I think I'll use my common sense and wait for realistic house prices Mr. Hargreaves.
The irrational fear that my generation will 'miss out again' can be easily offset by running the numbers on renting vs. owning. I believe the consumer website has such a tool.

It may well be an opportunity for first time house buyers shortly. However interest rates and unemployment will increases and mortgages harder to get. While it possible to get on the ladder for these people it might not be such a good idea as house prices are more than likely to continue a downward trend putting recent first time house buyers most at risk from shrinking equity. If unoccupied houses sit at 7%, theres plenty more supply than demand. As supply increases so does the days to sell which usually has a big impact on price.

When NZ gets to a state of uncertainty, like the US / UK (but not quite as bad), people will sell off their second homes / holiday houses. Demand will decrease as people lose their jobs and downsize their residence / return to parents / or share again. We will see an increase in people returning from overseas later this year and a decrease in the amount of people moving abroad which will increase demand, but not significantly.

Patience is key, better buying opportunites will present themselves in time.

Bernard, I might run with the housing expert on this one (who isn't making this point in isolation). Particularly as logic tells me this would be the natural affect of a huge drop in residential building activity paired with these other variables. The migration upswing is not locked in at this stage - will be interesting to see how that unfolds.

This argument doesn't make sense to me.

House building is a pull demand from the customer, not a push demand from the supplier. If someone wants a house built, they will get it built. Rent for the time to completion. Building is getting cheaper as section prices come down. Builders won't build too many houses without customers already setup to buy them. Holding an inventory of devaluing houses would broke must builders - I know their are financing options for this, but still very risky. Maybe only the rich can build new houses, but this was the norm from years ago.

Also. The important number to match against the housing supply is the number of people that can afford a home, not just everyone thats wants one. Banks wants 20% deposit, but also little other debt and clean credit history. The buyer group is much smaller the moment, although many that will not get finance are still looking at homes and going to open homes. I know many people here in Nelson that cannot see prices going down and have brought another home without selling the first, thinking both will grow in value very soon and they will be better off. I hope for them that they are correct, because if they are wrong it will get horrible.

Another interesting point is the number of people per dewling. I think this has been increasing during the house price madness. One extra person per house would leave many more empty over the whole country.

I see no where for house prices but down, down, down.... I'm not sure of the timeframe. I suspect it could be a big slow grind down. I not sure what would spark a quick fall in prices??? Maybe high interest rates, but this unlikely for a couple of years. Maybe massive unemployment, which hasn't happen yet and I hope it doesn't.

On the coromandel, [although noting that we are a holiday destination for many in their weekends etc and not an area with high permanent residental occupation] we have a large glut of sections either completed, trying to be completed, sitting in the hands of receivers/finance companies, up for mortgagee sale on our plates at the moment. In Tairua/Pauanui I would guess that we have about 10 years worth of sections on paper at varying different levels of completion and not a lot happening. Surely the cost of building a new house will be heavily dependent on the price that it will cost compared to buying an existing house. The price of the section must have a significant impact on that cost.

Of more interest is the fact that we have not had any real fire sales yet from those people that have been stung by this boom in coastal development down our way. I am sure that there are plenty of people out there hurting because of it. I certainly speak to a few [or their banks] on a regular basis.

Therefore, for a housing shortage to occur, surely you need to have a shortage of sections? We certainly do not have that here, infact I am surprised that the glut has not had more of an impact. Mind you a certain unfinished place up here was passed off as an asset.....cough cough...hmmm.

It would be interesting to see what is happening with section prices nationally, and the supply of sections that are sitting in the system at various stages. To me that would be the measure of a housing supply shortage.

pjimmy - great reference to the Consumer calculator Rent vs Buy. Here is the link;

http://www.consumer.org.nz/topic.asp?category=Money&subcategory=Banking&...

