Polity by Rob Salmond

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Polity: House-buying patterns in Auckland

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  • Katharine Moody, in reply to David Hood,

    When I looked at it (so up to 2012) I found that immigration was not actually a very good prediction of house prices compared to the arrival of money, and the two did not have very much of a relationship between them.

    Well, that's very interesting as well.

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • BenWilson, in reply to Swan,

    So basically, its a wash and as long as the financial system comes through OK the RBNZ should be able to stabilise employment etc (if they are competent.

    They'd have their work cut out for them. Show me a country that's actually had this happen and I might believe it. Calling it a wash that huge numbers of people lose more than everything they have is a pretty simplistic. What could the RBNZ do about it? Presumably you mean some real emergency measures, like what the US Reserve Bank did when faced with a smaller collapse?

    Bear in mind that a property collapse isn't just going to be this isolated event. There are a great many things that rely on the value of property, and cascading collapses of all kinds can happen at the same time. Any business with high leverage is going to be severely affected by debt drying up. The construction industry is pretty much going to immediately stall, putting tens of thousands out of work. Small businesses secured against property might well be completely screwed. A whole lot of farms are going to be appraised as insolvent. The banking sector itself will shed jobs massively. Lots of leveraged property investors will be bankrupt. The dollar would probably collapse, killing importers, driving up prices of all imported goods. All NZers with any assets here would have become rapidly objectively a lot poorer. Only for people with no assets at all would it be a wash, and then only if they kept their jobs. But they're the least likely people to keep their jobs, because it's generally the poorest people who have the most tenuous employment in the first place.

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • nzlemming, in reply to BenWilson,

    A whole lot of farms are going to be appraised as insolvent.

    This is (quietly) happening already. Our over reliance on dairy has caused many farmers to go so far into debt they will never get out unless the milk price magically rebounds to peak levels and stays there. Not going to happen.

    Waikanae • Since Nov 2006 • 2930 posts Report Reply

  • BenWilson,

    I have to say that it's pretty amusing that in economics, "stress testing" doesn't involve actually putting anything under stress. Their "stress testing" is modelling the scenario with a spreadsheet. If only I could do that for software I wrote, I'd pass every stress test ever. Of course it would fall over in practice.

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • Sacha, in reply to Russell Brown,

    Attributing the problem to consents and zoning is pretty much an unsupported assertion.

    Also a convenient right-wing talking point. Look guv, it's all the council's fault.

    Ak • Since May 2008 • 19686 posts Report Reply

  • BenWilson, in reply to Sacha,

    The annoying thing is that it probably does have seeds of truth. Rising compliance difficulties probably are one of the contributing factors to rising costs. The question is about how much of a factor they are. And we can't know that without a semi complete picture of the drivers to even do modeling around.

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • Sacha, in reply to BenWilson,

    Opposition parties have agreed to change those parts of the RMA that are pointlessly slowing down what councils can do. There was also a big over-correction in appetite for risk after the cost of leaky buildings landed on councils rather than govt or cowboy builders and developers.

    Ak • Since May 2008 • 19686 posts Report Reply

  • Sacha, in reply to BenWilson,

    The question is about how much of a factor they are.

    you might find this Transportblog post interesting.

    Ak • Since May 2008 • 19686 posts Report Reply

  • Rich of Observationz, in reply to A C Young,

    It's only the land that has long term value and inflates. The shack you built on it will be firewood in a few hundred years, and the flash kitchen will be in the dump shop in thirty. People forget this as part of their house porn fueled delusions, of course.

    Back in Wellington • Since Nov 2006 • 5550 posts Report Reply

  • BenWilson, in reply to Sacha,

    The TLDR is that it's small potatoes in the big picture of Auckland prices, right? I mean what have we got for a small house? Something in the range of 50-100K in total? That's currently how much my place has been appreciating per annum.

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • Jim Cathcart, in reply to BenWilson,

    I have to say that it’s pretty amusing that in economics, “stress testing” doesn’t involve actually putting anything under stress. Their “stress testing” is modelling the scenario with a spreadsheet. If only I could do that for software I wrote, I’d pass every stress test ever. Of course it would fall over in practice.

    Well....yeah. But you can also do stress testing in architectural and engineering design using simulated computer models. Sure, materials are stress tested (whew).

    Since Nov 2006 • 228 posts Report Reply

  • Jim Cathcart, in reply to Alfie,

    Keep in mind Ben that the housing bubble is pretty much confined to Auckland. When (not if) that bubble bursts, the damage will most likely be confined to Akl. The housing market in the South Island – except in ChCh, cos earthquakes – is relatively stable and tends not to suffer the up/down cycles of more volatile markets.

    You probably want to consider the relationship between house prices and consumer spending. Using the extreme case of Japan, the impacts on the hinterland were devastating, including 2nd-tier cities.

    Since Nov 2006 • 228 posts Report Reply

  • BenWilson, in reply to Jim Cathcart,

    Yes, I don’t think the other regions would be unaffected by a financial catastrophe in Auckland.

