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Record improvement in housing affordability in January; housing seen affordable again by the end of 2009

Posted in News

Housing affordability improved a record amount to its best levels in 5 years in January because of further falls in house prices and a sharp reduction in mortgage interest costs, a monthly survey by has found. After years of housing being unaffordable for most New Zealanders, is now forecasting that housing will be affordable again for most New Zealanders by the end of 2009 if the current trend of improvement continues. "All of the trends are converging to make housing much more affordable for both families and single income home buyers. House prices are sliding, interest rates have fallen fast, taxes are set to be cut again and incomes are rising. These have all combined to reduce the proportion of after tax income needed to service the mortgage on a median home," said editor Bernard Hickey. "The one big silver lining of the credit crunch is this rapid improvement in housing affordability," Hickey said. The standard measure of affordability nationally showed the proportion of a median after tax pay needed to service an 80% mortgage on a median house fell to 54.1% in January from 59.8% in December, which was a record improvement for any one month since the survey data started in January 2002. This is sharply better than the 82.9% record worst level recorded in November 2007 when house prices peaked. This was the best level since April 2004. sees this measure being affordable for most when it dips below 40%.

The standard first homebuyer measure improved to 46.8% from 52.4% last month and is well below the November 2007 peak of 73.8%. It is at the best levels since November 2004. This measure uses the median income for a 25-29 year old buying the first quartile home. sees this as affordable when it dips below 40%. Our measure of the standard household (one male aged 30-34 years earning the median income, one half time female 30-34 year old and one 5 year old child receiving working for families) shows their proportion was at 35.3% in January, down from 39% in December and a November 2007 peak of 53.9%. sees this as affordable when it reaches 30%. Our measure of the standard first home buyer household (one full time male aged 25-29 and one full time female aged 25-29 with no kids) buying the first quartile home shows an improvement to 22.0% from 24.7%. We think that this is now affordable, being below the 30% threshold. What I think The immediate conclusion many will draw from this forecast of housing being affordable again is that demand will return for houses and prices will stop falling. That would have been the case if this had happened in 2005, 2006 and even in 2007. Home loans were still extraordinarily easy to get then and interest rates were low. Also, workers were still very comfortable about their job security. The wider picture now is much more uncertain and will mean house prices continue to fall through 2009 and into 2010. Home loans are much harder to get for those looking to buy houses at the margin as investment properties or first homes. Deposits have to be larger and the leverage allowed is much smaller. Hopes for capital gains have evaporated for property investors and positive cash flow is much more important. This shortage of easy loan money is the dominant factor now for house prices. In 2006 a couple earning a combined NZ$150,000 who had a NZ$40,000 deposit could easily get a 95% home loan to buy an NZ$800,000 house. Now that same couple with the same deposit would only be able to buy a NZ$200,000 house with an 80% home loan. Most banks would probably still rattle the tin for such a couple to lift the loan to value ratio over 80%, but the best they could afford now would be around NZ$500,000, That's the power of leverage and deleveraging. Unfortunately, this tsunami of develeraging sweeping the globe is driving down property prices everywhere. New Zealand is not immune. The employment outlook is also much more uncertain than 2005, 2006 and 2007. Unemployment is forecast to rise from 4.6 to over 6% this year. It may be over 7% by the end of 2010. The other major influence here is interest rates. The lowest fixed mortgage rates in the 6-12 month range are now just under 6% and may head into the low 5% range if the Official Cash Rate is cut to 2% from its current 3.5%, but I'd be surprised if they headed much below 5.5% given the enormous pressure on margins most banks have now because of higher funding costs on foreign debt. Not everyone with a fixed mortgage will be able to, or want to, switch to Kiwibank. Kiwibank has plenty on its plate right now and already has quite a churn rate of customers who signed up a year or two ago and are now looking to go back to a major bank because Kiwibank is having problems handling the volume or providing the service many major bank customers wanted. ASB increased its 3,4 and 5 year rates back over 6% on Friday because longer term interest rates have actually risen in recent weeks. That's because of market fears about big new debt issues globally by governments planning huge fiscal stimulus packages. Home buyers should be aware interest rates will not stay below 6% for longer than a year or two and are then likely to rise and potentially quite quickly if savers globally start choking on all this extra government debt and if central banks get their timing wrong on when to turn off the printing presses, thus creating inflation. We're sticking to our forecast that the REINZ median house price will fall around 30% to around NZ$250,000 in the two to three years from the November 2007 peak.  We don't see house prices hitting their trough until the end of 2010 and are then likely to take at least 8-10 years to recover back to that November 2007 peak. A link to the median-multiple data for NZ is here >>> Your view? Comments below please