No shortage of rentals here in Palmy, and the Uni year is well underway. So many rentals offered are advertising reduced rents as the houses are also on the market. Also, lots of rentals have been listed for well over a month - some listing go back to last year! I just don't know how these landlords get on with vacant properties for weeks and weeks on end. Good tenants can I suspect virtually offer whatever rent they like.

We'd been considering it - but definitely not the time to buy a rental here in our opinion. Property prices are still too high (and correspondingly rents are too high as well), market in over-supply, too many LLs trying to exit.

Inflation is gonna hit HARD over the next decade. Unless you are trading gold or fine art - what is this WAITING for house prices to become more reasonable? There is a solution if you can't afford to find a great deal now - its called 'live further away'.

I know plenty of investors who found amazing deals in a boom. If history tells us one thing - the waiters become really good at one thing - waiting.

Also, any change the 'value' of a houses based on immigration, supply etc is really not that significant compared to the change in the 'value' of money.

Ha Ha Ha , always using the old "immigration" scare. Wonder where the immigrants are coming from and after landing where are they going to find work ? Or do we assume all of them are rich enough to not have to work, buy an expensive house and live happily ever after in NZ?

Next we have the "international student" trick. Where are they coming from? The whole world is going into a slum, which means mun and day has less money to send sonny to an expensive overseas education. Yes even Asia is imploding if i am in the same world as everybody (other than "Housing Experts")! !

The story of housing is not just "everybody needs to buy before it goes up higher"
That's an old play and is not longer in vogue. Now it's :

1. Is my job secure so that I can afford to continue paying my mortgage? What if I get fired? My friends are getting fired, when will my turn be ??

2. Bank manager says "if you don't have 20%, don't call me". That means I can only buy half of what I could buy the last time I looked !!

3. Seems like even after the prices has dropped and my banker suddenly turned "nice", my take home pay still don't have much left after paying for food, clothes, energy...(the essentials) much less pay off a mortgage....but if I rent, i can still survive...

My recollection (I was in my teens and somewhat removed from it) of the 90s in NZ was headlines of the slum houses that littered Auckland. Multiple families in houses with practically one per bedroom.

If this downturn is to be as bad (or worse) than that one, will that have an impact on demand for housing?

Kate, can you allow for the way trademe is expanding its shre? ie putting your house up for sale on Trademe might be gaining in popularity as opposed to just more houses....

Just a simple model on housing, say we have 4million kiwis and on average per family we have 4 ppl, so that's 1 million homes...So if a net 100,000 ppl arrive per annum they will need 25,000 new homes....if we have no net growth in people, we shouldnt on a national average need any more new homes. Our net ppl increase is what?

Then we allow for (say) rural ppl moving to say Auckland for jobs, so I can see new homes being needed in some areas, however others wouldnt need homes and in fact would be in gross over-supply so those prices should drop and sharply. This is where I like the un-occupied dwellings %....if its rising, this means too many houses are available, so I dont see why we need more....and this is Auckland which is rising, what are the other places %s like?

regards

regards

If there is a real undersupply it will have little effect on the markets downward trend. WHY? Because it was not real supply/demand that drove the market up, it was oversupply of speculators. The weight of numbers created by short term speculators was far greater than that of real demand v supply (ie number of househlods v number of houses).

As a crude example, think back 2-3 years. At an auction for a average family home you would have had the following turn up with serious buying intentions:

1) First Home buyers with 20 % deposits (the traditional buyer)
2) FHBs with 0-10% deposits (have to get in or be priced out forever, so getting in earlier than normal)
3) Investors with 0-5% deposits - yields are crap, but with guaranteed gains of > 10% per year you cant lose.
4) Cashed up returning expats and immigrants from bouyant bubble economies (hmm maybe the UK??)
5) Traditional Investors with decent deposits.

