away your mortgage if you don't get a pay rise from you employer to to make those 'diminishing' payments, Murray? Answer: They don't. And as everyday costs rise about you, and wages stagnate, where does the excess income capacity come from to meet the increased loan payments that come with 'inflation'? Rents won't rise, as tenants will be the same boat as you. Higher costs and less disposable income. I'm wrong? Really? Asset price inflation always leads wages inflation; the latter NEVER catching up, leaving everyone worse off.
I agree, Nick, wages never catch up, but they do play "follow the leader".
Any mortgage today will be worth X% less in 10 years time, and the cost of everything else will have increased by X% or Y% or Z%.
It doesn't matter exactly what the percentages are, the thing that people overlook is that prices don't actually change that much, it's just that the currency gets debased and it takes more of that currency to buy the same goods.
Goods prices don't move in unison, though, and granted house prices were well ahead by 2007. As I said at the time though, all that will happen is house prices will slip sideways for a period while other prices catch up. Try converting house prices currently to petrol or vege prices!! Wages will follow, eventually, but no they never catch up - that's how the game goes....
X,Y and Z will be consumerables, Murray A,B and C will be assets; they will depreciate for several reasons. (1) BigDaddy's 'good debt' thing was the gap-filler between wages and prices in the past. We borrowed to feed ourselves and buy 'inflation proof' assets. until wages partially adjusted. We have little or no capacity to borrow any more. So we will have to sell what we have - those inflation proofed assets, and (2) As we all age, we have done the 'acqusition' bit. We are now all selling what we don't need and, at best, replacing what breaks down. That's a massive slow-down in our culture of spending; lower community wages and even further fall in asset prices. ie: we are going to turn 'our property' into veges and petrol !
I disagree with those that say we have "no capacity to borrow any more". There is currently a deleveraging process going on, but it won't last forever. Governments will always pay off their debts by hitting "print" on the money machine, because they can... if you or I were allowed to print money to pay off our debts, we would too!
I also disagree with the "BabyBoomers sell up" theory. No offence, but BBs tend to be a bit full of their own self importance and think that the world won't spin without them.... it will. The Baby Boom of 60 years ago was significant at the time, but looking back now it's looking more and more like a blip. The world population is increasing exponentially, and in the future there will be more demand for everything, including property. The prices of things will reflect whether that demand is being met by adequate supply or not.....
Alen
Rubbish!! There s good debt and bad debt and anyone who thinks otherwise is ignorant,
"Good debt" is used to purchase assets that provide an income or profit greater than the cost of the debt. e.g. a mortgage on a property at 7% where the property is producing 10% is good debt ( not to mantion any capital gain or tax advantages)
"Bad debt" is where the borrowings are used to fund such things as holidays, gambling, face lifts, or any item or service which prodces no return and cannot be on sold to recover the debt,
Paying rent is a 'bad debt" because it is a 100% loss to the payer.
Mortgage interest is a "good debt" because much if not all of the cost will be recovered over time when the property is eventually sold.
Quite correct Murray...it has to be asked....why are Labour incapable of seeing the benefit of policies that bring affordable property.....are they somehow unable to understand why the bubbles grew so huge....or is it a question of the leadership being into property in a big way!
Certainly national will not go near policy that rids the economy of property speculation for capital gain.
All debt is the risk expenditure of hope-for future earnings on todays outlays. Good debt? Tell the investment property owner in Queensland or Victoria or Christchurch, that was getting 10% on their 7% borrowing that it is now 'good debt', when they have no tenants for the foreseeable future; no asset of any value and only 'good debt' to continue repaying. They may be compensated by an insurance claim, if they're lucky, but by then their 'good debt' will more than likely have driven them into bankruptcy. And tell that person, who having gotten a face lift ,and attracted a million dollar modelling contract that their debt for the operation was 'bad'!
It will be covered by insurance, Nick, and if they didn't have insurance they are fools.
Another great thing about property is the ability to insure it. Shame you can't get insurance for your money in the bank that the government is going to devalue for you, huh?
You've been confusing me with your posts lately, Nick. A while back you were of the opinion interest rates were heading for 0% Japan style, but recently you say they are going to head much much higher? Which is it? You recently said the cost of debt will soar, but failed to account for the effect high inflation would have on devaluing the debt.
If we have high interest rates and high inflation, property will give better capital gains than money in the bank (which will get less than 0% thanks to currency debasement)
If we have low interest rates and low inflation, property will give better cashflow than money in the bank (in the majority of cases)....
Insurance! Even those who have it, are finding it difficult to get on with life. In Christchurch some insurerers are not meeting claims 'until it's all over'. That, they say, could be upwards of a year.
