It also needs to be reported that the median average price is being skewed by the upper house bracket price sales.But the RE agents cant put a spin on that,ae!!0.2"% increase,yeh right!!

Time to start calling the housing "boom" for what it really is... a BUBBLE.

Nice post here. It does make senses, appreciate for sharing.

Wally "“ please explain how John Key has managed to deserve responsibility for that in a year?

No worries Jack...Key and Bollard decided to pork property through 09 to prevent a decline in prices. The ocr was slashed to help this take place. The blather about banks needing to lend to the productive sector was fodder for the press. Bollard knew the banks would go after the mortgage market with the cheap loot as they did with the cheap loot from 03 to 08. All along we had humbug reports designed to support the building sector. Cabinet agreed to a massive increase in the welcome home to greater debt first home buyers loans. At NO time did Key indicate he was unhappy with homes being unaffordable. So...to sum up...Key could have kept the pressure on the bubble and it would now be half what it was...but he didn't. QED he cops the blame for the current unaffordability.

SharonV

"Martin Evans of the New Zealand Property Investors Federation says it's obvious new taxes will be imposed and if they deter investment, there may not be enough rental property in future."

I must say its nice that even the ppty investors admit tax change in ppty is now inevitable.

And i still cant get my head aroundthe whole "undersupply" of new builds argument. Surely if ppty was a sure thing, and we were running so short, why is nobody building for this guaranteed marlket??????? Do developers and banks not like making profit anymore?? Or maybe they know somethinig we dont. Tony Alexander said it all - allow for 3% rise in your mortgage (or 52%). There lies your answer on the sustainability of this mini boom. And add in tax changes, which if I am readnig my tea leaves right, looks like being near certain.

Wally,

Some fair comment. There is a lot of blame to go around, but the govt and RBA take the cake. As yuo say, NO ONE in mainstream parties has come out and expressed horror at housing prices and teh effect this has on families. There is some reference to the economy being unbalanced, but no mention of the sad fact that families are victims of parasitic behaviour from banks, the ppty industry, and the tax man. eventhe unions are rather quiet about this, although they scream blue murder when we get a much needed OCR rise (ditto for Australia). This is a moral failure on a MONUMENTAL level by our leaders.

Not sure we can blame the RBA though jimmy!..spose it's worth a try..people have got the economy they deserve, to be honest. Voters for decades have approached election day thinking what's in it for me. I can understand the evolution of our pork based political pigsty. Key is just responding to signals demanding he keep the bubble going for the sake of power and position of National v Labour. Helen's pork slicing efforts were along the same lines. This is Noddyland. A deeply indebted sick economy dependent on waves of immigrants to cause boom after boom with periods of shit in between. The skilled and gifted depart to escape the low income benefit trapped nightmare that will never end. You are right about taxes set to rise and rates as well. We who hang around will witness another long period of misery punctuated by bullshit from the Beehive about growth and prosperity.

Yes I know about the coming after you bit and the bankruptcy stuff but then what..if there are no other assets...no income...what then?

I think Wally speaks to the point that 'the banks' have vested interests in maintaining the value of domestic housing so that they do not have to deal with negative equity and bad loan write offs.

Steps the age of austerity that the west is now facing is not going to be cured by inflation in a few years time. The models for growth were just plain wrong and the misallocation of capital into property is at the heart of the current financial crisis everywhere. This will take decades to unwind in a controlled & managed form. Whether that route is better than a fast and disorderly correction where banking exposures are realised is debatable. I suppose the real question today is 'how can those with vested interests in a controlled unwinding of the property market convince x,y & z that buying your first home is a good idea'? What if the kids now refuse to buy the dream - who will be left holding the risk of the managed decline? It won't be the banks - that is for sure. I can't imagine that any young person believes that investing in property is going to be a good idea for the next few years "“ especially one that you plan to live in. The risks are just too high.

jimmy, I havent seen anything that suggests there will be a new tax on property, the wishful thinking on this site is all fine and dandy but the reality is that anything hat dropped property prices by 15% or more would have terrible consequences to too many voters.

land tax? luck with that - any part that puts a tax against the family home will be out of govt at next election to only return when people have forgotten or died, died would come first.