    But you can also do stress testing in architectural and engineering design using simulated computer models. Sure, materials are stress tested (whew).

    Yup. Then the thing is actually built and used, which is the final and decisive stress test. But you can easily miss something, like what might happen to the superstructure when it’s subjected to being heated with burning aviation fuel from a full plane. Or the O-rings might just not be as robust as what the group determined to get the shuttle on schedule might talk each other into thinking. So you over-engineer it massively because the 10 or 10,000 people affected may have their lives depending on it. But when it’s a million people depending on it, we can happily say it’s a wash so long as unspecified financial measures could keep the banking industry afloat long enough to ride out the storm that could wreck the entire nation.

    ETA: Hopefully it was clear that last sentence was sarcasm. I know full well that what would happen is that the banking sector would be bailed out by the taxpayer, because that's one of the only two scenarios that ever do happen. Either that, or the whole system shits itself big time. Both can and have happened.

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • Russell Brown, in reply to BenWilson,

    The TLDR is that it’s small potatoes in the big picture of Auckland prices, right? I mean what have we got for a small house? Something in the range of 50-100K in total? That’s currently how much my place has been appreciating per annum.

    If you're around the median house price, it's now more like $150k.

    Auckland • Since Nov 2006 • 22754 posts Report Reply

  • nzlemming, in reply to BenWilson,

    Yes, I don’t think the other regions would be unaffected by a financial catastrophe in Auckland

    I think not, stinky puppy. Quite a lot of flow on would occur.

    Waikanae • Since Nov 2006 • 2930 posts Report Reply

  • BenWilson, in reply to Russell Brown,

    @nzlemming

    The cats and dogs could end up feeding us!

    Gah! Now I'm thinking you were quoting Orphan Black..All I'm channelling here is a psychopathic Russian accent, but I'm getting memory interference.

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • Katharine Moody, in reply to BenWilson,

    I know full well that what would happen is that the banking sector would be bailed out by the taxpayer,

    No, they would be bailed out by the depositors being 'bailed in' - see RBNZ for details on the OBR (Open Bank Resolution).

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Katharine Moody,

    More on that wall of Chinese capital;

    Due to the bubble in Canadian house prices and ensuing concerns over social dislocation, Canada's government shut down its investor visa program last year. Some 40,000 Chinese visa applicants with a minimum loan to governments of $C800,000 were handed back their capital.

    "That's roughly $32 billion," says Tee. "The Canadian government said: 'We don't want your money anymore' and that capital is now hitting the Sydney market."

    "There is a mountain of liquidity. China is bursting with flight capital. They can't go to the US, they can't get it into Singapore anymore, or Hong Kong."

    http://www.smh.com.au/business/comment-and-analysis/wall-of-chinese-capital-buying-up-australian-properties-20150628-ghztdf.html

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Sacha, in reply to BenWilson,

    red herring territory, yes.

    Ak • Since May 2008 • 19686 posts Report Reply

  • Sacha, in reply to Russell Brown,

    yep
    #insane

    Ak • Since May 2008 • 19686 posts Report Reply

  • Sacha,

    Greek/EU deal plays out

    Ak • Since May 2008 • 19686 posts Report Reply

  • Sacha,

    Guardian notes China's current impact on residential real estate in UK. Canada and Australia.

    Ak • Since May 2008 • 19686 posts Report Reply

  • Swan,

    Ben, we are talking about a specific situation where a house price bubble is effectively exogenously imposed on the domestic economy. You ask me to give you an example of a housing bubble bursting not being an issue, but I could equally ask you to find a situation where house price declines have caused issues without strong credit growth beforehand.

    Regarding the transport blog link, the cited studies do not actually look at the effects of planning restrictions on house prices. Motu and Grimes don't at all, they are only looking at other secondary requirements e.g. Balcony sizes. They don't look at urban limits. The NZIER study looks at externalities for everyone in the city. The author of the post has equated this to house prices, but it is a totally different measure. The planning restrictions in Auckland are an absolute scandal.

    Birkenhead • Since Feb 2011 • 86 posts Report Reply

  • Sacha,

    Australian lessons.

    Crikey writer Bernard Keane last year exposed the relationship between Chinese foreign investment and housing affordability for the farce that it really is. Citing the Foreign Investment Review Board's 2012-13 Annual Report, he stated the bulk of Chinese foreign investors were purchasing new dwellings, a fact that's unlikely to impact the property bubble, and that investors from the US and Canada were only slightly behind. "Hard to get a good anecdote about white people showing up to an auction and bidding successfully for a property. "Chinese" buyers, even if their families have lived in Australia for a century, are easier to spot and complain about," he wrote.

    Ak • Since May 2008 • 19686 posts Report Reply

  • Dismal Soyanz, in reply to Jim Cathcart,

    The relationship between spending and house prices is pretty tenuous. More likely there is a common driver rather than causality between the two.

    Wellington • Since Nov 2010 • 310 posts Report Reply

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