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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I'd have thought Kiwibank had

I'd have thought Kiwibank had a great flood of deposits in the month's prior to the Gov't providing the depositors guarantee. And most of that went into on-call accounts. It's likely now been flooding out as quickly as it flooded in.

Spot on Kate.

Spot on Kate.

Housing is internationally recognised as

Housing is internationally recognised as 'affordable' when the median price of a city does not exceed 3 times gross annual median household income. We are a million miles away from that in this country. Refer the Annual demographia International Housing Affordability Surveys.

If you would like a little history to all this - may I suggest you go to the Levitt Time magazine story accessible via my website - where the "father of affordable housing" Bill Levitt in 1947 was supplying new housing to families on $3.000 a year at $8,000 to $9.000. And in that era there was only the one income earner.

Levitt transformed the housing construction industry from the "horse & bubby era' to the modern production housing industry we know today.

What did they know then - what we have forgotton now?

Hugh Pavletich

And while you are checking

And while you are checking the above out on my website - also refer within the left column at top to the Harvard University Median Multiple Tables for United States Urban Markets going back to 1980. Again - the vasrt majority of US urban markets did not exceeed 3 times annual income until recent time. The 2009 Demographia Survey has a figure illustrating Median Multiple Trends for major Australian cities as well.

Hugh Pavletich

The most important factor missing

The most important factor missing from these discussions is the tax-free capital gains on property investing. This is why NZ house prices went up so much and why they will now fall so far.

Property was such a good investment in NZ as you could have 3 or 4 properties generating tax-free capital gains as the market went up.

Now the market is going down, all these investors will be bailing, looking for the next best investment, probably NZ corporate bond issues or investing in blue chips on the US stock market.

The government should bring in captial gains tax on second houses by the end of 2010 before we start another house price bubble.

I can see why people currently expressing negative opinions on the property market don't want this, as they probably missed out on the first boom and can't wait to pile in once the market hits the bottom. Booms and busts are good for no-one though and we're much better off with a stable, affordable housing market.

Here's my TradeMe search for

Here's my TradeMe search for watching trends in terms of market movement toward first home affordability.

Residential listings - all regions
Property type - house
Price range - $100K - $200K
Search words - "below RV" and "below GV"

Things are improving.

What was that other article

What was that other article you posted, Bernard?
"ASB hikes longer term mortgage rates back over 6%".
A sign of things to come?

"Here’s my TradeMe search for

"Here's my TradeMe search for watching trends in terms of market movement toward first home affordability.
Property type - house
Price range - $100K - $200K"

This is flawed as it only deals with asking price, and those who maybe desperate to sell,
It doesnt deal with actual selling price.

If one picks an area, that has a good crosssection of house values and all houses one sees a trend above and below the mean a drop but more houses above artifically holding it up, with both having far more than the mean %drop
Then if one compares the asking price with the actual QV selling there is in general a huge difference.
Ie an actual example of many a asking price 480,00o selling price 315000

Housing may seem more affordable

Housing may seem more affordable for those on average incomes, but as soon as you are made redundant, your income goes to 0 and everything is unaffordable.

Even if pay stays high, as long as unemployment is rising, housing gets less affordable. Average pay should really include those on 0 pay from being unemployed.

Hugh P - Like yourself

Hugh P - Like yourself I live in Christchurch and house prices are still very high compared to household income. However hosse prices here will probably not fall as far as in other centres because of the City Council's restrictive policies with regard to land development. It is very noticeable that in the adjoining local authorities of Selwyn and Waimakariri that house and land prices are falling faster than in Christchurch.

"Average pay should really include

"Average pay should really include those on 0 pay from being unemployed."
I was uinder the impression it was.....
If not, a good piont

link shows sale price relative to most recent registered valuations (2008) in Gisborne for december 08.

