nah... just means you get more if you've got a double garage....

Well...the way I see it, we have become a manpower supplier for Australia and such reports are in place to try and minimise the damage done by the massive brain-drain that we are experiencing.

NZ is full of under utilised housing / land. Empty apartments throughout Auckland, masses of empty houses in rural towns and at the coast. Sections getting cheaper by the minute in the provinces and the coastal regions.

The problem is we are attracting the wrong migrants! All these down and outs from the Pacific Islands are forever going to remain that - down and outs. They need to be in Auckland, as that is where the bulk of the low paid semi-skilled work is. Any money they do "save" is remitted back to the islands anyway, so they are not contributing to our economy one jot. In fact, they are bound to be receiving one or more of a multitude of benefits.

Not only are these people a drain on the productive members of their families, they are a huge drain on the hard working net taxpaying NZ'er. Note , I said "net tax paying NZ'er" there, not someone on Cullens brainfart WFF.

Until we can stop the social morass of the current benefit system, we are only going to deter the immigrants we really need. Looks like we're going to be in this circle for some time yet....

KW John Says:

"Maybe its time for Housing New Zealand to go on a buying spree"¦."

Not with my tax dollars, thank you very much!

Yesterday trademe had just 400 3 or more bedroom properties for rent in Auckland and only 69 under $400pw.

If private landlords leave the market as Bernard Hickey desires, where will rents go?

Is no one concerned about the supply side of the equation? The 70s property crash occurred when we were building 40,000 per year plus had a large net migration loss. The 90s post Asian crisis slump was during a period of strong building activity, high migration loss and also coincided with a hollow in population growth (a shadow of WWII).

Today we have higher than normal net migration, higher internal growth in demand (due to shadow boomers buying their first homes) and record low building activity.

Yet BH and co predict another crash. Their theory has only one thing going for it, which is that the power of credit contraction and the weakness in the global economy will overcome everything else. Over the long term how does this quell the domestic supply and demand issues?

Chris J

I reckon prices will adjust (fall) over time to something more in line with economic returns.

Yields of 2-5% are not sustainable. Rents are unlikely to rise because affordability (rather than cheap financing) is the driving factor holding rents back. That means the denominator has to fall in the long run.

Someone will take a hit. It will be the property owners. The escape valve we're referring to here is the number of people per household and people 'escaping' high rents by moving into garages.

High rental demand and low rental supply does not equal higher rents. It just equals more overcrowding.

cheers
Bernard.

Bernard - "High rental demand and low rental supply does not equal higher rents. It just equals more overcrowding"

I would say it equals both. Higher rents for those that can afford it, overcrowding for those that can't.

Affordability affects all descision making choices. If one can't afford a particular rent level, one 'goes down market', either by changing location or taking in other occupants. But when a trend of 'going down market' emerged it ultimately produces a greater number of properties at the top end that are unoccupied. Those are then repriced lower to attract a tenant, squashing the whole system down, as the cycle repeats, until general affordability is re-established.

@Mattyroo

Hey, they may even have some money of 'their own' to spend.

I think the property investors are missing a trick - start talking to HNZ.

cv @ 2004? (going down)

http://www.hnzc.co.nz/hnzc/web/about-us/news/tenants-embrace-home-owners...

Can't afford the corked stuff, Andrewj. Best we just put a spigot in the wine bladder.

The real problem is that NZ Ltd is not producing a profit - we need to wake up and find a way to increase our export income (cost effectively) (or reduce our expenses!), until we do this house prices will be "too expensive" as we arent able to pay an average wage that will allow an average family to buy an average house!!!!!

NZ houses prices are relative to what it costs to build a house and what the land costs to develop - remove the excessive costs of development (council fees etc) and houses may become cheaper to build.

Less talk more action is required urgently before anymore wheels fall off! Roll on oil/mineral exploration - is our only hope if we want to keep above a third world status!!!!

Isn't there a limit to the effective overcrowding since insurance policies and council regulations would limit how many tenants could live in one property? I really don't think more socialized housing is a good idea...since when has the govt ever been able to do something like that cheaper than the free market?

It the 'Third world' it were have been heading for years with our Govt policy. Lowering productivity,increasing costs, concentration of wealth in smaller percentage of the population. More wage earners struggling to pay,rates,electricity,fuel etc. Children staying at home longer unable to afford housing,multiple families under one roof. The best and brightest trying to get work in wealthier countries. That definitely sounds like the third world to me.

