Infometrics - may I with all due respect suggest your staff writing these articles, go back to their first year economic text books to "relearn" the important difference between a "boom" and a "bubble".

A boom is an economic environment where real wealth is created - whereas a bubble is when asset prices inflate where no real wealth is created.

Put Texas in the first catagory - California in the second.

What we experienced through this decade was our approximately 1.6 million unit residential stiock inflating / bubbling out from approximately $300 billion through to around $640 billion at the peak. Kiwis loaded themselves up on probably an additional $60 to $70 billion of excessive household debt - most of it from off shore - flicking houses to each other - thinking that they were making money and creating wealth.

This in turn allowed the previous Government to boost expenditure from about $40 billion annually to in excess of $60 billion over just 5 years through this period.

Informetrics - and too many other generalist economists thought this was all very clever. Simply because you guys dont seem to understand the difference between a boom and a bubble.

So Im looking forward to Infometrics coming up with "policy prescriptions" that actually work - and not just bubble ideas.

Interesting article.
There is obviously some difference of opinion within the team there.
This chap seems to think property will be picking up again soon-ish
Gareth Morgan on the other hand is pretty dooms-dayish

Matt Nolan - the international evidence is extremely clear in that if you strangle the fringes and inflate lots / sections out from where they should be at around the $40,000 - $60,000 to in excess of $200,000 - then you have put in place the foundations for bubbles to form when demand kicks in.

The arithmetic is extremely simple.......

Normal urban markets to rate as affordable should not exceed the 3 Multiple. Ideally they should move from a floor multiple of 2.3 through a swing multiple of 2.5 to a ceiling multiple of 2.7 through the normal building cycle. And the hugely important fringe DEVELOPMENT RATIOS should be 17 to 23% serviced lot - the balance actual house construction. In general terms a DR of 20 / 80 .

Thats whats happening (pretty much) within the 77 North American markets (United States and Canada) currently rated as unaffordable by Demographia. May I suggest too - you go to my website to read in the left column the Harvard University Median Multiple Tables going back to 1980 for the major US metros.

An excellent read as well - is the April article on Debtwatch by Prof Steve Keen "Lies, Damn Lies and Housing Statistics" - where Steve comes at these issues from a generalist economists perspective (not that of an urban economist - where regrettably we have none in New Zealand and Australia).

In particular - I would draw your attention to the superb graph by Stapeldon - where he overlays the movement in Australian house prices since 1890 over the Case Shiller one with respect to the United States. I do hope some firm of economists / researchers overlays the New Zealand trends on the Case Shiller and Stapeldon graph.

Its just a begging letter to the government,

"Does the government have a part to play in assisting the industry through this difficult phase? Three potential areas of work spring to mind"......Bla Bla Bla....

.......give our industry some public money and we will build some more stuff and create employment......Bla Bla Bla.

Banks aren't lending because they haven't got any money (withdrawn to buy bonds), and banks haven't got many customers that can afford to borrow any more money, or want to borrow.

Are we talking about zoning pressures on land in Auckalnd or the rest of NZ? From my experience I see a very large amount of "spare" sections in the middle north island.

I have seen a concious choice towards caring more about the environment, urban, rural, physical in recent years. Too much caring according to some, not enough according to others, however in such cases you do tend to end up in the middle somewhere.

How does the Environment rate/feature in economic recession theory? Do we look after it more, or less, or just the same? I guess if we look after it less then is that not the same as the economic legacy that is being left for the kids/grandkids etc?

Now do not get me wrong, I am not talking from an extreme environmental position, but the environment in terms of that which is built, or enjoyed as you drive through a rural area. The effect of zoning on productive land etc? Section size and urban density and economy of scale? Should these things be discussed as part of any such economic solution. Personally I like 700-900 m2 sections and having my neighbours 5-10m away from me, however I also like driving through open spaces and being able to go places to get away from it all. Some of the thinking/planning that goes on is on the basis of time periods that far exceed any economic recession.

I do not know any answers, but feel that these things need to be considered as part of any discussion.

Also seen the 9 page checklist that the dept of building and housing is making council building guys go through in order to approve a standard house. I guess anytime someone complains about anything we have a desire to right some rules to try and fix it.

Man.... I managed to prattle on here :-D

oh of course its all a conspricy to shed jobs we aren't in a recession at all, good one.

exactly kieran, you have finally spoken some sense, see if you can keep it up.

sorry I cant say the same about you mattinauck, always on about someones IQ as if it mattered a rats rectum, we know what side of the fence your on but I have noticed you are not as adamant in your anti-property stance. maybe the flow of positive indicators is unconsciously being absorbed.

your not far from "if only"

Hugh,

There isn't an economist anywhere who doesn't believe that house prices eventually need to fall to a certain point relative to other goods. However, when there is a supply issue that can mess up the transition to this point.

Relative to most other countries in the we have an undersupply of property - which implies that the adjustment will occur a little differently.

I don't see Gareth's article as arguing against your long-run point - it is just looking at other important factors that are influencing short run movements in the housing market.

