BNZ chief economist Tony Alexander is picking the current house price boom will end sometime between late next year and mid-2018.
In his latest BNZ Weekly Commentary, Alexander provides an analysis of the many forces currently driving the boom and the effect it is having on different sections of the population.
Renters and first home buyers are in crisis, as they struggle to be able to afford a home, he said.
Unfortunately Alexander doesn't see much relief in site for those groups, at least in the short to medium-term.
But does that mean the current boom will continue indefinitely?
"Definitely not," he says.
"It will end, the only questions are when and how.
"My pick for when is late 2017 to mid-2018."
The end of the boom would likely be caused by several factors, including the end of falling interest rates which would be replaced by worries about rising interest rates, slowing net inward migration, increased supply of housing and restricted bank lending to investors.
But whether a flattening of house prices would turn into falling prices would depend on whether the global economy was contracting, how the share market was faring and whether or not the Reserve Bank over-tightened restrictions on property lending, he said.
Alexander also gives his view on how tight new lending restrictions on investors should be.
"Were I in charge, I'd take the 30% investor deposit requirement in Auckland to 50%, place a 30% requirement everywhere else, then watch the impact for three months.
"If things eased not enough I'd impose rates of 75% and 50%, then 100% and 75% in extremis.
"I'd also get the regime in place for debt to income rules next year and hold them in reserve," he said.
You can read Tony Alexander's full Weekly Overview here.
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58 Comments
how is net immigration going to slow, will not with national in charge
The Reserve Bank's advice on immigration was welcomed by New Zealand First leader Winston Peters.
In a media statement this morning which was sarcastically titled "News Flash", he said: "So it is official. Mass immigration is the cause of the housing crisis.
"Now watch the Reserve Bank being accused of being racist and xenophobic."
If this current bubble was driven by migration or a housing shortage then rentals would have increased as well. This is a bubble which will burst when the current housing-ponzi-scheme reaches its peak. In reality housing rentals in Auckland are only marginally above Wellington. If rentals did go up, and the Government didn't respond with more subsidy of the Auckland market through the accommodation supplement, then business would leave Auckland. There is some indications of this already.
So BNZ's head economist is asking for the RBNZ to clamp down on the banks for investor lending? Everyone is calling for it, even the banks. Yet still the powers that be aren't listening. Words fail me. Has Trump Brexit really not taught anyone about the long term effects of inequality and what this can do to economies and banks - not to mention the humans?
National do not have an economic plan, only a political plan. They're hoping the market doesn't crash before the next election and are willing to accept a high level of collateral damage to retain power. If you don't hold property assists then you're the new lower class. They vote labour so tough. It's every one else's fault except National, blame councils, reserve bank, dept of stats etc. note how if you challenge their immigration policy you're a racist.
The fact is any external crsis that affects interest rates will tip this market.
there are still more kiwis leaving than returning per year, interestingly these figures are from a national blog site, how dare they show JK up as a liar
There are four aspects to net migration:
» NZers leaving NZ – has dropped from 62,000 peak to around 35,000 a year. Government can’t control this and is a good thing fewer are leaving
» NZers returning to NZ – has increased from around 22,000 to 31,000 a year. Government can’t control this and is a good thing more Kiwis returning
» Non NZ citizens leaving NZ – decreased slightly from 26,000 to 22,000.
» Non NZ citizens arriving in NZ – increased from around 65,000 in 2008 to 95,000
"Were I in charge, I'd take the 30% investor deposit requirement in Auckland to 50%, place a 30% requirement everywhere else, then watch the impact for three months.
"If things eased not enough I'd impose rates of 75% and 50%, then 100% and 75% in extremis.
Introduce 100% plus capital risk weightings for residential mortgage loans and no in house self determination adjustments for the big 4 Australian banks.
But does that mean the current boom will continue indefinitely?
"Definitely not," he says.
"It will end, the only questions are when and how."
"My pick for when is late 2017 to mid-2018."
Even a cheerleader can no longer stare down reality. Confirmation "it's a bubble"!
Expect an ever increasing number of the perpetual cheer leaders to switch to soft warnings of this nature in attempt to avoid being on the wrong side of history.
I suspect Mr Alexander hasn't only recently had this epiphany - it's just that he's been keeping it to himself!
Nearby events maybe the trigger, in an integrated financial world.
Misery loves company.
This is the problem, how can the government entertain letting foreign cash buyers continue to plunder our real estate while NZ citizens are throttled from investing in rental property? This is hugely wrong. Citizens interests come way before unknown monied foreigners, surely? My concern is that all investors will be crucified including NZ citizens that are in rental business for the long haul and actually caring about positive cash-flow not capital gains. Yes, a lot of property outside Auckland region is strongly cash-flow positive even today.
"This is the problem, how can the government entertain letting foreign cash buyers continue to plunder our real estate while NZ citizens are throttled from investing in rental property? "
Welcome to NZ - Under National Party.
