then thought the following observation would be less biased if I didn’t look it up
Good on you. So it's like a hypothesis.
However, if investor interest is steady over winter, but the supply of houses for sale is less, then supply<demand means that prices will increase.
But if prices increase then suppliers would probably opt to sell in winter, increasing supply, and dropping prices. They choose spring and summer on advice that the best prices are usually obtained then. So it's kind of hard to reason this thing out from first principles. Only data will actually answer the question of apparent seasonality.
I'd expect it to be real, and statistically significant. But I'd be pretty damned surprised if it went so far as to increase one particular group's contribution by enough to explain a four-fold discrepancy in apparent ethnic distribution. Well worth exploring, though.
Ultimately, all the focus on name-analysis, or overseas-buyer registers, hides the fact that local investors also put home buying out of reach.
Absolutely. Both are problems. But I do think that the potential ability to influence prices is several orders of magnitude greater in the pool of buyers that outnumbers the population of NZ investers by perhaps a thousand-fold. The absolute most that local investors could drive prices up by is ... all the money that those investors can get their hands on. The absolute most that the rest of investors could drive prices up by is ... all the rest of the money in the whole world. One of those sums is probably best measured in billions. The other sum is most conveniently measured in trillions.
What I proposed is simple in concept, but in no way easy to undertake.
Therein lies the rub, I think. When high quality information is difficult/costly to get, people make do with low quality. That's not something we have a choice about, really. The alternative is analysis paralysis in most cases, and it's simply false to consider this the default position for humans. Not acting is still a choice, and it is very often the wrong choice. Of course a very sensible course of action is to work out what data is needed to make better choices.
This becomes even more complicated when there are parties that have a definite interest in the public not getting such data. It's quite scary to think that the most powerful people this country could have a policy of deliberate ignorance about such an important issue as where the money going into the largest asset class comes from. How are you going to fight that? Spend your own money and time on extremely expensive analysis, just to prove something that is almost bleeding obvious, but not officially provable?
@ David Hood
I don’t know the exact wording of their official mandate, but it seems to me that house prices and the possible collapse thereof are pretty fundamental aspects of the security of the banking system. At the very least, I’d expect them to be attempting to predict the chances, to the limit of their abilities.
But then that’s just me expecting people to think outside of the tiny box that they might have been put inside, both by others, and by themselves and the dominant economic ideology that probably forms the basis of even getting a job there. I had an impression that outside-of-official-mandate thinking was at least allowed when they began looking at the low equity ratios. It seemed to me that the GFC was a self-teachable moment. But as moar-austerity seems to have dominated at least the European orthodoxy, perhaps that moment has passed, and we can expect our bureaucrats to be completely blindsided by changing conditions, leaving it to people whose job it isn’t to try to make sense of the whole mess on their behalf. People like you, for instance.
Perhaps a better way of putting this: If it’s not the Reserve Bank’s official duty, then whose official duty is it to know what is happening with by far the biggest asset class in this country? Is it really no one at all? Are we really happy to just walk this path in total official blindness to the changing nature of our economic situation?
I hardly think it’s something we can expect the main private gatekeeper to the knowledge to be forthcoming with. It’s not in the interests of real estate agencies at all to allow any of this information to be freely available. Quite the opposite, it seems to me that it’s information that they quite deliberately would not want the general public knowing, even if they do know it themselves. Because if it is true that this is a boom or a bubble, they will want to make as much as possible out of it. They have strong interests that no measures be taken to slow the boom or prick the bubble because that’s all easy profit taken straight out of their bottom line.
ETA: And quite aside from any sinister motives, it's "their data" and private organisations seldom give that sort of thing away, just on principle. It's part of their competitve edge to have more information than their competitors.
Yes, they take for granted that P/E ratios tell the whole story of bubbles. I don't really need a great deal of evidence that Auckland's P/E ratios are very different to the rest of the county. The question for me isn't whether this ratio has "bubbled", but whether this ratio still tells us the story that they think it does. If the fundamentals have actually changed then a time series analysis doesn't shed much light - we're in a situation where the future doesn't resemble the past.
How could the fundamentals change, you ask? Well, if conditions change, then it's not out of the question. It seems like it's pretty hard to model the main condition that might change and massively affect everything - what foreign buyers feel about it, how much money they might have to spend. Which is why they conclude:
Such corrections have occurred in many other countries that have experienced house price inflation in recent years. Yet the New Zealand real estate market has very largely been spared such major corrections over the last two decades. International factors may now be playing a role in the New Zealand market, providing some degree of insulation from downturns as new money drivers from foreigners, immigrants and ex patriates assist in sustaining demand side market pressure on prices and, in the process, bringing the prices of desirable real estate, particularly in Auckland, coastal and island locations, in line with prices of similar real estate overseas. As indicated above, such pressures have inevitable spillover effects on the rest of New Zealand real estate
They don't actually conclude that there will be a correction. They conclude that of the two ways that P/E ratios could return to "rationality", either by rents rising or by prices falling, that prices falling is the more likely option. But whether "rationality" will return is left as the great unknown that it is.