People talking about net migration,

When NZ has a recession by itself it does have a negative impact on net migration - agreed. However, when there are recessions overseas we generally find that many ex-pats return home - and people in NZ delay their OE and that sort of business. That is one of the driving factors behind many (pretty much all) economists belief that net migration will increase.

Now there is argument about the magnitude because of other issues - but generally economists see this as a supporting factor. Economists that believe in a larger net migration inflow (like Tony Alexander) will have a more positive outlook on the property market.

Yeah Matt in Auck does talk only if gibberish, Gareth Morgan is a bit like Bollard an educated economist who makes assumptions on their opinions not facts, because so far the facts say that house prices are not falling like G Morgan said they would, and what happens to intrest rates when Bollard reduces the OCR they appear to go up, or if they fall its not as low as the OCR has dropped.
Time will tell what is going to happen, not ecomomists.

thanks for your kind words Rod, I take them as a compliment
I guess as one of Ray's pals you also believe the recession is a conspiracy

Matt Nolan
Net migration last year was a very low 6500 so it is very probable that it will increase from that low base but considering the the average is around 12,000 even if it doubles it won't be enough to cause a massive housing shortage. It would have to increase to 20,000+ to have any impact but there is no historic precedence to show there will be a massive surge in net migration. When was the last global recession? the only precedence is the surge after 9/11 which is completely different to a recession. I would of thought it's a 2 way street, if expats go back to their home country when they lose their job won't immigrants working in NZ do the same? also if less kiwis are willing to go to Aussy because of the financial crisis then surely less Poms will come here for the same reason?

kieran, as far as net migration only time will tell but if februarys 3,000 plus becomes the norm then your 20,000 plus will be a fact by august

Ray - fat chance of that happening
you seem to assume because there were 3000 in Feb that you simply multiply that by around 7 months to get to 20,000 odd in August
Sorry, the world isn't that simplistic
Feb is always a higher month for immigration, thats when all the international uni students come back
they count in the immigration stats because they study here longer than 1 year
Dean - the majority of employees in NZ work for smaller companies, lots of small job cuts are occuring at a lot of smaller firms. These cuts don't make the headlines but collectively they add up

Ray
we had 3500 in feb 2004 and feb 2006 and the total for the following years was 11,000 and 13,000 respectively. The only time we have had over 20,000 was 95-97 and 02-04 (after 9/11) Our GDP growth was beween 4-6% on both occasions. A recession and rising unemployment doesen't usually equate to a surge in net migration. But we haven't had a global recession for a while so who knows.

Matt Nolan - many thanks for your comments. I do however encourage economists to take care in their use of language - because there is a world of difference between a "boom" and a "bubble".

There is an urgent need for focus on "solutions" guys.

MattNolan - thanks for your balanced comments.

Ray and Rob - QV stats out, show Auckland prices down 10% from March 08 - 09

So total fall from peak around August 07 is likely to be 13%-ish

Guys like you said prices never fall 18 months ago

The stats tell us otherwise

Even the usually pro-property Tony ALexander was talking quite negatively about house price prospects in the Herald:

"BNZ chief economist Tony Alexander said there was potential for the crisis to edge house prices even lower in the next few months."

mattinauck

actually a drop of 0.4% nationally when comparing 3 monthly periods, whoopdedoo,

was I mistaken or did I read in there somewhere that the spokesperson for QV thought prices were stabilising.

Matthew
I was talking about Auckland not NZ total....of course you are right about NZ total
Auckland is down 10.1% March 08-09
Total fall from peak in August 07 in Auck likely to be somewhere near 13% for Auckland
Ray - yes the fall last few months doesn't seem so significant, but it is in the context of the fact that people have eben saying the market has surged these past couple of months. If its still declined with much lower interest rates and the summer period then surely thats a sign that its going to drop further through to spring???

mattinauck,

ahh hah, you are listening, I suggested to you in an earlier post that property would stabilise until spring then recover slowly,so you are almost there, good lad,you are obviously not the closed minded dropkick I originally had you pegged as, keep it up

For the benefit of those who haven't followed the argument, here is what I insist you should check out.

Wendell Cox and Ronald Utt: "Don't Regulate the Suburbs: America Needs a Housing Poliicy that Works".

http://www.heritage.org/Research/SmartGrowth/bg2247.cfm

Alan Moran: "The Tragedy of Planning: Losing the Great Australian Dream"

http://www.ipa.org.au/library/MORANPlanning2006.pdf

Those who insist that factors other than land use rationing, such as taxation treatment of housing, should look at page 54 onwards, (page 61 of the PDF) where Moran gives analysis charts of these factors accross a number of countries that have exerienced housing bubbles.

Oliver Marc Hartwich and Alan Evans: "Unaffordable Housing: Fables and Myths"

http://www.policyexchange.org.uk/images/publications/pdfs/pub_38_-_full_...

On page 17 is a graph of previous house price bubbles in the UK. The UK just happens to have had land use rationing decades ahead of everyone else. They have also had house price bubbles decades ahead of everyone else; they just never got the connection.