Hmmm mortgagee listings on this

Hmmm mortgagee listings on this site's measure have accelerated rapidly in the past 2 weeks, a new record of around 550 according to this:

Thats a jump from 400 to 550 in 2 weeks.

The absolute numbers are relatively small but the recent trend really is very pronounced. Are the banks now forcing sales (rather than just the busted finance companies?)

Andy, I haven't seen any

I haven't seen any signs yet of the 'shoot first and ask questions' later approach taken in the United States. If we start seeing the same sort of wholesale mortgagee sales driven by banks than that figures would be in the thousands rather than the hundreds.
So I'm not seeing it ... yet.
One thing to watch though is that the bank can chase the home owner and it is a recourse loan. That means banks are likely to be less trigger happy, which is good.

Dont forget that the cost

Dont forget that the cost of owning a house is totally irrelevant to the price.

What matters is the ratio of your income to the price of the house. If this rises above 3 then you are a fool to buy.

Until the ratio reaches 3 then debt must collapse and government is totally powerless to avoid a disaster of biblical proportions.

Dont you fools understand this?

May I suggest those interested

May I suggest those interested access a New York Times article "Fed calls gain in household wealth a miirage" - outlining recent Fed research illustrating that US households now are worth less than they were in 2001.

These bousing bubbles are a dreadfully destuctive process. And unnecessary too.

Hugh Pavletich

Hugh I am in Finland.


I am in Finland. The bubbles are terrible for those who dont play the game. Unfortunately if you play the game they are pretty good. I was looking at houses here last year and just horrified at the prices. I saw two houses which i though were ok but unaffordable. One has gone from 550 to offers over 350, the other from 540 to 425. I cant really afford either house at these prices because they need work but if the game continues i will be quite happy and if it reverses out of here dissapointed.

People like me sell out of a market as it rises. The timing is never right but one by one people sell out. And then one by one we buy back in again. The timing is never right once again.

How would you prevent people like me doing what i do?

Am i the problem or just somebody along for the ride?

At the moment it seems you want to encourage more to sell out and wait for prices to come back to a sustainable price way below the current prices. If prices really did come down to those levels i could buy back into NZ with Euros. Sounds good to me if that could be achieved. As i mentioned earlier to you i bought in london at 3 in 1983 and i sold out in 2005. It was not an easy journey but i held on. Probably had i sold i could have had more of a life back in NZ.

But i care about people also. Or at least i say i do and think i mean that when i say it.

I see a housing mess. I see my life - which is sometimes not easy dispite appearances - and I do what i can to survive.

Life is like a game with winner or losers and hopefully my focus is on taking part in the game but sometimes i get too wrapped up in winning. But I buy old run down houses to renovate so i can win. I am not a bad person but i help to create bubbles.

If you think the aftermath of the bubble is a distructive process then presumably you will want to reverse the consequences of the distruction as soon as possible?

Dont you want to pump it up again to avoid the unhappiness?

I am ready to buy almost. I am ready to end the unhappiness. Others will in time follow me.

I'm very undecided on how

I'm very undecided on how low house prices will get.
Do you not think the projected population increase through less migration and more immigration might be enough to keep house prices to only say about 15% below peak?
I think this and the unemployment levels might be key, although also how long banks stay with tight lending criteria, which possibly could be quite a while.

Incidentally there was a very interesting doco on CNBC last night called "house of cards" that explained in detail the reasons why America got itself and much of the world in this mess, very recommended viewing.

Also from the States;

Also from the States;

Also, a google search of "suspends 401(k) match" makes interesting reading. I would have thought these retirement plans were part of an employment contract - but obviously not so in the US.

Links to info on the

Links to info on the very good doco "house of cards"|houseofcards|&par=vty

Kate Looking at the link:


Looking at the link:

"McCusker, a public relations executive, and his wife, a school teacher bought their home in July of 2005 for $462,500 with a 30 year fixed loan at 6.3 percent.

But today, the home has a value today of $433,000. "We have good jobs, never missed a mortgage payment, "says McCusker. "But I can't get any help. There's something wrong with that."

29106pa interest + 18500pa repayments over 25 years = 37606pa

So you would imagine that Mccusker can live on one salary and pay the mortgage with the other? He does not need help?

And if needs help he can and his wife can resign their jobs to get the help available?