LAQC ring fencing well, thats the easiest as its really a loop hole, but do they really want to shoot themselves on the foot - its them with heaps to lose as well!

itll be interesting :)

@interested follower:
Similar has happened before, and in NZ !And it is politically survivable.
"In early 1984 the Government announced the ending of output price assistance for agricultural products. Subsequently, fertiliser and other input subsidies were abolished as were investment and land development concessions. In addition, tax concessions for farmers were withdrawn. Free government services for farmers were eliminated. Producer Boards had their access to concessionary Reserve Bank funding withdrawn: they now have no access to taxpayer funds. The withdrawal of farm subsidies was not, initially, popular with all farmers. Eventually, farmers .... benefited from falling input prices, and from lower processing costs. "
At some stage we will be forced to alter course. The present one, in my opinion, is unsustainable.

jimmy Says:
"Steptoe,

TA is NOT right on the mark. The simple fact of teh matter is that relative to the 80s, households now must commit s crap load more to buying a house (about 2-3 times as much). Yes there were times of high interest rates back then, but inflation ate your substantially smaller mortgage, so things quickly got better even in a worst case scenario.

As for finding savings in so called luxuxry items, it kind of misses the point. For a start, anyone who has taken on huge debt now probably are making these savings. But more importantly, these so called luxuries are VERY CHEAP by comparison to the 80s (and to teh size of a modern mortgage). So making savings in these areas is pocket change, whereas in teh 80s when tvs and cars costed a lot, relative to the small mortgage these were a big deal.
And Sharon..
you guys miss the whole point...most properly grown up in boom yrs
If anyone wants something, BUT there is always a sacifice, be it time, money, a car.
The whole conept (in old fashisoned terms ) "going for brole" means if you are going for something, and REALLY want it 100% commitiment...no cell phone, no takeaways, no booze or going out...head down A up and just go for it.
Today the attitude is "but I cant do without my cell" BS...translates to "I want but are not prepared to do what is needed."

Steps - Now that's on the mark!...

When brought my 1st place I put down 25%... I saved hard, Never had an 'overseas experience' [except hard working] never made more than average, lived on the floor for 5 years [did'nt consider a lounge suite a wise capital allocation with such a large mortgage, inspite of my wife' protesting ]... always drove vehicles that were down the depreciation curve [and hopefully not up the Maintenance cost curve] and still do.

Jimmy, lacks vision and commitment... He want's to take from those who are prepared to sacrifice for a great future... so that he can enjoy the fools gold.

Waste of space really.

This statement by T Alexander, ""I would not buy any new furniture, have no store debt. I would run my car into the ground, watch free-to-air television, have only one mobile, cut out the coffees, not travel overseas for holidays "“ basically act they way my generation did when buying first homes in the 1980s."

Is such a load of crock!

We got married in 1978 and had a few hundred dollars to our name. Went on to buy our first home for $37,000 in 1979. Had our first child in 1982 and went down to a single income the whole time we raised them. Took the whole family to the States about once every three years, did Fiji, and Aussie with the kids as well. Bought all kinds of new furniture and electronics, drove late model Rovers, switching to Lexus and Fiat later on, always owned a boat - bought and sold around eight different houses - and are now totally debt free.

What we never had was a student loan. What we always had were damn good jobs - and if the pay rises didn't come on a yearly basis - we just changed jobs as they were that plentiful thoughout most of that time. Oh, and there was one redundancy in there - and a very nice wad of cash came with it as well.

We had a dream run as baby boomers. Any boomer who says otherwise wasted a whole lot on something.

Gee Kate - So for you it's good luck rather than good management that got you to where you are today...

Personally, I have never had a student loan... but maybe that's because, as they say I have come from a lower decile background. What I have, I have made from hard work.