That’s novel. Who else has been bidding prices eternally higher?
Well, it is possible that people who are not speculating any more than anyone else who buys a property are buying them. As in, of course they want it to go up, but that's not the main reason they're buying it. They could just want it, and have more money to spend and few other places to spend it.
Put another way, it could be a pool of people with a fundamentally different idea about the value of Auckland property than NZ residents. They need not be just in it for a quick buck. In other words, this might not be a bubble, it might be a boom.
I mean, an obvious candidate to do this research would have been the Reserve Bank itself, this giant body tasked with understanding the drivers of house price inflation. It probably wouldn’t even cost them so much, since their own staff could do it. Even without a government mandate to compulsorily collect residency information, they could still collect it by sampling, as you say. It stretches credibility to think they wouldn’t have even thought to try to obtain such information.
ETA: Then again, we are talking about a body that thinks it already does understand all the drivers. Maybe they are that stupid.
I’d pick a random sample of names from the list and start contacting people and explain the research being undertaken.
This list was obtained by a "leaker". So you start contacting people on it who dealt through Barfoot and Thompson. I can see a number of problems arising from that immediately - B&T will not be happy, if they get wind, which I think they probably would, pretty quickly.
But say you'd got their buy in, in the first place, then yes, this could be done. It might be a tiny bit redundant to do it, though, because B&T themselves probably have a pretty good idea of the answer anyway - if they actually agree to attempting to collect this information, it would be a trivial matter for them to do it themselves. They'd only have to ask their agents to provide the information if they had it, or ask for it if they didn't.
Presuming it is done without their buy in, though, it would be good to get a feel for just how much such a survey would cost. I don't know if the phone numbers were part of the leaked data. Getting them has to be factored in, if not. We're talking somewhere in the range of 30 to 100 hours? 30 under the ideal condition that you have a list of phone numbers and every single one of the 400 odd in the 10% sample answers and gives you 5 minutes for your survey, in a language you can understand. 100 hours as a number I pick out of thin air to account for the non-ideal conditions. Maybe it's 5 times more, I don't know.
Could be done. Why has no one done it? Not just Labour, but anyone? Winston Peters could afford that kind of survey, probably. Why has this data been so hard to get straight? It's almost impossible to believe that no one has cared enough in NZ to just spend the $20,000 that this sounds like it would cost. I'd be pretty surprised to hear that the major real estate agents haven't collected it themselves anyway, just as part of their own marketing analysis.
It's also a lot to expect if there is only limited interest. You've been down the road before of cranking out solid numbers and people not really getting into it much. Where some less solid numbers provoke massive attention. I can't promise anything more than my own attention. Nowhere near as exciting as an ethno-political standoff, nowhere near as easy to form an opinion about, or to pick a side.
+1 to that Katherine. A discussion reset coming from other directions than just Rob's revelation of a week and a half ago would perhaps shed light on where/how this could have been done instead without getting bogged down in all the moral issues that surround this research. It could be very constructive. It could also free this thread and all others to go for broke on the racial conflict angle. I don't think they should stop at all, so long as people feel they're getting something out of it and they haven't degenerated to a racist shit fight, something we're in dire danger of here atm.
It seemed to me that you made a mistake in presuming a lot about the way Keith and Tze Ming were thinking, without consulting them directly on that. That would have been both more polite and more sensible. People are always going to react differently to hearing such a thing for the first time on an open blog post, rather than via private communication first.
Other than that, I'm pretty much sympathetic to what you did with this data. I'm not feeling the debate about racism at all. It should definitely happen somewhere and I'm not surprised a lot of it is happening here, but there's nothing new in any of it to me, whereas what you came out with was actually interesting to me, as yet another piece of evidence of a very serious social issue in NZ.
Naturally it's complicated by virtue of being strongly associated with a powerful political party.
I'm going to take my leave from any aspect of the debate that goes toward the racial conflict angle. I just don't feel it can or will go anywhere further. We all know how we feel about this, and I at least have a pretty good idea about how most other people feel. It would be nice (for me) if there were somewhere the debate could continue in which that angle is strictly avoided from the start as a premise for discussion.