Also if you look at the $1,000,000 homes embedded in the link you sort of go wow!

Last month you could get a one million wamu loan at 2.2% over 5 years.

At a guess the Mccuskers could rent their house out and use it to finance the 22,000 pa needed for the million dollar finance to get a dream home in a once in a lifetime opportunity. Or maybe they have stupidly already got hundreds of thousands of other debts for junk they dont need?

Some people are beyond help - i would guess the mccuskers and cnbc are just whinging about handouts to people more able to take advantage of the bailouts.

The comments above are most

The comments above are most informative. I will focus at this point on Andrew of Finlands comments above.

Your market behaviour in attempting to pile in to these bubbles at the bottom and exit them at the top is simply rational behaviour. All you are doing essentially is making the most of scarcities created by Local Government - and with a bit of luck - jumping ship before it sinks.

As a developer - I shut down mid 04. No point paying tax on illusory profits - then lose on deflating bubble values - where if the first doesnt get you, the second will.

Bubbles by their very nature are unsustainable and destructive for most.

iIthink you may find from this point Andew that the finance sector survivors globally will be in no hurry to provide the fuel for further housing bubbles. Bear in mind too - that we are only in the early stages of the deflating bubbles globally - and as people and politicians experience the social, political and economic costs of the "Mother of All Bubbles" - be assurred - they will be in no hurry to repeat the experience,

Hugh Pavletich

Andrew, Open your eyes, we

Andrew, Open your eyes, we cannot stay isolated from events in the Northern hemisphere much longer.

Even the Times is talking Civil unrest.How long till we have a Local body rate revolt in this country. It is being openly discussed in my community as we type.

AndrewJ and Hugh and all

AndrewJ and Hugh and all

I am already back in Finland. News is mixed and yet also terrifying i agree. Earlier AndrewJ you told me that Finland would not survive by selling garden shears that Fiskars makes in the USA. Kone and Kone Cranes have reported very good order books into 2010 with few cancellations. Wartsila who make massive ship engines the same. Back in November indications were that they would report good results. Nordea bank has good results. People like US developer Mort Zuckerman is on a video at the FT saying he is still building quality developments for top cllients - which supports kones results who make lifting equipment for buildings and construction cranes etc. Only in Dubai and the UK or spain are kone saying markets are really down.

But Nokia now opened by Americans laid off 500 people near me and 350 and shut a factory 200 kms from here. They will not pay cleaners for office or window cleaning in 2009. Whipped cream is replaced by Jam in the works canteen and suppliers are being obliged to accept 15% price reductions where Nokia can pull it off. Something like 60,000 plus have been laid off in a population of 5 million. Only if orders return will these people get work again. But the population is aging and there is a shortage of certain skills or has been.

Things are not so bad in the UK as you might imagine. The UK is the 6th largest manufacturing nation in the world. Obviously vested interests want to get financial assistance and obviously they control the media. The daily telegraph which seems a favourite of doom and gloomsters who regularly feed on pritchard evans whats his names comments is an organ of the Tory party and buisiness. It aims to titilate with stories about Vickers having sex with parishioners on page 3 - compared to the sun that titiliates with semi naked young girls and women.

For sure doom and gloom is upon us now. Car production in Europe is collapsing.

And yet is it really so bad when it is possible to provide crazy financial deals if inflation really does begin falling for all goods across the entire economy?

So far in NZ and in Finland and even in the UK we are not at the lowest points for this to happen.

Banks may be terrified like many of us are terrified but if they can get no cost money there is less to be concerned about and if they get gurantees on their lending because the government looks past the currenct doom then they will lend.

And if they dont lend they will be nationalised and lending will recommence.

It is so written.

So far things are not as bad as they seem in my view dispite my own personal anxieties. If the end of the world comes then it comes. I do have a house back in NZ if it all turns to custurd. How many like me are there? Even Jim Rogers the commodity guru has flats in Auckland.

Meanwhile my wife just got the offer of almost double her previous salary if she returns to work quickly after the baby. The company sells training courses to Nokia and warsila and Kone and Nordea:-) This is american produced material. They also sell this into Russia. The boss is from eastern Europe. I wonder but the boss is upbeat. The world is hungry for this kind of American made intellectual material on buisiness systems.