I Also am Debt Free... Own an awesome piece of dirt, Have a beautiful family, am doing my best to change my lifestyle to a more sustainable existance... I am happy to ''share the love' ie. having my cashflow taxed to sustain wise and fair governance....

But, When someone wants to tax my Capital, as if it were cashflow... I show them the big finger!

Steps, mouse, 28 yr old - I agree to a point, I'm gen x and every time I'd saved a bit I bought another property, every time my mates saved a bit they travelled another country....

However, I also agree with Jimmy about the disparity between median incomes and median house prices. The question is, did house prices get ahead or did wages get behind?

According to RBNZ data on house prices & incomes, for the 30 years since records began in 1962 to 1992 house prices grew on average 9.98% per annum, actually slightly LESS than wages which grew on average 10.15% per annum. However, in the 17 years from 1992 - 2009 house prices grew on average 6.81% per annum while wages only grew on average 3.08% per annum.

It's quite obvious from the data that rather than rocketing house prices, it's more a case of sluggish wage growth in the last 17 years. I know people will argue that we've been in a low inflation environment and house prices should have been around 3% per annum like wages, but the 1960s was also low inflation yet house prices averaged 6% and wages nearly 8%. The CPI has been adjusted so many times it's not a reliable yardstick to compare growth from different eras.....

Mouse,

"Jimmy, lacks vision and commitment"¦ He want's to take from those who are prepared to sacrifice for a great future"¦ so that he can enjoy the fools gold.
"

The only taking thats been going on is from the ppty market. A market worth hundreds of billions is a net taker from teh tax system. oh, but I forgot, investors deserve it because they perform such a valuable service.

As for lacking vision and commitment. I coudl buy an average house in Akld freehold, but I refuse to at these prices. That takes a bit more vision than listening to your local agent.

100% agree Murray. The real question if you are talking about wage to price ratio is which is draging its feet.

I love the fact that some of you blame our politicians (whether its the red team or the blue team) without actually looking at the big picture.

I think this letter sent June 25, 1863 to bankers, Morton, and Gould, in support of the then proposed US National Banking Act (trade gold for govt securities) give a good indication of just how little we as a nation (and the world) really understand about our own current banking systems:

"The few who could understand the system will either be so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while on the other hand, the great body of the people mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." - John Sherman

Is it time to get educated yet, people?

@Jimmy

As for lacking vision and commitment. I coudl buy an average house in Akld freehold, but I refuse to at these prices. That takes a bit more vision than listening to your local agent.

Okay Jimmy so a freehold property is quite a big call in Auckland and I guess you'd otherwise be paying about $400+ a week in rent as opposed to living in this freehold property. So with your vision and commitment, (never mind the capital gain) where and with what are you earning $400 a week after tax with your invested cash? Must be a damn fine not to mention safe investment!

Surely five years living anywhere in Auckland with a zero mortgage would enable you to save enough to buy a place in any suburb thereafter regardless of which way property prices go - that would be my vision and commitment if I was in your situation. Save me a heck of a lot of time moaning in these forums all day too - time better spent with the family I'd imagine ;-)

Very true, John S. We are heading for a period of stronger inflation, not deflation, which means EVERYTHING will likely get more expensive.

I know people who held off during the 70s boom, waiting for a crash, then when it came they waited for things to fall further.
Then they held off during the 80s boom, waiting for a crash, then when it came they waited for things to fall further.
Then they held off during the 90s boom, waiting for a crash, then when it came they waited for things to fall further.
Then they held off during the 2000s boom, waiting for a crash, now it has come but they are waiting for things to fall further.

Good plan!

Most people already missed the cheap interest rates at the start of the year. Why? Because they were waiting for things to fall further......

Copper, Wally? That's good to know when we have a nationwide garage sale to pay off some debt..... ;)

It sure is Murray...nice thick sheets of it. All paid for by the peasants. There's also a couple a bloody big diesel generators in that giant cowpat. Might be worth ten bob each.

