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Speaker: House prices and the "Magic Money"

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  • BenWilson,

    Thanks so much for this, David. Will check it out much more thoroughly later today.

    Auckland • Since Nov 2006 • 10641 posts Report Reply

  • BenWilson,

    This is why I don’t think supply-side solutions are going to do much – the supply-side solutions are couched in terms of supplying the demand from local people, but we have no idea how big the supply would need to grow to deal with the demand from sources invisible to the New Zealand economy.

    Totally agree. We also have no idea how this demand could change over time. It could treble over a year due to some policy change in any one of the very large countries in the world.

    Auckland • Since Nov 2006 • 10641 posts Report Reply

  • Paul Campbell,

    crap, looking at that graph I must have started this, I came back from my OE in 2004 and bought my house for cash, no mortgage …..

    seriously though people moving to NZ with money is one cause of this, all in all that’s probably a good thing for the larger economy (wealth transfer inwards) though not so good for the Auckland housing market.

    Just like looking at surnames it doesn’t prove directly that “people overseas are buying up our houses” more like that people with alternative sources of financing are buying our houses.

    Dunedin • Since Nov 2006 • 2609 posts Report Reply

  • Che Tibby,

    really like this post. i'm no big-city economist, but it seems pretty logical.

    regarding where the money could be coming from: did you consider the two big changes in the mid-2000s, the Cullen Fund and Kiwisaver? Could property investment be being made from fund managers?

    the back of an envelope • Since Nov 2006 • 2042 posts Report Reply

  • Paul Campbell,

    Attachment

    And just to prove how people outside of Auckland feel about all this angst about Auckland housing prices here's today's Tremain (ODT's editorial cartoon)

    Dunedin • Since Nov 2006 • 2609 posts Report Reply

  • Paul Campbell,

    Attachment

    (and another view - Tremain from a few days ago)

    Dunedin • Since Nov 2006 • 2609 posts Report Reply

  • Russell Brown, in reply to BenWilson,

    This is why I don’t think supply-side solutions are going to do much – the supply-side solutions are couched in terms of supplying the demand from local people, but we have no idea how big the supply would need to grow to deal with the demand from sources invisible to the New Zealand economy.

    Totally agree. We also have no idea how this demand could change over time. It could treble over a year due to some policy change in any one of the very large countries in the world.

    Yes, this occurred to me after David posted the first of this stuff in comments on earlier posts: what nature of demand are we even planning for?

    Auckland • Since Nov 2006 • 22761 posts Report Reply

  • Russell Brown,

    Authority X said it was supply constriction due to RMA restriction. I am sure they did.

    It's surprising how often this is offered as a received truth.

    Auckland • Since Nov 2006 • 22761 posts Report Reply

  • Sacha, in reply to Che Tibby,

    Could property investment be being made from fund managers?

    I sure hope not, if a correction happens.

    Ak • Since May 2008 • 19697 posts Report Reply

  • David Hood, in reply to Paul Campbell,

    crap, looking at that graph I must have started this, I came back from my OE in 2004 and bought my house for cash, no mortgage …..

    seriously though people moving to NZ with money is one cause of this, all in all that’s probably a good thing for the larger economy (wealth transfer inwards) though not so good for the Auckland housing market.

    You might individually have been part of that, but the actual immigration numbers are not a match to house price rises- I can go through much the same process showing a lack of relationship between arrivals and house value. So we get to the situation of access to capital (not identifiable within the New Zealand Economy) rather than people.

    Dunedin • Since May 2007 • 1445 posts Report Reply

  • Paul Campbell, in reply to David Hood,

    You might individually have been part of that, but the actual immigration numbers are not a match to house price rises- I can go through much the same process showing a lack of relationship between arrivals and house value.

    I think more you should take out the portion attributable to mortgages, then do something similar for immigration (do people like me coming back from OE even show up on anyone's radar?) and then look at the remainder

    So we get to the situation of access to capital (not identifiable within the New Zealand Economy) rather than people.

    which was sort of my point

    Dunedin • Since Nov 2006 • 2609 posts Report Reply

  • David Hood, in reply to Che Tibby,

    Could property investment be being made from fund managers?

    Perhaps individually, buying an investment property with their management fees, but there is no direct sign of Kiwisaver funds investing in residential property.

    Dunedin • Since May 2007 • 1445 posts Report Reply

  • David Hood, in reply to Paul Campbell,

    I think more you should take out the portion attributable to mortgages, then do something similar for immigration (do people like me coming back from OE even show up on anyone’s radar?) and then look at the remainder

    Let's describe immigration and local borrowing as both fairly flat through to 2010.

    Dunedin • Since May 2007 • 1445 posts Report Reply

  • David Hood, in reply to Russell Brown,

    what nature of demand are we even planning for?

    I don't know what figure the government uses . Based on the past 15 years, a figure of demographic demand from local population + 60% would seem to be an optimal spot (I don't for a moment beleive this is the target figure) but in reality it is somewhere between 0 and 4 billion extra houses needed to stablise demand. And because of the unknowns that is a pretty wide error range.