America will likely begin coming out of the whole in only one years time.

It is the worlds largest economy and we cant resist what it does.

Glad to hear you are

Glad to hear you are back with your wife and baby. I agree there is definitely a media feeding frenzy on the finance problems but they are in the business of selling papers.
I can tell a good story from a friend who was working at the Sun. They used to get hundreds of girls sending in photos in various posses for page 3. They paid i think 75 pounds for the winner. He said it made opening the mail so interesting. The best was a very well developed girl from up north who sent a range of photos but got the payment wrong she Included 75 quid in the letter.He had the honor of writing to her to return the money ,he kept the photos and address and promised to look her up next time he had a story in her town.

Hmmm. I wonder if she

Hmmm. I wonder if she did get the payment wrong? She got the attention either way.

But wait there is more! This American company financed by GM with a GM motor as battery charger and European and American techonology is about to begin production of this electric car in finland in a few months time. The 2009 limited edition production is already sold out.

The designer and part owner is a Dane who worked for BMW and Astin martin.

Finland! More than just garden shears!

In regard to the issue

In regard to the issue of mortgagee property currently listed on and trade me as measured in the tracking graph commented by Andy Hamilton.

The number of listings on that utilise the keyword of mortgagee has risen recently "“ standing today at 298; however as mentioned by some keen observer in a comment posted on the latest analysis posted on the Unconditional blog
on the website it appears that real estate agents are starting to include the word mortgagee in the text of listings "“ when the listing is not a mortgagee sale. Examples being:


"Cheap Like a Mortgagee Sale!!"

"You Want Mortgagee Pricing??"

This tactic is designed to deliberately capture keyword searches, of which mortgagee still remains #2. This could be why the number of mortgagee listings has risen recently.

Unfortunately the industry has not standard and agreed category of listing for a mortgagee so we have to utilise keyword search to assist the public to find such listings.

I found this on <i>The

I found this on The Landlord say's Blog. It could give a clue to government policy. You've got to remember that governments don't get elected without money to run a campaign and whose got the money...? ("The big boys")

"Meanwhile the National Party released its immigration policy. You may wonder what this means for the property market. It is clear from research that immigration is one of the key drivers of house price growth.

The logic is simple. If you import more people into the country, then you need more houses. Supply and demand means that prices are then pushed up, this is particularly so in Auckland.

While the latest immigration numbers show the number of people coming into New Zealand is starting to rise, the Nat's policy looks like it wants to increase immigration levels even further. (Although it is unclear what sort of number they are targeting.)
This policy is, arguably, a plus for people who want house prices to rise. (But may be not so good for first home owners wanting to buy.)"

"Yesterday we had some migration numbers. Now you may wonder what is the relevance. Simple "“ immigration flows and house prices are strongly correlated. When they are strong, house prices are up as these people need somewhere to live.

While the numbers weren't mind-blowingly positive (a small inflow in December of 300 and 3,800 for the year) at least they were positive. One comment I read somewhere was that there was an expectation fewer people would leave New Zealand because of the credit crunch and the difficulty finding work in countries like the UK.

One could also argue the government's changes to the RMA are good for the market. No doubt they are not negative. However, I have a view that the RMA isn't a big deal for mum and dad property investors. Sure it is for the big guys and the developers, but for the average property owner? I don't think so."

Our household income is $160K

Our household income is $160K and we paid $450K for our house - does this mean housing is already affordable?

Well Alistair the simple thing

Well Alistair the simple thing for you to do would be to check your listing to see what percentage were 'real' mortgagee listings. Its pretty easy. I just checked your first 100 (of your 300 listings this morning) , and I could only see 6 which were not clearly genuine mortgagee disposals ie a 6% rate where agents were fooling around. By the way this misrepresentation is not a new phenomenon - last time I went through the list (5/6 months ago), there were listing which were not genuine either. Precious little evidence there that this is having a substantial impact on the steep rise we are seeing.

Of rather more interest on the thread you mention is that comment from another agent who suggests conversely that the number of mortgagee sales may be being UNDER-REPRESENTED as some finance companies/banks do not wish mortgagee sales property to be identified by advertising as such?