John S,

Personallly I dont think CGT is the way to go due to the ability to avoid it. And if it is introduced then it should certainly be applied to the family home, otherwise everyone will just supersize their house. Ring fencing of losses and a land tax would attack the supply of credit which is really the real cause of our bubble so I would favour these. That said, a CGT woudl definately assist and I would take that over nothing. Dont see why I shoudl pay full tax on savings in a bank, when a house gets off scot free. If its accompanied by incentives to encourage savings then all the better. As for whether it would hinder prices, personally I think it will. US and UK bubbles were never as bad as ours, Aus is worse but they have a reduced CGT that helped to feed the bubble and other incentives such as FHOG that we dont have.

You cant tell me in all seriousness that at least some investors are not influenced by the CGT.

eg - if you buy a house now, and are losing 3% cashflow a year (after gearing credits), you only need 4% growth to come out on top. If you are a top tax payer and there is CGT you need more in the order of 7%, which is unsutainable in a high debt low inflation environment. Better still, remove the gearing credits and you will require maybe closer to 9% a year to break even. Have no doubt, tax changes will affect ppty prices and ANY of the changes proposed will force prices down - a good thing.

And this is what most of us are advocating, John S. Investors should be rewarded for their courage and insight by taking a cash flow positive view of property accumulation. Take away the 'it never goes down' mantra and tax subsidies, and let real investors get on with their business. Rents should always be higher than the cost of ownership, as with any investment asset where risk has to be rewarded.

@Jimmy

if you buy a house now, and are losing 3% cashflow a year (after gearing credits), you only need 4% growth to come out on top. If you are a top tax payer and there is CGT you need more in the order of 7%, which is unsutainable in a high debt low inflation environment. Better still, remove the gearing credits and you will require maybe closer to 9% a year to break even.

Jimmy these numbers seem way out? After a quick scribble on the back of an envelope:
I take it your example implies a house yielding 5% costing 8% to own (interest, rates etc) which is fairly typical in today's market

House $300,000
Yield $15,000 5%
Cost of ownership $24,000 8%
Loss $9,000
Tax credit $3,420
Real Loss (or Equity required to break even) $5,580
% Gain Required to break even 1.86%
Capit Gain + CGT (to break even) $7,421
New % Gain required to break even 2.47%

So anything above 2.47% and you're making money

Without gearing credits

Capit Gain + CGT (to break even) $11,970.00
New % Gain required to Break even 3.99%

Quite feasible to still make money or have got my decimal points mixed up somewhere?

Paul,

5% yield is not typical for a niceish home in a niceish suburb. 4% is pushing it. Your example of a 300,000 house is a case in point - no chance of that in a major city unless you like the mongrel mob as neighbours. And cheap units have the highest chance of price falls.

Even if i accept your example you dont seem to have added in maintenance, insurance, rates, transational costs, AND either YOUR time or another 1500 for a tenancy agent. These would be over 5000 in a good year, close to 10,000 in a bad year (eg roof falls in, bad tenants etc). And hey, just cause a ppty might have a yield of 15,000, does not guarantee you will have it tenanted all the time.

AndrewJ you devil...fancy putting govt policy into words the peasant's can grasp with their 12 year olds reading age..."The govt needs money and it needs it quick and it has to be yours"...not the sort of message likely to go down well. I guess the Cabinet plan will be to 'divide and steal'...an adaptation of the usual mantra!...who will be first to be fleeced?...they will operate their theft on the basis of never hitting any one target where the votes outweigh the return....are we set for the greatest robbery of wealth to have ever taken place in Noddyland?

Our house was rented out for $500pw before we brought it for $470K and that was in Howick. Have since spent $30K on renovations but return would still be above 5%.

No mongrel mob next door and we even have views of Rangitoto and the Gulf.