And my personal view is that interest rates do indeed go to zero. I see 'us' as no better off than those economies that have gone the saeme route - if not worse. My posts acknowledge those who say, like you do, that inflation will be their saviour. If that's so, it perfectly conceivable that rates do soar. I'm prepared for both. I'd suggest that we would all be better of at 0%. Our economy would have a shot at recovery, and those with assets would be able to keep them. Inflation will devestate those who have debt, as it's cost will skyrocket well before they are able to reap the benefits of any price rise. Who's going to buy property if rates go to 20% ? But at 0%. lots who are struggling can keep them.
Optimistic NA....the life of a fault line on the move can be measured in centuries...CHCH may well shake away for a hundred years...indeed the periods of calm will become periods of torture as locals await the next release of energy. Far better the level 3 stuff every hour or so. The 7.1 may well have been just the warm up to the big move on the main fault. That'll be between 8 and 9 for sure.
I agree again Nick! I think we're all better off with low inflation and low interest rates. That was the aim of the RBNZ and Government in the early 90s after the nasty 80s inflation. It seems lately people (especially politicians) have forgotten all that.
And you're right, anyone that can't service their debts gets in trouble. It depends exactly what interest rates and inflation rates are though. During the 80s, most people could sell up and still come out on top.
Those of us that can afford to pay much higher interest rates would do quite nicely, thank you. A little bit of debt (leverage) can be good, too much debt (leverage) can be bad.....
Wolly, why don't debate the point instead of descending into insults?
Nicholas: My points on good and bad debt were general ones. Of course there are many examples of good debt turning sour and yours is one of them. Like wise there are many examples of bad debt being good e.g. raising debt to fund a life saving operation.
The point being is that people should be more circumspect about raising bad debt and cautious but not afraid about good debt.
In other words to say that all debt is bad as stated by Alen is Greenie -type hog wash.
There is no such thing as 'good debt' nor 'bad debt' BigDaddy! It's just.....debt. A committed facility that has to be repaid, one way or another; by someone. The success of the venture can only be assessed in hindsight. Do you think the buyers of Yellow Pages deliberately set out to incurr' bad debt'?! It was just asset financing.....just debt; no different in nature to any other kind of debt.
It is a component of doing business. It is neither good nor bad, and should be withing a trading limit. Do you think the Nestlé Futures Trader askes himself if it is 'good or bad' before he assumes the debt? Even to say "debt that is repaid is good and debt that is defaulted upon is bad' is meaningless. It doesn't change the nature of the animal....it's all still just...debt.
Fair enough. But I think it's just meant to give some context of what it is being used for.
I don't think the trader would ask himself if it were good or bad because if it wasn't good for Nestle they wouldn't be doing it and he wouldn't have a job. The trader himself isn't assuming the debt, Nestle is.
I've always found debt to be " good " ........ The munny from the kindly folk at the ANZ and at the ASB has allowed me to pick up a tidy morsel in the property market , when it best suited me . ...... 3 decades of doing so ...........[ small farm blocks / lifestyle parcels of land / forestry ]
....... I have no debt currently ......... But then I always run a " lazy " personal balance sheet .
Sorry Mr Bollard : But the Gummster prefers to accumulate cashflow positive investments , than to rally around our ailing retailers .
H'mmm - 2.5 times the approx. wage in NZ would make it about $137,500.00 for a house; & 23% of that as the section content would be about make the section cost $31,625.00.
$31,625.00 would just about cover Council fees & levies - but leave nothing to buy the raw land & carry out the subdivision work! And absolutely no profit! Does this seem likely?
And the $105,875.00 remaining to build the house? Might get you a Hardiplank clad 90 m2
house with no floor covering,drive,path,fencing,letterbox,clothesline etc etc - IF the builder was feeling really generous.
Something wrong with these "facts"!
Yes, I queried the 'facts' behind Tauranga coming out the highest in the Dem list due to a skewed situation there, Hugh strangely quiet in not addressing the query. Also, strangely quiet with the observation that when I was in India the prices were/are at a ratio hugely more than likes of NZ etc
$31,625 would not cover the reserves contribution for a CBD apartment which can now closer to $50,000.
It would also not cover the cost of 15m length of roading, footpath, sewer, stormwater and utilities that are required to be built to service each Hugh Sprawl section, or the cost of maintaining that road and services for the next whatever years that gets added to our tax bill.