Hugh Queenstown restricts land supply

Hugh Queenstown restricts land supply but obviously more to it than that?:

1990 - 1999
In the subsequent year however, there was still an over supply of property available and forced sales continued, generally to owner occupiers and South Island based investors. The cycle turned for the rise in early 1991, resultant in part from an optimism in falling interest rates, but to a greater extent through an increased enquiry/purchasing from off-shore - mainly in prime lake front, commercial and tourist accommodation property. These off-shore purchasers entering the market acted as a significant catalyst to recovery. In effect this period represented a "discovery" of Queenstown by the offshore market.

Over the subsequent three year period of strong growth, a lack of supply and dramatic increased enquiry and demand saw all property show significant realty growth. The market peaked in the latter months of 1994. Demand eased in 1995. Demand continued to ease more markedly over 1996 generally fuelled by factors including an increase in mortgage interest rates and the level of uncertainty surrounding the 1996 general election and subsequent inaugural coalition government. Over this period market values dropped for most property.

No, Samie, it means your

No, Samie, it means your household income is well above the median. If we did have affordable houses, you would have been able to buy that $450,000 house for less than $300,000; or perhaps you could have spent $450,000 on something that costs $750,000 today.

Hugh Pavletich is doing a good job. NZ house prices need to come down, on every analysis. The Demographia surveys should result in a national outcry.

In "The Housing Bubble and the Boomer Generation", Robert Bruegmann calls the side-effects of the housing bubble "the greatest wealth transfer in history", a wealth transfer from the younger generation buying their first homes, to the baby boomer generation who bought homes when they were affordable:

".....These land use regulations and real estate tax policies have made possible, at least in certain highly regulated markets, one of the greatest transfers of wealth in American history. The primary beneficiaries have been existing landowners including a very large percentage of affluent boomers. The ones who have paid have been less affluent renters, younger people and all future generations of prospective homeowners.

The existing homeowner in the Bay Area could watch the value of his house soar from a few hundred thousand dollars up into the millions without lifting a finger. Meanwhile the dramatic rise in land prices, because it has not been accompanied by a corresponding increase in salaries, has devastated the prospects of young couples, many of whom were forced to either leave the area or obliged to take on huge mortgage debt just to afford an entry level house. These same people are now bearing the brunt of the steep decline in housing prices and the wave of foreclosures washing over the country.

One of the most remarkable things about this enormous transfer of wealth has been how little most people were aware that it was happening or what caused it......"

Do read the whole thing:

And the effects of housing bubbles on a whole economy, is a massive subject. It was a huge mistake on the part of our political leadership, to allow this to happen. Look at this August 2003 prediction. This guy should be in a top position now, not Paulson, Bernancke, et al.

Good post Philbest. However I

Good post Philbest. However I think the boomers will also be hit pretty hard now. Their hyper inflated house prices, which they were relying upon to lead their lifestyles and to fund their retirement, are fast deflating, and therefore their wealth is evaporating.

That Mayer article is brilliant,

That Mayer article is brilliant, well worth a read.

Immigration might support the house

Immigration might support the house market .... but it should also be factored in that immigration without jobs is unlikely to put much pressure on anything, except maybe wages (downwards).

To CP above. No, the

To CP above.

No, the government should not be looking at a capital gains tax. The reverse: it should be looking at substantially scaling back the myriad of other taxes, especially our way over complex income tax legislation. That is what's distorting the market, and allowing the Big State to grow this increasingly violent welfare society, which continues to constrain and drain the productive sector - what's left of it.

For the record, the New Zealand Income Tax Act 2007, is an overall appalling document. There is no transparency in our tax system, no mechanism whereby the taxpayer can freely and efficiently gain certainty in their tax position, it has livestock valuation schemes - NZ's biggest taxpayer (?) that have turned farm taxation into something akin to entering a casino, it has tainted capital rules which achieve nothing that I can see of value, but which definitely constrain economic activity, and on and on and on. It's insanity, right down to the minute now (sections that refer to sections that don't exist) . Don't ask them to make it bigger, please.

Alistair Helm Says: however as

Alistair Helm Says: however as mentioned by some keen observer in a comment posted on the latest analysis posted on the Unconditional blog
on the website it appears that real estate agents are starting to include the word mortgagee in the text of listings "“ when the listing is not a mortgagee sale. Examples being:


"Cheap Like a Mortgagee Sale!!"