Ok guy's, to make the Nappa valley house relate to Kiwi's,I should add, its rented out at a %20 return.

and has anyone noticed how cheap wine is in the supermarket lately? Well the free trade deal with Chile where they can grow Savi-blanc for 20c a liter FOB has come back to bite us. There is big trouble in the wine industry, large and small. I'm talking really big trouble those supermarkets have market dominance and they are using it do do what they do best, screw growers.

Sounds like the makings of a property boom to me.

Hey Paul, no need to get pissy! I am not going to read 3 days of threads just to ask you a question though.
Anyone else care to explain or is it that simple an investment tool?

our future is already happening elsewhere,

http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/...

However, the Bank also described how the approach of the lenders to withdrawing from the property sector could jeopardise the economy's recovery. Their exposures are almost six times greater than in the 1990s recession.

Lenders may be forced into selling a wave of properties as the stock of repossessed assets grows, according to the Bank. This could disrupt the supply-and-demand balance and place "significant downward pressure" on recovering property values.

"That would reduce banks' recovery rates and could potentially prompt other banks to sell their assets, leading to further falls in property values," the Bank says in the report.

The winery problems are a major,if you have shares in the wine industry go talk to your financial adviser. Any industry that is selling wine that needs to retail at $16-20 to break even for $10 and under has problems ,throw in large drop in sales and its curtains. I have involvement in the industry, the rubber has met the road.

Apologies man with van I thought you were being facetious and referring to a particular thread/topic posted by Bernard that involved some heated debate last week.

No this is not an investment tool - I was just pulling Jimmy's example to pieces thats all.

"Sell the copper now Wally and get ready to pounce!!"...this Wally's not for pouncing Paul..I gotta wait for the goldmine go ahead that's on the cards and then drop the shares on a pop....then what?. Happy to wait for the rates to bite the bums and lower the sums.

@Jimmy

7.5k in additional costs is absolutely ridiculous - are you putting in a new kitchen each year or something?? And to say someone would charge $300 a week rent for a 375k house is really clutching at straws mate!

Not sure how this is unrealistic when I could find you a 300k house right now where the market rent for a house in that suburb is more than $300 per week i.e. above 5%

Name an Auckland suburb Jimmy and from my desk I'll find you 5% yield based on market rent and an advertised sale price in that area - go on I dare ya!

@Jimmy

Easy!

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

Even got a swimming pool and spa and average rent for 4 bedroom in Remuera below:

http://www.dbh.govt.nz/Utilities/marketrent/market-rent.aspx?CategoryId=...

That 5% yield at least! Next suburb? ;-)

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

heres one in remuera, 995000 price, rent of 550 per week (which makes me think that 640 is too generous for the other place) - so thats a yield of 2.7%. WOW, better than Hawthorn where I come from though.

heres one in remuera, 995000 price, rent of 550 per week

Hey and lets not forget the 360 degree views.

Come on Jimmy I could find 2 acre section in a number of suburbs with a garden shed that yields 1% but thats not what a PI would buy now would they??? Which of course is the point of this entire conversation!

I give up its like talking to a brick wall!

Paul : If we are investing $ 995 000 ( jimmy's example ) : why go residential ? With dosh of that size , surely commercial property is the go . Higher yield . Professional tenants . Here in Chch yields of 7-8 % are typical . Even higher , down in little Scotland ( Dunedin , hoots mon ) .

Jimmy, you are very good in skewing figures, should consider career in RE?

Paul I have sat here read your posts and arguements...
you live in the real world know your market , know your rents, and even then you are quoting rents well below market.
I would not be surprised that you are one of less than a handful picking up rentals in Auckland "30%" below market and paying $225K to $350K in good middle class suburb and not a gang house within miles.
Geeze a $275/350K 3 bedroom house with garage rents out for around $350 to $375 easy.

Jimmy you are in Aussie, all you have is stats figures, and read trade me and far from reality. When one takes a suburb, records every address and sale price, and knows what most of those those are rented for...theory and reality are 2 very different things.

Steptoe,

"theory and reality are 2 very different things" - so is fantasy and reality, the perceptions of ppty bulls in NZ are pure fantasy.