Dr Jonathan Wilson
Most are frightened of fiscal tightening because they have made the deeply flawed Keynesian assumption that private spending is replaceable by Government spending - i.e. they assume that private consumption and Government spending are interchangeable.

Why do they make this assumption? - Because they have learnt from the cradle that in calculating National Income, Government spending is added to Private Consumption. In this way the assumption that private demand and Government demand are interchangeable is genetically engineered into their economic reflexes.

However at best this holds true only for a single moment in time and only in an accounting sense. Considered over time the constraints on private consumption are very different to the constraints on Government spending.

These differences in spending constraints means that private and government spending are not interchangeable in the calculation of National Income over time. Indeed this is the error Marxists, Socialists and Progressives make "“ they assume (to differing degrees) that National Income will remain the same if private consumption is replaced by Government expenditure. At the extreme, set private consumption to zero, take up the slack with Government spending and hey presto you have the same economic output.

So what is the key difference between Government and private spending? And this is essential to understanding why our national wealth is being destroyed at a rate faster than it can be replaced.

The key difference is this. Private consumption is balanced against the market value of what private outputs can be sold for. Government consumption has no such immediate constraint against the market value of its outputs. Thus private consumption results in voluntary transactions between willing buyers and willing sellers where the transaction results in a surplus of wealth for each. Government consumption is based on the coercion of buyers through mandatory taxation. The result is coercive transactions where the market value of the Government outputs can easily be less than the value of the wealth (transferred coercively from taxpayers) used to buy them. Wealth is largely destroyed by Government spending in this way.

For this reason government spending can never replace private spending as a means of generating wealth or even as a replacement for lost private consumption.

The growth in coercive tax based transactions where outputs are worth less than the value of taxpayers' money spent on them has reached such a crescendo, that the UK is losing wealth at the same rate as if it were fighting an all-out war.

Ambrose, we have in the UK, not in the first instance a crisis of liquidity, but rather a crisis of wealth.
Thankfully Governments have reached the limits of their borrowings in their insane attempt to replace private demand with Government demand. They would be truly certifiable (in a Mugabesque way) if they used QE to support Government spending because they could no longer borrow money.

What we need right now are (1) cuts in Government spending to the point where transfers of wealth from taxpayers is limited to a maximum of the market value of Government outputs (2) significant tax cuts for individuals and households as a priority before tax cuts to companies (3) liquidity managed to maintain price stability

@Bazz

"I really don't think more socialized housing is a good idea"¦since when has the govt ever been able to do something like that cheaper than the free market?"

Iain P works very hard... so I'll do it for him (hope he doesn't mind)

http://publiccreditorbust.blog.com/2009/09/11/michael-joseph-savage-expl...

Bernard "“ "High rental demand and low rental supply does not equal higher rents. It just equals more overcrowding"

Is equals more overcrowding AND higher rents. It allows landlords to rent by the room, it allows people with large houses to have someone in the sleep out so they can now afford the new rent increase imposed on them by the landlord. Overcrowding is the just the precurser to all this.

With more disincentives for landlords who will buy off the plan? The more established landlords never did and never will and first home buyers are too scared to. So if nobody's buying off the plan who will build new houses? Destiny's Church?

Just watch rents rise BH and earn yourself another Dicky award by xmas!

This is why there will be a crash. It goes something like this. People look around for a dwelling that would suit their needs - ticks all the major boxes as they say - and would be a nice place to live, has swimming pool, tennis courts, and hey you never know, the heli-pad might come in useful one day. They look at the price tag. Hmm, I don't have that in my bank account; what do I do now? I know, borrow money. Sadly most people have to do this. So off to the bank they go. They find out that they cannot get a loan large enough for that dwelling with the hei-pad. The bank offers them a smaller loan. _This sets the price of the dwelling they can and will buy_.

I believe that generally, people will borrow as much as they can, because even borrowing the maximum amount they're going to be living at a lower level than they had anticipated. Certainly this is the case in a real estate bubble, as we are in now.

Now with the financial state of the world, the loans given out by banks are getting smaller; much smaller. So buyers have less money for the purchase. Sellers if they want to sell will have to drop their price to compete for the fewer buyers Dollars.

