Polity by Rob Salmond

Read Post

Polity: House-buying patterns in Auckland

521 Responses

First ←Older Page 1 10 11 12 13 14 21 Newer→ Last

  • Rich of Observationz,

    Yep, he doesn't apply his required rigour to his personal ideas.

    As I said above (maybe, I lose track) why, if supply limitations are the cause, does the property market not find an equilibrium of buyers and sellers?

    And in one sense it's impossible to increase supply - an apartment in the CBD or a greenfield site in Drury isn't the same thing as a house on a section in Pt Chev. Places with minimal zoning or MUL controls (LA, for instance) have had rampant house price inflation at times in their history. Places with rigid zoning (much of continental Europe) have avoided it.

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

  • Russell Brown, in reply to Katharine Moody,

    But on top of that, if there is substantial foreign investment and if it is driving up prices, that’s only because of the artificial restrictions on the supply of Auckland houses. If Auckland could get its consent and zoning right, so that more money meant more homes, foreign investment wouldn’t be a problem for people trying to find somewhere to live. That’s a real problem, and it’s one that lies within the power of governments to solve.

    That was a badly thought out academic contribution, I suspect.

    That's the weak part of his post, for sure. Attributing the problem to consents and zoning is pretty much an unsupported assertion.

    Auckland • Since Nov 2006 • 22754 posts Report Reply

  • Katharine Moody, in reply to Rich of Observationz,

    Yes, exactly. Auckland is a narrow isthmus - it is constrained by its geography. So reference to "artificial restrictions" as being its only planning problem is just a nonsense.

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Alfie,

    I wish that the people crying racism would step back and look at the wider picture. This is nothing to do with overseas buyers interested in living in our fair country. It's the wealthy looking after their assets and this mass movement of capital is happening worldwide at the moment.

    A new 230 apartment complex in London's Canary Wharf sold off the plan in five hours this week. Half went to local buyers, the rest to investors from Greece, Italy and China. Those flats won't even be completed until 2019.

    The same thing is taking place in Australia and Canada where the rich are parking their capital in safe havens.

    Around 20% has been knocked off the value of Chinese shares since mid-June, although attempts by authorities to stem the bleeding are having some effect.

    Many wealthy Chinese investors had already cashed out. Major shareholders sold 360bn yuan (US$58bn) in the first five months of 2015 alone, compared with 190bn yuan in all of 2014 and an average of 100bn yuan in prior years, according to Bank of America Merrill Lynch.

    It's no wonder our naive little market is being targeted. We've been told today that Auckland's median house price leapt 26% in the last year. Add to that NZ's lack of regulation of foreign property sales and the easy to circumvent must have an IRD number requirement coupled with zero tax as long as you hold a property for 24 months, and you're looking at some of the best tax-free returns on capital money can buy.

    In Singapore, offshore investors pay a 15% stamp duty on the purchase price of property to the government. Whether that's the solution or the 'new builds only' law in Australia, NZ desperately needs to stem the inflow of wealth that's distorting the Auckland market. Because it's not going to slow down anytime soon.

    Dunedin • Since May 2014 • 1386 posts Report Reply

  • Katharine Moody, in reply to Russell Brown,

    It's a totally unsupported assertion. Extremely disappointing from an academic - and one domiciled in Auckland as well.

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Rich of Observationz,

    Also, I do have a solution that doesn't involve any forms of racial discrimination.

    The Reserve Bank has a target range for general inflation, which they enforce using interest rates with reasonable success. They have no such range for property inflation (and indeed, such data is excluded from the price index and generally ignored by Stats NZ, presumably by edict from above).

    Have them make a plan for house prices - maybe 2-5% growth in the next 12 months, tapering thence to ±1%. Give them a set of clubs to enforce this with, ranging from the current light putter of bank lending requirements through to the nail studded lump of wood of a 100% tax on sale proceeds over a certain percentage of GV (making sales above that price fruitless for the vendor). Apply these accordingly to hit the target.