The point I am making is that the sheer weight of numbers of the above buyers created a massive speculative premium in house prices far in excess of any change in supply/demand that ocuurred betweeen the boom years of 2002-2007. The bubble was first and foremost about easy access to credit which created easy capital gains which created a perception of a sure thing which created more buyers and price rises which gave banks more leverage which allowed more debt which allowed more buyers into the market which resulted in more price rises etc etc etc

Fast forward to today its fair to say that right now numbers 2) and 3) are almost non existant. The purchasing power of number 4) has been reduced. Number 1) still exist, but are aware that prices are dropping, so no need to rush especially as there is no sign of a upturn, and despite low interest rates its still cheaper to rent (and ditto for traditional investors). I dont have hard numbers, but its fair to assume we have lost maybe half of buyers from the boom years. They are not coming back any time soon. This 50% drop in demand FAR OUTWEIGHS any questionable drop in the supply equation. the supply side is a drop in the ocean by comparison. RESULT: prices will need to drop a lot more to remove the speculative premium created by too many speculators being in the property market. Quite simple really.

Nicely put James.

The Stats NZ Building Consents were a paltry 812 (annualized 9744) in January - the lowest on record - which would suggest going forward that well less than 15,000 new units through 2009. The Feb figures due out later this month will be most interesting.

Why Hugh, why?
Is it because it is simply impossible to create more houses?
No of course not, it is lack of demand. Demand has dried up and so houses are not being built.

If you want a house, go and buy one, there are plenty for sale. You may even find a buy one get one free, you certainly can do that with sections.

Unless of course you are talking about affordable houses. There is a shortage of those for people without a job.

I too have always wondered about the shortage of housing theory. It is a lack of houses, or not enough rooms....

I have a 3 bedroom house, but only use two. The third room is an office/computer room. So 30% excess capacity.
My parents both retired have a 5 bed house, and only use a max of two...so 3 spare there (say one for me if I wish to sell).
Numerous friends live in 2-3 bedroom rentals but only use 1 or 2 rooms with the rest spare. They are however all looking at getting more flatmates in or moving to cheaper rentals...

So how much spare accomodation capactiy is out there...(not including the holiday homes, bachs etc).

Building supply has collapsed because there are better cheaper options.

There is still quite a lot of cheap bland unflavoured instant pudding types of houses being built and sold in my area, such as those horrible Golden Home houses being built. They can be built quite cheaply, and compare well price wise with exisiting houses. Therefore I don't think we really have that much of a supply problem. THere will however be less medium to top end range houses being built.

PhilBest - exactly! But what is also needed is a petition to get the government to change taxation laws which presently favour multiple homeownership.

If they did that - we'd see landlords flock in masses to quit their rentals, prices would stop being sticky and first homeowners would have a chance.

Additionally, rents would decrease (given more families could buy rather than rent) and the government could look at getting rid of WFF, which is really just a rent subsidy at the moment because so many cannot afford housing costs (of any sort be it rent or own) on our average wage.

Housing costs are the one economic factor of living in NZ that makes the place simply unaffordable for the majority of folks under 40 (i.e. those who have not yet built up capital reserves).

Either lower housing costs, or continue to subsidise this living cost, or massively raise wages. And I would venture that the only control the government has is through lowering housing costs by forcing capital out of housing, and into more productive sectors.

# Kieran Says:
March 23rd, 2009 at 1:32 pm

"Reinz Median prices were $185,000 in 2002 they peaked at $345,000 in 2007 a 90% increase in 5 years they are now $335,000 a misely 3% drop, Prices haven't even begun falling yet.

There is no shortage of over priced sections to be built on or builders willing to build or building suppliers wanting to sell but there is a MASSIVE under supply of buyers."

Kieran, without starting a lengthy rerun of our past debates (let's just provide a link to that thread, eh?) i would like to chip in my 10 cents worth here for everyone else's benefit.

The "overpriced sections" are the result of zoning. Land outside the residential zone/urban limit is bought up and held for years by "land bank" developers. There is a certain level of risk involved for them; what if the land never gets zoned residential? There are finance costs and opportunity costs for them. THAT is where most of the "overpriced" bit comes from.