"You Want Mortgagee Pricing??"

That shows how crafty real estate agents are, and they will do ANYTHING to get more exposure for that sale. Basicaly it is using keywords to misreprepresent the property as something it isn't, and is something the website shouldn't allow agents to do. Using keywords like that isn't allowed by impartial property listing websites like trademe.

As we are learning -

As we are learning - and sadly for too many - nobody benifits medium / long term from "artificial housing bubbles'. Economists have a term for this called "disruption costs". As we are all seeing - these are truly massive.

The focus at all levels of Government must be to "allow" the construction of affordable new housing stock on the urban fringes - where people - particularly young people - wish to live. Driving them out due to inflated prices to outlying rural areas and town is hardly sustainable.

I do hope too that industry and professional groups now become far more active in supporting central government in working through real solutions, to allow affordable housing to be built.

Remember guys - Im just one citizen! We all have a responsibility to ensure this happens.

Hugh Pavletich

I'd be interested to hear

I'd be interested to hear what people's views are if they don't believe 3x as a relevant multiple? If the relevant multiple is - for example - the current 6(ish) times, do you have an expectation of a meaningful capital gain, which by definition must be a higher future house price to income multiple?

Because at 6x income, due to interest costs and comparing to rent, there isn't really an economic case to justify buying unless you have house price inflation > wage inflation.

And this leads to a higher price/income multiple, which (if you believe it is a relevant measure), is not sustainable.

"In the 1950s and 1960s

"In the 1950s and 1960s developers in America built a huge amount of housing, primarily on cheap land at the suburban edge of almost every city in the country. This housing was remarkably inexpensive and, together with liberal financing terms, allowed millions of Americans to enter into the ranks of home ownership and the middle class. It provided the underpinnings for the enormous wealth of the boomer generation."

"The housing boom has drawn off capital from other ventures and uses. In the US, the housing market is the overindulged sector of the economy that has gotten more than its share of investment capital. The true cost of the indulgence can only be guessed at. We have no way of knowing what else such capital might have contributed to human welfare."

I'm not sure the New Geography and the Mises article concur Dr Spock

Thanks goodness for some sanity

Thanks goodness for some sanity jh.

Hugh, as someone who believes in the Austrian theory of the business cycle, et al, based on it's predictive power leading into this melt down, and thus as one who believes these stimulus packages are simply treating the illness with a bigger dose of the illness which is going to make this much worse, and extend the pain for many years more than it needs to be, just as the New Deal extended the Depression, I assure you I have no such responsibility as you seem to think I do.

And I concur with Reagan: the central government is the problem, not the solution.

Rob - whilst I take

Rob - whilst I take your point, Trademe also has examples of a few individuals/agents trying the same trick, so to be fair to Alistair it is not unique to his website.

Nontheless a simple check of the numbers reveals it is a very small proportion, and it is not something that has suddenly happened just last week (as you can see by the dates of when some of the misleading adverts were first posted).

So you're moving your 30%

So you're moving your 30% drop completion point theory from late 2009 to late 2010.

Guys!! Don't be too hard

Guys!! Don't be too hard on the Real Estate Agents. It must be difficult to come up with different enticing words to promote a property. Besides; It worked! Didn't it? After all you had to have looked at the advert to know what was in it. Is it any different to "Demo model"; "Like new"; "Ex CEO's car" etc....

Interesting bit of info: I've

Interesting bit of info: I've noticed that an award-winning real estate agent in Auckland - I won't mention their name or the suburb they operate in - has just dumped a number of their personally owned rentals/investment properties on the market.

They're probably over-leveraged, but to me this is yet another indicator that we haven't seen the bottom of the housing market yet.

andy hamilton Says: February 16th,

andy hamilton Says:
February 16th, 2009 at 11:49 am

Rob - whilst I take your point, Trademe also has examples of a few individuals/agents trying the same trick, so to be fair to Alistair it is not unique to his website.

Nontheless a simple check of the numbers reveals it is a very small proportion, and it is not something that has suddenly happened just last week (as you can see by the dates of when some of the misleading adverts were first posted).