    After a while, it'll become clear that profits can no longer be made in the Auckland market, and "investors" will go elsewhere.

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

  • Rich of Observationz,

    the rest to investors from Greece, Italy and China

    Maybe the Greek government could engage Rob to scan the UK land register and identify investors with names like Serepsisos or whatever as possible sources of tax revenue.

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

  • Katharine Moody, in reply to Alfie,

    Yes, make it a 100% stamp duty and we might get more realistic prices being paid. That's what we could call a win-win for NZ.

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Katharine Moody, in reply to Rich of Observationz,

    Any of that kind of policy takes in New Zealanders as well. We really just need to deal at this stage with the foreign direct investment. We either ban it completely (Labour's idea) - or tax it to our advantage on the way in (say at 100% of purchase price).

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • BenWilson, in reply to Swan,

    The RBNZ stress tests last year showed the banks could withstand a 50% fall in house prices and unemployment reaching double digits.

    LOL. Yup. Right. A sudden 50% drop in the value of their entire asset base would just be laughed off and all the unemployed and also now homeless would be fine cause social welfare.

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • David Hood,

    going back to when I was looking into this in 2013, here is another document, where I was using other numbers that gave similar conclusions, but it is much harder to follow the argument as it is more mathematical.

    https://www.dropbox.com/s/tlkq1efejjk0lhv/housepricesanalysis.pdf?dl=0

    Dunedin • Since May 2007 • 1443 posts Report Reply

  • Stephen Judd, in reply to BenWilson,

    A sudden 50% drop in the value of their entire asset base would just be laughed off

    But a 50% drop in house prices is not a 50% drop in banks' asset bases; their asset base is the total outstanding loans secured against those houses. And NZ doesn't let you just walk away if you're underwater, unlike some US states, so those loans won't be impaired that badly.

    Wellington • Since Nov 2006 • 3122 posts Report Reply

  • BenWilson, in reply to Rich of Observationz,

    Yeah. Or even simpler, just make the cost of housing part of the basket of goods in the inflation calculation. Not that unreasonable, since everyone except the actual homeless have to finance a roof over their heads somehow. The idea of inflation is meant to be around "the rising cost of living" or "the declining value of money", which is much the same thing. It's meant to be a measure of "what your money can buy". If one of the three basics of life (food, shelter and water) has skyrocketed in cost, then it's hardly unfair to count it in the inflation statistics. I can do without a fancy TV, but a roof? Not so much.

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • Katharine Moody, in reply to David Hood,

    Very interesting - thanks!

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • BenWilson, in reply to Stephen Judd,

    But a 50% drop in house prices is not a 50% drop in banks’ asset bases; their asset base is the total outstanding loans secured against those houses.

    That’s true enough. In my case, with about 50% equity, I’d just lose everything, and the bank would lose nothing except for my ongoing mortgage repayments. So yes, you’re right, they would not lose 50% of their wealth. But the nation collectively would lose pretty near that. The banks might survive that…depending what you mean by surviving. It’s pretty hard to imagine that scenario NOT leading to a full scale reevaluation of the entire finance sector’s role in the economy.

    ETA: I mean, I'm trying to imagine the nation laughing off a scenario wherein every single homeowner with less than 50% equity is suddenly effectively insolvent. Basically every young family that has a property in NZ is suddenly worth negative hundreds of thousands of dollars. That's not going to stress the nation one little bit, right?

    Auckland • Since Nov 2006 • 10633 posts Report Reply

  • Rich of Observationz, in reply to BenWilson,

    The answer would be a scheme where the state bails out the (former) home-owner by swapping their unpayable debt for government bonds, taking ownership of the property and granting them a lifetime, maintaining tenancy. Then put the properties into community co-operatives so that people have collective control over "their" joint properties rather than dealing with the government directly.

    Dancing Cossacks FTW!