Here is the thread where Kieran and I had the lengthy debate on this subject:

http://www.interest.co.nz/news/new-zealand-could-go-bankrupt-within-next...

I said this to Kieran at that time, after days of debate:

"You are absolutely unique among debaters on the subject of land use restrictions that I have encountered. Nobody else has ever argued from the points of view that we do not have land use restrictions, but if we do we shouldn't remove them because that would be bad for the environment, but they don't have any effect anyway because our terrain acts as a natural barrier on development.........

".......The most common argument I encounter is the honest argument that yes, land prices definitely could be brought back down by removing zoning and urban limit restrictions; but that would affect the value of MY property and everyone else's, therefore this is a non starter....."

Of course there are powerful vested interests in the status quo besides every home owner who thinks the above. See that earlier thread for the whole argument.

Who pays Professor Bob Hargraves for this humbug?

Philbest
I don't want to go over old ground. You have misquoted me again, read my post I said if there are unessasary restrictions they SHOULD be removed but the whole zoning thing is a smoke screen to the real issue of over investment in property.

The only supply problem is the lack of buyers willing to pay bubble prices for a deflating asset.

Location location location. There is always an oversupply of houses in some locations like beaches and a shortage of supply / high demand in others like city centers. Consider a couple on a $100k each, their after tax income is $140k. At the end of last year 100% down on a $700,000 central auckland home cost them one whole salary. Today it costs them half of one salary. Now they can afford the location they could only aspire to last year. Why would sellers reduce their price and crystalise a loss. Houses pulled off the market last year are now back on the market and being sold to last springs tyre kickers. The supply of buyers dramatically increases when the rent on money is halved.

If only interest rates would fall a bit further, we would see a dramatic increase the supply of small and medium size businesses investing in increased productivity.

Is there really such an undersupply problem?
"Experts" like Bob Hargreaves say the number of houses being built per annum has gone form 30,000 per annum seven years ago to 15,000 per annum now.

But what has net migration done over the time? Its shrunk dramatically. From 40K per annum 6-7 years ago to 5000 per annum over the last year or so.

So it may grab the headlines to proclaim " Building consents half what they were - undersupply problem!!!!" but that is actually a distortion, if you look at the supply of new dwellings relative to population growth.

Actually if you look at the stats, it would seem that we overbuilt in the 2002-2004 period, given new house starts compared to net migration. Yet house prices boomed!

Makes me think that Kieran is on to something when he said the property bubble was more about investment speculation than supply and demand.

thats exactly what happened in Japan in the 80s. Limited housing supply wasn't the issue behind booming prices (Japan has very lame planning controls) it was speculative frenzy

When people need houses they buy them. If we have a shortage, builders will get busy, houses get built...so simple.

In reply to Joe (If only interest rates would fall a bit further...") sorry mate they aren't going to. You can give examples of how reduced interest rates have made home A affordable for couple B, but you have forgotten that rates can change quickly and not just in a downwards direction. How affordable a mortgage is over its existence is not determined by floating or short-term fixed interest rates when the loan is drawn down.

You may have noticed that longer term fixed rates have already started rising even though our OCR is at its lowest point that I can remember. This is due to international factors that the RBNZ and NZ government have no control over. My prediction is that NZ mortgage rates in 2 years time will be close to where they were a year ago. A whole bunch of people could be regretting the decisions they took in the interim.

kiwi2syd,
I see a bunch of Aussie Women property investors have been in the news in the past week or so. Don't expect to see that go on for long.

If Steve Keen is right, then the Aussies will be too concerned about their own problems to look over here for too long.

See:

http://www.debtdeflation.com/blogs/2009/03/22/fhb-boost-is-australias-su...