It is true that this fire is more because of Non Resident overseas money than locals.
The question to be raised : Is the government representing kiwi interest or are they sitting in NZ parliament to promote their overseas friends interest ?
Everyone keeps blaming National but I think it would have been no different under Labour. Its easy to talk from the sidelines while watching the game but when your on the field and find your on the underdogs team mixing it with heavyweights promising huge trade deals, suddenly it all changes. Its almost tempting to put someone else in to watch nothing change. Like they saying goes "The more things change the more they stay the same".
A house up my street has the sold sign on it already, never even made it to the auction date.
Well, it's a good point. Labour set this crisis up in their last time in government, and like the Nats milked the 'wealth effect' of rising prices for all it was worth.
But...this govt has had plenty of time to do things but haven't done anywhere enough anywhere quick enough.
I do think Labour now have their policy 'about right' on housing (finally!) but I am not convinced in their leader
Even Sweden having housing issues:
https://nz.finance.yahoo.com/news/swedish-housing-shortage-hits-rich-00…
Italy's banks in big trouble:
https://nz.finance.yahoo.com/news/bailouts-downgrades-italys-future-cou…
US having same problem we are.
https://nz.finance.yahoo.com/news/foreign-buyers-flood-us-real-14005401…
Wakey wakey NZ!
@ Justice: Not as worrying as this: Hong Kong’s repo man is back at work in the property sector, as harsh economy and falling house prices fuel surge in foreclosures
http://www.scmp.com/business/article/1939882/hong-kongs-repo-man-back-w…
130 foreclosures in the whole of Hong Kong currently.....
But he said the situation is not too bad as the demand for foreclosed properties, in particular luxury houses, is still strong. The unit at 39 Conduit Road attracted six bidders, with Choi describing the final sale price as “reasonable”.
“The market is still much better than 1997 during the financial crisis, when there were thousands of foreclosed properties,” Choi said.
National is being blamed more for denial and not accepting that their is a housing crisis for they want to do nothing. They should have tried to curb speculation even if those measures would not have had the desired result atleast they tried.
It is like if someone is sick and doctors does not give medecine but deny that is sick. Perceptionn is and rightly so that national is .protect and working for asian interest.
Asians have the money and JK is falling for it and is very much evident. Just see around you as do not have to go far or need data.
If not chalenge govt ro release the non redident data and justify their action of not acting agaibdt non resident speculation
"I'd also get the regime in place for debt to income rules next year and hold them in reserve," he said.
What a joker .... why next year why not now? Maybe because he works for the bank.... let's not forget that...
They have been looking at loan to income for athe least a year surely these clowns have done enough "analysis" by now ....
Wheeler don't let the wheels fall off
From Justice's Sweden link:
A regulated market where rents are decided in negotiations or by courts rather than supply and demand means there is little incentive for construction. The wait in Stockholm's public queue for a rental in the inner city averages 13 years.
Murray86 (all rent should be $200) should read this.
That's what happens when you regulate rents.
All the talk all the hot air is not going to fix the problem.
Poor planning for future growth.
Huge immigration and no planning of infrastrucure to cope with it. However the real reason for immigration is to prop up the economy, produce consumption, dampen deflation and assist business to stay afloat.
There are a lot of political games being played yet there is never a solution to date.
30,000,00 house lay empty in auckland
Stop people buying house here who are not a permanant resident.
Stop front men acting for overseas purchaser with laundered money.
Stop investors 50% of the market from purchasing unless they have 100% cash.
Which ever way it goes there has to be a correctoin coming and if we go by history in will oct 2017
Its a big mess lets face it no planning just ashoc measures and announcement as we go.
What sad governance.
I do wish people would stop quoting the 30,000 empty houses thing like it is a big deal. It has been explained over and over as being quite normal for any typical census night. People away on holiday, people selling a home, people renovating a home.....
It's not a mess everything is actually hunky dory.
I am absolutely convinced of it but understand that many people are stupid and may wreck my plans. Just look at what happened to China and Russia and currently Venezuela in the past when people tried to meddle with things and make society fair.
Believe it or not many many people are secretly quite happy with their increased home equity.
The war that is be fought at present is Deflation Debt and Demographics.
Learn the reason for all the action and the real game.
The powers are trying to stop an implosion of the whole market.
Not until it fully spins out of control that we will see action but the great reset will do the job any way therefore that will save the politicians from taking action at all if any.
It is a bit pathetic how all these so called economic leaders are only now saying that something needs to be done. A little late I would have thought, but better late than never. It has been obvious to a large number of people that we have had a significant problem with housing for many years now. You could say right back to the last term of Labour. You would have thought that leading economists would have more expertise and insight than the man on the street and given their advice well before we got into this mess when there was time to take corrective measures to avoid it. The fact that most of them did not does them little credit.
Similarly political leaders are supposed to lead people to the betterment of the whole of society through their superior wisdom and experience; not follow round after them responding things that are so bloody obvious that the whole country can see them.