New Zealand already has highest proportion of roads per capita in the world (costing $1,000,000,000 a year to maintain. Why would we want more? Why can't we have a denser city and use the roads we already have? Why is most of Auckland zoned Res 6A with 1/375sqm density maximum? This means a site of 749sqm can not be subdivided even though at 35% site cover over 2 floors it can easily take 524sqm of house. That's a big house, in fact it's 2 big houses. Why do we have these stupid density rules? Why is a site that can take a 524sqm house deemed "too small" for subdivision?
I do not accept this. I come from the UK and still have all my family there. In Oxford you pay 250K pounds for a small semi on 2500sq mts and the wages at the BMW car factory are 19K/ year, that would make Oxford at least twice as expensive as here. My last house in Oxford was a 5 bed semi with no garage on 1/2 acre and it has recently sold for 950K pounds. Look at what you get first before making comparisons, try pricing it per sq mtr.
My daughter now lives in Boston USA and was in Manhattan before, both were small flats but the values are through the roof, Good friends also live in Pasadena and there 1/4 acre 3 bed house is worth US$1m, that is 4 times what a house in say the North shore would be.
Yes you can buy crap places the size of a shoe box in the UK and that is what most young couples do if they can afford to do so. Please compare apples with apples.
Keriwin
I'm not quite sure of your argument.
the 250K semi in Oxford - thats equivalent to 500K $NZ. Oxford is a desirable place. 450-500K would be typical of good semis in good (but not great) parts of Auckland.
Is the 19K car factory job an average wage? Assuming it is, you need to look at HOUSEHOLD income. If you multiplied that by two it gives you 40K in round terms. As a result the 250K semi is roughly 6X the household income ie. similar to here. Plus you've got much lower interest rates in Pommy land. So net result its more affordable.
Your Pasadena example - yeah thats equivalent to around NZ$1.20 million.
thats around 2.5 (not 4) times the price of a typical 3 bedroom house on a quarter acre section in a lower income north shore suburb like Glenfield. But there would be plenty of wealthier areas on the North Shore where you would be spending upwards of NZ $1 million for a house on a quarter acre, so I think your comparison, and implied view that NZ is actually much more affordable, is actually flawed.
And these are just anecdotal exmaples. Therein lies the value of a comprehensive and robust survey such as Demographia's, which clearly and scientifically demonstrates the severe housing affordability issues faced in Aotearoa.
Demographia is a pro-urban sprawl website still stuck in the '60's selling publications like:
"WAR ON THE DREAM: How Anti-Sprawl Policy Threatens the Quality of Life"
All it's "data" is trying to prove is that the cities with the most sprawl are the cheapest to buy in therefore all cities should have unconstrained sprawl. They claim that sprawl cities are also wonderful places to live as evidenced by their high growth rates (although cities with much higher growth rates such as Mogadishu, Lagos and Kabul are not discussed even though by Demographias own logic they must be even more desirable places to live than Atlanta)
HP makes absurd statements that show complete ignorance of basic town planning. He seems to think that there has been 'smart growth' in Auckland and it must be stopped. As of 2011 there been no smart growth. All there's been so far is continuing stupid growth which Hugh wants more of.
So what if most people want to live in a McMansions. Just 'cause they want to doesn't mean it's sustainable, rational or to be encouraged. People wanted to frolic in clouds of DDT while smoking tobacco in the '60's but that didn't make it a good idea, although probably a better idea than more '60's town planning.
Bob
We can all debate the validity of Demographia's claimed link between restrictive town planning and high costs.
Personally whilst I think there is some validity in his view, I think the factors are wider than just restrictive town planning. That's where I tend to question Hugh's views.
But regardless of what actually causes housing unaffordability, at the very least the Demographia survey is a great comparative resource, and really highlights a serious problem, which is not often highlighted due to the pervasive,systemic vested interests in keepng housing bubbles inflating.
For that we should be very thankful.
NZ has seriously over-priced housing? Utter nonsense, go to the likes of Mumbai and see what housing unaffordability might be like.
eg in NZ it is made out that Tauranga is the least unaffordable, but completely ignores the low household income of a significant retiree sector who have had the capital to buy a mortgage free place regardless and of a significant beneficiary group with a low household income (often solo) most who are not looking to buy . Throw them all into the mix and Demographia comes out with the silly comparison that it is less affordable to buy a place than in New York. One can still buy a sound detached 3 bedroom house/garage in likes of Greerton (good sound area with excellent amenities/educational facilities and not far from 2 hospitals etc ) for $250,000- try that in Manhatten!
Agree with comments that Tauranga's ratings maybe skewed due to retirement and the Solo mum. But a big contributing factor is that "Ten dollar Tauranga" is just that. Tauranga wages are really low, something that we have just accepted, but our cost of living is on par with Auckland.
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