The fact that so few new houses are being built is quite concerning. It's no wonder however; what did I read on this website, about a developer in Auckland who spent 40% of the cost of the dwelling on council fees! That may be an extreme case, but it seems the government is milking the situation for all it's worth - property prices are up, rates being connected to property are therefore also up. If the property is worth more, then (apparently) you can afford to pay inflated building permit fees to the council.

When prices do adjust down, by which I mean house prices come down strangely the rates on the property will not come down (that would mean a cut in pay for the government).

That's right Martinv, it's a joke to blame all the unaffordability on investors.
Unless you can get new houses built for a reasonable price there will always be a problem.

@Kieran

Look at the www.zoodle.co.nz website for the suburb of Fendalton in Christchurch; one of the upper class areas in town (where people have high walls and don't talk to their neighbours). The graph showing the number of residents vs their age is quite amazing; there are many in the almost ready to retire section, and many in the late teens, early 20s (obviously the offspring living at home). Not many young kids, or older people.

Speaking of older people, my neighbour has an old pensioner relative who lives in Fendalton. He said the CV for the house is $5K. She has been living there 50 years. The land CV is $700K. The rates for a pensioner must be killing.

The rate of new building and reduction in available credit is still being outstripped by the increase in the demand for accommodation (whether rental of owner occupied). Can't see another crash happening anytime soon, but can't see another boom either.

Opening in a street near you...'Sardine Towers'...your chance to secure an investment apartment at off the plan prices...don't hesitate or you'll be late...get on the phone and grab your future...you too can own a 10 square metre executive apartment in Auckland. Rental potential at least $350 per week and for the upper floor apartments above the street filth, exhaust fumes and bloody noise...expect $500 a week.

Kieran - "not long ago occupancy rates were well over 3 people per house"

Can you point me to a link with that info? How long ago?
Stats NZ have occupancy at 2.78 in 1991, 2.76 in 1996 & 2.67 in 2001

cheers

Bernard

You're just in fairyland.

2-5% yields? I would like to see anything other than upmarket homes in outlying areas (never normally bought as rentals) or dilapidated dwellings on expensive or large redevelopment sites (that no one who generally lives in the neighbourhood would remotely consider occupying) which rent at anything like 2% anywhere in NZ.

Take South Auckland, you can buy a 3 bed house for $200,000 (or even $170,000) and rent it at $300pw. That's nearly 8%. In Dunedin you can buy at nearly 10% off the shelf, Christchurch easily at 7 or 8%.

Of course you can buy Auckland CBD apartments at 8%+. The only part of the market where yields on typical rental properties generally dip below 5% is detached family homes in good neighbourhoods or outer suburbs. But even Ponsonby villas or Remuera houses can get close to 5% returns, a tidy $600,000 property can probably achieve $600pw. Rents in top Auckland suburbs can go well over a $1000pw now if not $3000pw:

http://www.trademe.co.nz/Trade-me-property/Residential-property/Houses-t...

Students in Otago pay on average $110pw for an unfurnished bedroom, that's $550pw for a normal 5 bed house. Young central Auckland workers and students are prepared $160-200 for a good bedroom in the central suburbs. Hence rents of $600pw, $800pw or even more for an ordinary Auckland central house are not only common but affordable. Remember for a 22 year old in Auckland earning $45k paying $8k rent is hardly an imposition.

You've flown off to cloud cuckoo land if you believe that people living in garages etc will halt rent rises from the very real supply problems. Most 22 year olds probably spend more in a week on eating and drinking out than they do on rent, I doubt many, except for the unemployed, believe that their rent is unaffordable.

The supply constraints are very real, being in denial does nothing. In the medium term there are three possible outcomes of the current constraint: rents will rise, house prices will rise or net migration will turn strongly negative. The only way the first two won't happen is if the third occurs.

Chris_J

"Take South Auckland, you can buy a 3 bed house for $200,000 (or even $170,000)". Wow what part of Sout Auckland are you refer to? what you have stated is more like Huntly - I guess it's south of Auckland. Even an ex state house in Otara would cost at least 300K. You are truly in lala land!

@KW John
I read the article and I have to say that doesnt sound like a good thing to do. I may be misunderstanding the article but it seems to me that effectivly printing money to build more houses and then trying to pull it back later. Then it goes on to talk about injustices created by not having govt controlling credit. Wouldn't creating bonds like this on the scale required, putting $ out into circulation and then trying to pull the money back just be inflationary considering that if most of the houses were occupied by benificaries, the govt would in effect be footing the bill ?