Oliver Marc Hartwich and Alan Evans: "Bigger Better Faster More: Why Some Countries Plan Better Than Others"

http://www.policyexchange.org.uk/publications/publication.cgi?id=47

Germany has policies of funding local government which are powerful incentives to development and construction. Consequently, Germany has not had a house price bubble other than in a few locales where local anti-development sentiment was strong enough to survive the cost impact of consequent loss of funding. They have had a nationwide 1990's construction boom and subsequent depressed property prices which are frequently misinterpreted as a "bubble". They do not, however, have huge increases in household debt backed by the "faery gold" of house price inflation, and subsequent wipeout of equity bringing the whole banking and finance system down. Germany can honestly say that the impact on their economy is spillover from outside their borders. Just about no other country can say that, including NZ and Australia.

I badly wish for more evidence than this, but this is pretty conclusive to my mind.

Why property price bubbles, nearly everywhere, at this time? There have been numerous periods of monetary looseness in the past which have led to bubbles in the share market. I would argue that every potential property bubble in the past was spiked in time by construction booms, other than in the UK, obviously. But the 1980's and 1990's were marked by the advancement of environmentalism and urban limits and planning and land use rationing. Just as environmentalist mismanagement of forestry policy has finally had to be blamed for unprecendentedly destructive forest fires in California and Australia, it is high time that the true blame for the housing bubble crises was directed that way also.

Ray - no, my view still differs from yours
I didn't say things will stabilise up to Spring, I said they would fall from now through to spring, then they might stabilise
big difference
Prices have clearly stabilised a litttle over the last few months - a result of a big drop in interest rates and the normal summer buoyancy
With summer going and the impact of the interest rates waning a little, plus a likely further 2% rise in unemployment, I reckon they will drop about another 4% in Auckland from now until November, so a total drop of about 17%, then they will stabilise over Spring / summer, and be fairly flat in 2010
that will mean I'll be ready to enter the market next winter at prices substantially lower than 2007
If I had taken the advice of all the property pundits in 2007 I'd be into negative equity territory

One very important point that needs to be recognised - is that the discussion with respect to what the problems are has been thrashed out in New zealand for over four years now.

This was triggered by the release of the first Annual Demographia Survey way back in January 2005.

The focus now is very much on SOLUTIONS - and more specifically pragmatic solutions that will actually work.

In this regard - I am extremely happy with the direction of the New Zealand Coalition Government.

Readers will be aware of Hon Phil Heatley, Minister of Housings statement at the time of the release of this years Demographia Survey 26 January this year ( avaliable via www.PerformanceUrbanPlanning.org ).

Not only in housing - but right across Government - there is massive progress being made. And Prime Minister John Key is to be applauded in how he is going out of his way in communicating effectively across the political spectrum.

Im dealing on a daily basis with people in the 6 English speaking countries covered by the Annual Demographia Survey - of which - on a total population basis, NZ represents just 1%. But in having said that - take it from me - New Zealand is way way out ahead politically in dealing with these serious structural issues.

Matthew - there is oodles of land in NZ - refer article my website - 071111 New Zealand Lifestyle Block Mythology and you might also like to read 080428 Planning degrades housing productivity. We are way behind on this front.

The ones to watch carefully going forward are what I term "the progress blockers" being the property / construction protectionists and the beauracracies at central, regional and local level - who have the financial incentives to protect their own interests at the expense of the wider public interest.

I spelt this out in "chapter and verse" to the Managing Director of the powerful Housing Industry Association in Australia, Dr Ron Silberberg ( refer 071121 The Need for Clarity ). This organisation I understand has in excess of 55,000 members and $100 million plus of annual revenues. And its leading the Australian Government right up the garden path with basically welfare schemes for its own elite members.

The First Home Owner Grant is just one of these idiotic schemes. The Ausies under Rudd are siimply all over the place.

Hugh Pavletich

I gather from Steve Keen's recent analysis of the Australian situation, that they have actually had both a boom and a bubble; driven by greed-crazed speculators who bought up the overpriced new houses. The result will be interesting as it unwinds.

The same situation possibly applied in some of the other parts of the world where "enough" new homes have been built but prices remained severely unaffordable.

The case is clear that only a completely free supply of land would prevent such a situation from starting in the first place.

I have not previously discussed the aspect that the inhabitants of particularly desirable areas are "entitled" to prevent further in-migration to their area through policies that make property unaffordable.

This is just as basically anti-human as the "Green" conservation policies are. It says in effect, that if these policies are the only right ones, that not only are humans not wanted here, they are not wanted anywhere. I am not joking or exaggerating. Sanctimonious Californians condemn Texas for its policies of cheap housing, growth, and high energy living (due to the heat and aridness).

If these sanctimonious and anti-human (essentially fascist) policies were in the trashcan of history where they belonged, California would be a lot more populated and the people living there would have smaller environmental footprints than if they were forced to live somewhere unpleasant like Texas. As usual, the sanctimonious policies have the exact opposite consequences than what they are alleged to be in the purpose of in the first place.