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

  • Swan, in reply to BenWilson,

    "However, reflecting strong underlying earnings in the
    New Zealand banking system, these factors were only
    sufficient to cause negative profitability in a single year
    in each scenario"

    http://www.rbnz.govt.nz/financial_stability/financial_stability_report/fsr_nov14_boxa.pdf

    Birkenhead • Since Feb 2011 • 86 posts Report Reply

  • David Hood,

    Attachment

    And another graph from around the time- keeping in mind that this is showing 1980-2012 (rather than the early 2000s bubble period of the graph a few pages ago) and being generous with the assumptions about how much could be explained with household debt.

    In the accompanying text I wrote, in mid 2013, "And now the worrying bit. The period after 2007 actually fits better if it has the same slope as pre 2002 then has a sudden increase in 2012 (the early 2013 data also supports this). This suggests we may be entering a period of further off-shore money coming in, further pricing out New Zealand households"

    Dunedin • Since May 2007 • 1443 posts Report Reply

  • David Hood, in reply to BenWilson,

    Basically every young family that has a property in NZ is suddenly worth negative hundreds of thousands of dollars.

    It basically means you a never ever moving, so not likely to be ever changing jobs etc.

    Dunedin • Since May 2007 • 1443 posts Report Reply

  • Katharine Moody, in reply to David Hood,

    Really useful analysis. I wonder if another data set to be considered as a predictor might be migration and immigration. Steven Joyce (and perhaps John Key as well) had been running the line that on the demand side, the problem was fewer NZers heading to Aus and more coming home. Used to counter the argument that it was non-resident purchases driving the price hikes.

    Wellington • Since Sep 2014 • 798 posts Report Reply

  • Alfie, in reply to BenWilson,

    Basically every young family that has a property in NZ is suddenly worth negative hundreds of thousands of dollars.

    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.

    We're a staunch lot down here.

    Dunedin • Since May 2014 • 1386 posts Report Reply

  • Swan,

    "ETA: I mean, I’m trying to imagine the nation laughing off a scenario wherein every single homeowner with less than 50% equity is suddenly effectively insolvent. Basically every young family that has a property in NZ is suddenly worth negative hundreds of thousands of dollars. That’s not going to stress the nation one little bit, right?"

    For any household who owns only their own home (or a single home they dont live in that approximates their living requirements), they are effectively "neutral" when it comes to the housing market.

    A household who does not own a house at all is "short" on housing. They consume one house worth of housing and so are negatively effected when the price of housing rises, and benefits when it falls.

    A household that owns multiple house is "long" on housing. They consume one house but have more than one. So they are positively effected when the price of housing rises, and similarly negatively affected when it falls.

    For a household with one house, they are not significantly affected. Sure their net worth on paper drops, but their mortgage costs are unchanged and they still own and have a house to live in.

    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.

    Birkenhead • Since Feb 2011 • 86 posts Report Reply

  • A C Young, in reply to BenWilson,

    "Or even simpler, just make the cost of housing part of the basket of goods in the inflation calculation"

    Actually I believe that it is:
    http://www.stats.govt.nz/tools_and_services/newsletters/price-index-news/Apr%20-14/purchase-of-housing-and-rentals-in-the-cpi.aspx

    According to that page, building a new house or renting an existing one are both part of the basket.

    What is not part of the basket is the cost of the land itself.

    Wellington • Since Feb 2011 • 35 posts Report Reply

  • David Hood, in reply to Katharine Moody,

    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.

    Dunedin • Since May 2007 • 1443 posts Report Reply

  • David Hood, in reply to A C Young,

    The CPI basket tracks rentals and new houses only- not sales of existing houses. Think of it as the construction materials.

    Dunedin • Since May 2007 • 1443 posts Report Reply

First ←Older Page 1 10 11 12 13 14 21 Newer→ Last

Post your response…

Please sign in using your Public Address credentials…

Login

You may also create an account or retrieve your password.