What I was trying to say is that the free market is 99.9% of the time more efficent than govt. Sure the govt can create cheaper credit but if your talking about the most efficent use of money to create more rentals surely they would be better off encouraging private sector to create them and manitain them.

I know because I am working in that area...

10% fall this year, 5% fall 2011, stagnation after that. Sensibly priced housing by 2015.

28 year old said:

"I just picked up a 3 beddy in Auckland for 55K below asking price pre-mortgagee, tenanted it within a day with 5 people wanting to sign up as tenants and I got $20 per week above what I initially wanted"

good on ya mate!
That only reinforces my point that prices will have to drop to make things stand up for investors like you
No?

gingerbreadman Says:

Chris_J"Take South Auckland, you can buy a 3 bed house for $200,000 (or even $170,000)". Wow what part of Sout Auckland are you refer to? what you have stated is more like Huntly "“ I guess it's south of Auckland. Even an ex state house in Otara would cost at least 300K. You are truly in lala land!"

Well hes not really in "lala land" bit out on his numbers 220K /270K pick up a 90/110m redecorated 3 bed with garage on 650/700m section ...and that going on actual sale prices...not listed prices
No garage, not newly decorated and Chris_J is near on the mark
Its not him in lalaland at all.

one can pick up a 130m 4 bedroom on 1500m with 2x garage in tidy condition for 290/320K in a reasonable area...same place would have sold late 2007 for 400/425K

And this is NOT opinion, I have dbs street addresses, valuations , GV, going back to early 2006...Sth auckland and quite a bit more up market than Otara.

From the sidelines, you make a very interesting point .. I hadn't thought of it that way but I'd say that you sum it up nicely.

gingerbreadman, jimmy

http://www.realestate.co.nz/1203303
$195,000 currently rented at $295 per week.

Not that I would buy in Sth Akl, but they do exist...

Matt in Auck - "prices will have to drop to make things stand up for investors"

Yes. Or rents have to increase. Or a combination of both. House prices are fairly sticky, but have fallen in real terms and probably will for some time yet, rents increase at snails pace (unless the government creates some intended consequences - oops, I mean unintended) so the whole process can be quite drawn out.

Ian, a "steady state" change for rents and house prices (also wages & consumables) would have to be around the CPI. There are a multitude of reasons why they all stray from CPI at times though.
I agree, constant yield contraction is impossible, though it's possible a lower plateau (new "normal") has been reached. There are places on the planet where 2% yields are "normal"...

Murray - but if we look at the short term picture (I agree with you in terms of the medium term scenario), surely the scene is set for price drops as listings increase significantly, some investors looking to get rid of properties in light of likely tax changes, and these properties will need to sell for less (assuming little increase at present in rents) for other investors to buy into them (so that they stack up from an investment perspective). Surely the potential exists on a large scale for lots of transactions like 28 year old's canny purchase, which will drive median prices down a little?

The only thing certain in life is that taxes will go up.

Rents... wages will eventually go up and it follows renters will be able to afford better properties and landlords will offer the service - rents rise just like milk, bread and egss - tragic as this maybe to some.

House value... simply a case of a) supply/demand b) greed - greed being the major factor. All we need are a few good news stories and everyone will be back and there she goes up up and away.

Property Crash - unlikely - Govt already stepped in to avoid a financial meltdown once and they would do it again. Property Crash = Meltdown given NZer's reliance on this asset class.... would then melt the banks as well in bad debts and there goes the sharemarket. Yeah right.. Key would loose the next election and he won't let that happen.

So, hold on, relax, go fishing for a while and come back next summer.

The big issues - 10% of PAYE tax payers pay 72% of the tax take - pheww

Key would loose the next election and he won't let that happen.

http://www.urbandictionary.com/define.php?term=loose

Matt in Auck - quite possibly. It wouldn't surprise me if last years price gains were eroded again. It also wouldn't surprise me if prices pick up a little again. Either way, we're still really in a sideways crab market. There's factors pushing in both directions. A lot of people are sitting on their hands waiting to see what happens, which is usual during a downturn.

Considering all aspects of lives and our future here in beautiful NZ "Mobile Homes" are the way to go. No leaks, affordable, you can place them where convenient, (jobs, schools, (boy)girlfriend, pub, supermarket, Sea, hunting etc.) and easy to shift around -see sample:
http://www.youtube.com/watch?v=ZGzaUMABxUs

Walter

"Hilarious Walter! We spent a year touring NZ with a caravan, thankfully avoided any incidents like that"

So you didnt run across the Top Gear guys then?