Of particular interest are the graphs that compare the US Case-Shiller CPI-Deflated House Price Indice to a comparative set of data from Australia.

http://www.debtdeflation.com/blogs/wp-content/uploads/2009/03/IMG0077_13...

To quote Steve's summary in the above article.

"On this basis, the current Australian house price bubble is about 75% more extreme than the USA's, which is now clearly in free-fall. A fall in Australian house prices is inevitable, and it will be driven by the household sector's attempt to de-lever from its currently unprecedented level of debt.

This de-leveraging will drive the economy down, taking employment with it"“and especially the jobs of First Home Buyers, who are definition have less secure employment than older, established home owners.

As I argued when The Boost was first announced (Rescuing the Economy or the Bubble?; Debtwatch Blog October 19 2008), the policy is a mistake that will backfire on the Rudd Government when the global financial crisis finally comes home to roost here. Despite the bleatings of the property lobby, it should not be extended past its current termination date."

The whole article is worth a read. The percentage of First Home Buyers has undergone a surge since the First Home Owners Grant boost was announced last year. Where are all the other buyers? Smells like First Home Owners have replaced other buyers at the same time other buyers have dropped away.

Price is based on supply and demand, but there can be no demand if there is no money to buy with. Desire or need for a house alone cannot create demand when in general the population is saturated in debt.

There is plenty of room to downsize, it is all relative. In China and many other countries, many people live in the same room. Just because people want something does not mean they can have it. The "west" has debt the east has savings, we spend, they manufacture, they lend money, we borrow money, what does that make the west? Well it sure makes for a big illogical gap that will in all logic be filled by the West going down and the East coming up.

The worst thing the government(s) can do now is to bail out private debt that is untouchable by foreigners, converting it into a collective public debt that can be used to leverage purchases of our few productive assets, making us peasants in our own land. (See Argentina)

No, don't be fooled to jump back into housing for investment. A power of hurt is coming the West's way and it has only just started.

The is no easy way out, we must spend less and produce more to work our way out our current account deficits (we have had for 35 years in a row), and into the positive. But we will need to be positive for many years to pay everything back. There is no easy way out.
For if debt means nothing then nether does the money it is denominated in.

Forget "confidence" or consumerism as a way out, that's a big part of what got us into this mess. Even if people are extremely confident that train is not coming it still is.

Regards,

Andrew - goldmeasures.com

Inflation increasing is good for home buyers because it means values are dropping in real terms faster, less time to wait for house values to get back to fair value again.

So a friend in the real estate business is saying houses are in short supply, oh no I had better go and buy a house today then before they all run out thanks for warning me.

That posting about Rentals "proving" that there is not a shortage is just nonsense. That is someone in the UK saying that"¦.? Are they MAD? The UK is insanely short of houses by anyone's measure.

Ha ha ha ha ha ha

Wrong. The UK IS NOT SHORT OF HOUSES. Where on earth did you get that crazy idea ?!

It's simple. If there was a shortage, rents would have gone UP because there would have been more DEMAND for somewhere to live. It's that simple.

BLTers don't change the number of houses. They just own them.

Yes gibber i wholeheartly agree with you and steve keen.

I work for a building company in aus and fear the only reason for recent rises in enquires/job sign ups is due to the first home owners bonus, and at least half our jobs have a rush on them to be thru the contract stage by the june 30 cut off.

I am slightly selfish in that i would like to see the bonus extended so that my job is safer! But such is life. I have however noted that job loses have occured just as often for homeowners as renters. Sadly my company seems to have made redundant people who have worked here longer, not always with more skills but surely with higher salaries, before others. I think salary is a big deciding factor in who to lay off.

Here is the thread where Kieran and I had the lengthy debate on this subject:

http://www.interest.co.nz/news/new-zealand-could-go-bankrupt-within-next...

Then more arguments and links on THIS thread:

http://www.interest.co.nz/news/opinion-5-reasons-why-house-prices-dont-r...