This is nothing new. About 15 years ago I was involved in a group of leasehold property owners who faced large 21 year reviews. I presented a paper to the Lusk committee which showed that land prices in Auckland had increased by real terms (ie inflation adjusted) by 7% compound over the preceding 21 year period. I imagine what we are seeing now is a continuation of this trend.

"an existing house is largely just a section with a depreciating capital asset sitting on top"

Nonsense, rodney. If that were true, your left hand graph would show the two lines converging, but there is no sign of this happening

Those involved in enforcing the RMA are not going to want to give up their powers easily, based on the simple fact that there are many people with the jobs (possibly cushy, probably overpaid) related to the enforcement.

doubter - As time progresses new houses are built and old houses are demolished so that the average age of the national housing stock remains about the same, therefore we would not expect the lines on the graph to converge - that would only happen if the average age of New Zealand houses was increasing.

@Anthony:

I agree with THAT statement entirely.

I think that Doubter's logic is awry.

More to the point, if you don't maintain a house, it clearly depreciates.

Therefore, the depreciation 'cost' is the aggregate of the maintainence and actual diminution in value that the building suffers due to ageing (you'd have to factor out market related movements).

I believe that for most houses that is reckoned to be about 4% to 5% pa.

This is one reason why it is right to exclude the depreciation allowance for rentals. Most landlords (and owner occupiers) maintain their buildings over time to keep them 'up to scratch' so that there is no (or at least reduced) dimunution in value. To claim both that maintenance AND a separate depreciation charge is clearly double dipping, but it is hard on those that don't maintain - they lose out you could argue.

Alan.

"The approach by councils to funding infrastructure that imposes huge, upfront costs on developers."

Why is this un-reasonable? If there is enough sewage and fresh water capacity in a plant for say 1000 homes and a developer wants to put in 100 new houses then the cost of the extra 10% infrastructure has to come from somewhere....So why should that cost not fall onto the new homes?"

"It is easy to blame foolhardy investors, driven by tax incentives, greedy landowners or a misguided central bank for experimenting with naively low interest rates between 1999 and 2005 for driving house and section prices to unaffordable levels."

Its easy because its the truth maybe? the building boom in the US etc was spurred by excessive building ie one huge bubble because of the above....so rather than fixing the cause you are saying that (and this is conjecture on your part) had we allowed building everywhere the building could have been even more excessive leading to even bigger over-supply and an even bigger crash as the bubble implodes aka the US.

RMA ~ Yes we could allow building anywhere and everywhere and turn NZ into another housing disaster slum aka the US where sprawling suburbia is becoming the new ghost town...

Lets look at the cost of sections....v the cost of a finished home and what that does for a first time buyer. So Ok we might say reduce the cost of a section by 50% which makes what 5% to the final cost? ie the builders are still going to build the biggest house on that section they can....so affordability in terms of first time buyers is a non-event IMHO...So have lots of tiny sections with tiny homes squashed on them built cheap and nasty> spot the new slums.....

regards

@Anthony
very few houses are actually demolished and relatviely few new houses are being built, so the average age is increasing

@doubter:

What is the left chart telling you?

Perhaps we are interpreting it differently?

Thanks,

Alan.

can any of you commenters say MUL??

Metropolitan Urban Limit - because the ARC thinks that we all want to live in Tower Blocks

@Alan
If you have access, take a look at the REINZ data on median section prices and median house prices.
The numbers show that sections prices increased from around $85k at the start of 2000 to around $175k at the start of 2010. They also indicate that house prices less section prices (i.e. the price of the building) increased from around $90k to around $175k over the same period.
Section prices increased a touch faster than house prices, but it is certainly not true that buildings lost value (depreciated)

@Alan
try:
http://www.reinz.org.nz/reinz/public/market-information/market-informati...
you can download as a pdf but excel is better if you want to crunch the data

I built a letter box, therefore I am an expert on the building act. I spoke to my Council once, therefore I am an expert on that too.

Interestingly I there was only 1 person doing RMA enforcement work in my District for years, not sure how they managed to drive up the prices of sections?

I thought most e-comically minded people did not mind user pays? Who used to pay prior to the developers doing it?

If the developer could build it cheaper, would he sell it cheaper, or would he charge what he thought the market would/could withstand?

For the 28th time... the increases in real estate values the last 18 years happened at roughly the same levels throughout NZ. (Check out the figs at reinz.co.nz)
In rural areas with lots of land, in provincial towns with negligible population growth and in booming Auckland (actually at BELOW the national average) the rate of price growth was roughly similar.

The boom in property prices in New Zealand has been a credit phenomenon.

@Doubter,

The increasing difference between section price and total property price is more likely due to the increase in build costs (RMA etc). If it was not due to this then everyone would simply build instead of buying houses.

Also, I am not sure you understand how housing depreciation works. Houses depreciate at about 5% a year (give or take a few percent based on the building type), which means in 10 years if the owner has spent 0 dollars on it the house would be worth around 60% of the initial build cost due to the reverse compound nature of depreciation. Houses need to be repainted, reroofed, rewired, regibbed, refloored and renovated. If you spent 0 dollars on maintence your house would be almost worthless in 20 years. If noone did this stuff those 2 lines would join trend towards each other. The fact is home owners spend huge amounts of money on their properties and this spend is not tracked by sale figures. 20 years ago you could reroof for a fraction of the price now, which around 20-30k for an "average" house.

@doubter

You say that because relatively few houses are built and relatively few demolished the average age of New Zealand's housing stock is increasing.

Given an average age of 50 years for New Zealand's housing stock and assuming no demolitions you only need the number of new houses built in a given year to be 2.0% of the total number of houses in the country to maintain a constant housing stock age.
If you add in the 2,000 or so house demolitions that occur each year, the number falls to about 1.7%.

Throughout most of the last decade this was achieved. In 2004 for example 31,500 residential dwellings were built which represents 2.1% of the total number of dwellings in the country that year (around 1.5M).

Any changes in the age of New Zealand's housing stock over the 1992-2010 period of that graph would be negligible, probably no more than a year either way.

@Taxman,
If what you say were true then no one would ever buy a doer-up and actually do it up. They would simply demolish and start again. This happens only rarely because most houses that haven't been maintained for decades still have value way beyond the land they stand on and way beyond the original capital cost. They appreciate, albeit not as quickly as if they had been maintained.
I think it is you who is confused about the meaning of depreciation.

Makes you wonder why people spend loot on houses when they aint good for more than 100 years....be better to rent! and blow the rest on good booze and having fun.
Spose you could give it to Brian.