"A lot of people are sitting on their hands waiting to see what happens, which is usual during a downturn."

Or how Robert Jomes describes it as the winter of the economic cycle...the time to sit back in front of a warm fire, a good book and a nice glass of red wine.

The first part, (32 seconds) of the video also represents our economy between 2002 to 2010. The last seconds from 2011 to..... 11:08pm time for bed.

Walter

No Elle...it'll translate into more sleeping rough to save a few bob to survive the recession. Why pay heaps in rent when you can can save a pile using a garage in the extended family tree...call them Auckland's 'tree huts'. Not to be confused with the sardine slum towers.

Not every renter is lower-socio economic by a long shot. There are plenty who live in desirable properties who will not be letting the rellies camp out.
It's a matter of whether the numbers who opt for higher density living balance out a reduction in the number of rental properties available.
At the end of the day, if there are more tenants applying for fewer properties, those properties will achieve better rents. The trend I see at the moment is more tenants than usual for this time of year looking for decent homes, and fewer for them to choose from.

I am not sure your response was aimed at me specifically, Wally. But if it was, I am commenting on the coalface supply and demand situation I am faced with this month in my work. The other notable trend I can see right now is that younger people are finding it harder to get into work and training and are not moving out to go flatting in the same numbers this summer.

What do you do, Elle? That will have some bearing on how we evaluate your postings.

I'm not sure what that equates to, Elle, but thanks for answering. To me 'private sector'= real estate firm; 'housing admin employee'= agent, but, hey, I'm naturally suspicious !

Nicholas, I'd guess someone at the coalface of tenancies would be a Property Manager. They are usually the most up-to-date with goings on in the rental market...

"Two views of the same scenario" - yes, every coin has two sides ;)
My rentals aren't bottom of the market or for students, but have re-tenanted this year at higher rent and with more interest than same time last year. Purely anecdotal though, I'm not drawing conclusions with an irrelevant sample size! Cheers

"An expert panel advised officials and consultants last year that 89,000 homes would fail at a cost of almost $23 billion"- in an article by Andrew Laxon.

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10628835&p...

Cheers

I'd say your probably on the money with your experience, Murray, re your rentals this year. My stepdaughter has just gone back into digs in Welly. and where the 4 bedrooms had one occupier each last year, this year the rent went up, so there's 6 of them in there now! Two poor lasses are top-and-tailing with each other to afford the rent.

Kieran - "I was talking about occupancy rates in the 60's 70's it has been gradually decreasing since then due to divorce/less children" - and more elderly at only 1 or 2 per dwelling...

"If landlords are selling who is going to buy off them? either another landlord so nothing changes or a first home buyer who was previously renting" - I commented on this yesterday here: http://www.interest.co.nz/ratesblog/index.php/2010/03/01/landlords-rushi...

cheers

Murray - as someone (you? can't remember) said before, its common for rentals to be sold empty (so they are attractive to FHB, investors and developers), so the shortage in rentals may be being affected by the (comparatively massive) increase in houses for sale in the last 2-3 weeks. This would obviously reverse if new investors bought them (and tried to rent them out).

Thoughts?

Ian C you are spot on.

Tenants, like everybody else, are not great fans of uncertainty. As soon as the for sale sign goes up most tenants bail.

The whole "one investor sells to another investor / FHB so there is no change" argument doesnt quite stack up. There are plenty of empty houses out there at the moment which decreases the available rental pool (and places upward pressure on rents), and as time goes on and the pain grows...places downward pressure on the property price.

Ultimately the property will sell and somebody will move in but for a period its out of circulation. If everybody heads for the exit at once then the number of empty houses grows, which is what we are seeing at the moment.

IanC, yes definitely plays a part.

Kieran, how many auctions have you been to where an investor has outbid a homebuyer? Usually the other way round. You'll find more landlord/investors looking for a bargain at a mortgagee auction than you'd ever see at an overpriced showhome. Bernard blames landlords too, and it's just complete bull$%^t!

I agree, a landlord selling to another landlord, or a homebuyer, or taking it off the market and keeping it rented theoretically doesn't change supply/demand.
But as I said in the other thread, with a rising population if there is underinvestment in new rentals it will eventually create a shortage of rental stock, there is no way around it.