Well said. Some of us were talking about this back in 07/08 when it was already a crisis.
The urgency we see now should have been seen back then.
Either all these economists and Herald journos (apart from Bernard) have limited intelligence or vision, or they wanted the bubble to expand for their gain.
I find the Herald's position curious. Have they suddenly made a huge issue out of housing because of growing public /readership concern? Or was there a change of editor? Or did they finally click,when it was bad enough, that there really is a crisis that could destroy this country?
ahh not correct and Rolleston is not Christchurch. The traffic issue has many wanting to move back to Christchurch however they have to sell to do this..easier said than done. Same for North Canterbury. Christchurch properties in the affordable band are clearing very quickly. Just sold two within a couple of days of listing with RE.
US data, well realtor data data anyway: "Chinese buyers purchased more homes in the U.S. — and at higher prices —than any other international buyers.
In fact, 42% of foreign buyers who purchased homes worth $1 million or more in the U.S. between April 2015 and March 2016 were Chinese, the National Association of Realtors (NAR) reported.
Out of all buyers from mainland China, Taiwan and Hong Kong, about 27% bought homes valued at $1 million and higher, according to an NAR analysis completed for Mansion Global.
By contrast, only 4% of all Canadians — the second-largest group of foreign buyers in the U.S. — bought homes for $1 million or over."
Ironic of you Kiwis on here complaining about immigration.
Without more future taxpayers NZ Government pensions will become unsustainable in the near future.
40,000-50,000 Kiwis were leaving for Australia every single year of the last 15 years!
Australia's population grew by the total population of New Zealand in just the last 13 years.
15% of the NZ population lives in Australia. 650,000 Kiwis live in Australia. 1 million+ Kiwis in total live overseas which the NZ Government cannot stop them from returning back to New Zealand.
New Zealand has had its first positive net-migration from Australia since 1991. New Zealand hasn't increased its refugee quota in almost 30 years.
New Zealand has had 4 periods of population decline since 1991 so this net-migration is very much replacing the population loss since 1991.
New Zealand needs immigration as it has low birth rates below replacement level & a fast ageing population. New Zealand will have more people over 65+ than under 15 within the next 2 decades.
I feel like skating around on the thin ice of the immigration question this morning. I think Denmark did a study on the economic benefits of immigrants and sorted them by source. They discovered that migrants from othe European countries were a net gain economically but that migrants from outside of Europe were a net loss due to high welfare costs.
It is obvious to everyone that migrants should come from fairly similar economic levels and cultural backgrounds in order to start contributing to the economy immediately. NZers going to Australia would be a perfect example of this. Likewise British, Canadians, Americans coming to NZ or Australia and vice versa. Remarkably even East Asians have many things in common with Europeans and prove to be great contributors in a European style culture.
However even wealthy migrants could pose significant social hazards with an impact on the social fabric of society with increased corruption, black racketeering, nepotism, competition for jobs and housing and so on.
Everyone would surely agree that migrant flows need to be carefully controlled. It should be easier for certain people to enter the country who are more likely to be useful and contribute. The whole Brexit thing and the rise of Trump along with the right wing groups across Europe is fundamentally about keeping the European countries from descending into third world chaos and mayhem by preventing the mass importation of third world people.
This is because simple working folk believe that it is the type people, their history and beliefs, that make a successful society and not the magical properties of the land where they reside that does this as Jared Diamond would have us believe.
It is pretty sick. Chorus Head Honcho was saying yesterday, in a pathetic attempt to excuse the appalling standard of BB fibre connections, that there were no Kiwis available and he was flat out importing third world labour from India and the Philippines.
This is pretty basic stuff - dig a trench, put in the cable, connect it and tidy up. Complaints and actual photos of the mess would tend to indicate their foreign ning nongs aren't up to it but the plan is to bring in even more!
The way we used to do it was; you'd get in touch with your young folk; give them some basic training or start them on an apprenticeship and send them out with some experienced fulla and they'd get on with it.
What are we doing?
that's because successive governments have passed to private sector to fund and train our young and guess what happened
private found a cheaper easier way, just import them. this is another failed ideology from both major parties.
they are more than willing to loan money for our young to head off to university but they have dropped the ball on tradesmen
No kiwis available. What utter c....p. He just wants cheap.
Chorus is getting a heap of government money to do the job. But now having got the contract they are trying to evade doing the proper job. They should be made to perform to meet what they promised.
As for workers. Chorus head honcho should offer five dollars more per hour. He will find that locals will appear as if by magic.
And the rest of us, when there is an adequately paid workforce, will find business will boom. Better than helicopter money for business promotion.
Auckland is one of the most popular cities in the world. We may have our dips and I believe one is coming up soon, but in the long term I believe prices will continue to go up as people want to move to our beautiful city.
Pretty sure prices will be dropping next year though for a couple of years and then another boom after that.
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