    Dunedin • Since May 2007 • 1445 posts Report Reply

  • David Hood, in reply to Che Tibby,

    i’m no big-city economist

    that's OK neither am I (data handling I know). But it occurred to me that this is where there is supposed to be a relationship and the numbers stopped adding up. I'll describe it as Cuckoo's Egg situation of a discrepancy in the numbers.

    https://en.wikipedia.org/wiki/The_Cuckoo%27s_Egg

    Dunedin • Since May 2007 • 1445 posts Report Reply

  • Rich of Observationz,

    the initial launch point (third quarter 2001) precedes the RMA

    The RMA was enacted in 1991 and a Town and Country Planning Act preceded it (1977). I don't think there's been a free-for-all in land development in NZ (or in most developed countries) for a long time.

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

  • David Hood, in reply to Rich of Observationz,

    Well spotted, opps. I was think of the LGA (local government act) 2002., which free market types blame for red tape making house prices rise (without debt increasing at the same rate, through the power of time travelling back).

    Dunedin • Since May 2007 • 1445 posts Report Reply

  • Greg Dawson, in reply to David Hood,

    but in reality it is somewhere between 0 and 4 billion extra houses needed to stablise demand. And because of the unknowns that is a pretty wide error range.

    So… we can build 4 billion houses in Epsom, right? They just need to be... (grabs fag packet) ... twenty four thousand stories high. Too late to adjust the auckland plan?

    Wellington • Since Nov 2006 • 294 posts Report Reply

  • David Hood, in reply to Greg Dawson,

    twenty four thousand stories high

    It would give Epson a special character.

    Dunedin • Since May 2007 • 1445 posts Report Reply

  • BenWilson, in reply to David Hood,

    in reality it is somewhere between 0 and 4 billion extra houses needed to stablise demand. And because of the unknowns that is a pretty wide error range.

    Yes, and hardly filling me with cozy feelings of security about the future stability of prices. If as few as 1 million people with a lot of money decided to make a beeline for NZ, locals would be drowned in capital and the class divide would turn into a bottomless chasm. Those already in property would make a killing. Those not in it would never get in, ever, unless they became independently very wealthy. Probably through inheriting property.

    As someone in property (and likely to inherit more), I’m “safe”. As someone who wants this country not to degenerate into third world levels of inequality, I’m really concerned. At a global level, it’s this wonderful self balancing system. At a local level, entire countries could be completely ruined. Do we want to be that country?

    I pick the number 1 million from thin air. It’s one four thousandth of the 4 billion upper limit you give. It’s one fifteen hundredth of the number of people in China. It’s one three hundredth of the number of people in the USA. Without any way of knowing the actual numbers, it’s picked as “very small compared to what it could be”. Maybe it’s conservative. Maybe it’s overestimating. Point is: Who knows? Shouldn’t we know?

    Auckland • Since Nov 2006 • 10641 posts Report Reply

  • Bart Janssen,

    Who benefits?

    Why are the government(s) willing to allow those who benefit to continue to benefit?

    Who is harmed?

    Why are the government(s) willing to allow those who are harmed to continue to be harmed?

    Auckland • Since Nov 2006 • 4451 posts Report Reply

  • Greg Akehurst, in reply to Russell Brown,

    Russell, in much the same way that the Bush administration used the 9/11 tragedy to launch an attack on Iraq (a totally unrelated party - but you know, they all look the same, right??), the National Government is using the real hurt the Auckland housing bubble is causing to attack another piece of lefty socialist legislation (the RMA) that is inhibiting the rape and pillage plans of their key supporters.

    Auckland • Since Nov 2006 • 7 posts Report Reply

  • Rich of Observationz,

    Just trying to understand this:

    If you had a country where house sales were very unusual (as was re-mortgaging to extract equity), but prices as indicated by the small number of sales were rising fast, then you'd get a corresponding rise in the value of the housing stock without a significant rise in debt?

    Could it be that since 2008, most Aucklanders have been sitting on their gains and hence the house price value is increasing without a corresponding change in debt?

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

  • David Hood, in reply to David Hood,

    Well spotted, opps.

    I updated the github version to

    Authority X said it was supply constriction due to RMA restriction. I am sure they did. The RMA came in in 1991 (thanks to Rich of Observations for a correction here) and the LGA (the other main target) came in in 2002 and was implemented in 2003. Either requires a dose of time travel, but neither explain the lack of debt rise. We come back to if around 300 billion in the 800 billion in Housing Value gains is not explanable by inside the economy debt, how many houses do you need to build to satisfy that unknown demand- it has nothing to do with people, actual immigration is not a very good predictor of house prices.

    Dunedin • Since May 2007 • 1445 posts Report Reply

  • David Hood, in reply to Rich of Observationz,

    If you had a country where house sales were very unusual

    It might be possible to contract a sufficiently unusual situation to explain it, but it is very hard for those explanations to to leave traces in other parts of the economy- sudden simultaneous remortgaging should affect household debt (since prices are going up). A drying up of property so a smaller sample making the values less meaningful should show up as dramatic changes in sales numbers.

    It could all by caused by the unusual market situation of one house that is being sold between people with overseas capital every month doubling each time. And that one house is now worth 256 billion dollars. But that would also leave secondary evidence.

    Dunedin • Since May 2007 • 1445 posts Report Reply

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