Yes, although trademe will ammend the listing if they receive a compliant about it, and using keywords like that is a breach of the terms. Trademe however can't manually check each listing. However the realestatedotcodotnz website, they do have some control over their agents, in not to put in misleading keywords.

Hugh P has a good

Hugh P has a good point (many, actually) in that he's only one voice. This takes a lot more than a few prophets in the wilderness.

At the very least, given that every TLA in the land currently has an LTCCP out in front of the great unwashed, seeking comments, shouldn't we all be doing just that?

For an amusing and succinct analysis of the current perfect storm, one can do much worse than dear old Spengler across at Asia the quote abut selling your neighbour your house, and then retiring on the CG. Although, Matt of AKL, if that neighbour is a Brit with Pounds, why, it actually works.

Oh, the link:

Dandan, Bernard, like eveybody, must

Bernard, like eveybody, must reserve the right to alter their opnion if the facts change. I venture to suggest that facts have changed markedly since Bernard ( and Garthe Morgan) first made his/their call(s) over 12 months ago. Your opnion does not appear to have waivered with a change in world affairs.

Oh oh, farm prices have

Oh oh, farm prices have now started to slump:

Considering the amount the banks have lent to the agricultural sector there must be a few rural loan officers feeling a tad queezy about now.

Bernard, Totally off topic, but

Totally off topic, but your latest poll regarding reserve currencies seems flawed to me, in that it does not offer a "none of the above" option. For me at least it means that I'm precluded from voting.

The Impact of Zoning on

The Impact of Zoning on
Housing Affordability
Edward L. Glaeser and Joseph Gyourko
March 2002
(From Intro)
After first surveying housing costs within the U.S., we try to understand why the
expensive places have such high housing costs. It is noteworthy that we do not focus on the housing demand side of this equilibrium. High cost places generally have either very attractive local amenities (great weather or good schools) or strong labor markets. The Rosen-Roback (1979, 1982) framework has proved useful in such studies, and one of us (Gyourko and Tracy, 1991) has previously worked in that area.
5 Instead, we focus here on the role of housing supply. What is it that creates places where the cost of housing is so much higher than the physical construction costs?
The bulk of the evidence marshaled in this paper suggests that zoning, and other land use controls, are more responsible for high prices where we see them. There is a huge gap between the price of land implied by the gap between home prices and construction costs and the price of land implied by the price differences between homes on 10,000 square feet and homes on 15,000 square feet. Measures of zoning strictness are highly correlated with high prices. While all of our evidence is suggestive, not definitive, it seems to suggest that this form of government regulation is responsible for high housing costs where they exist.
We have not considered the benefits from zoning which could certainly outweigh these costs. However, if policy advocates are interested in reducing housing costs, they would do well to start with zoning reform. Building small numbers of subsidized on housing units is likely to have a trivial impact on average housing prices (given any reasonable demand elasticity), even if well targeted towards deserving poor households. However, reducing the implied zoning tax on new construction could well have a massive impact on housing prices.

jh Says: February 16th, 2009

jh Says:

February 16th, 2009 at 11:41 am
"In the 1950s and 1960s developers in America built a huge amount of housing, primarily on cheap land at the suburban edge of almost every city in the country. This housing was remarkably inexpensive and, together with liberal financing terms, allowed millions of Americans to enter into the ranks of home ownership and the middle class. It provided the underpinnings for the enormous wealth of the boomer generation."

"The housing boom has drawn off capital from other ventures and uses. In the US, the housing market is the overindulged sector of the economy that has gotten more than its share of investment capital. The true cost of the indulgence can only be guessed at. We have no way of knowing what else such capital might have contributed to human welfare."

"I'm not sure the New Geography and the Mises article concur Dr Spock"

JH, I think you are being deliberately disingenuous. Christopher Mayer should have used the term "housing bubble" in the latter article. The "housing boom" of the 1950's and '60's involved building lots of affordable houses at a value that was not in question. For a housing construction boom to be a misallocation of resources under these circumstances, it would have to involve an overproduction, difficult under true free market conditions.

This might have happened somewhere at some time but the amount of misinvestment involved is ephemera compared to the sums involved in the housing bubble of 2000-2007; you need to read Hugh Pavletich's "Open Letter To Bernard Hickey on Deleveraging", on this site, to get an analysis of the trillions of dollars involved. This is not building construction, this is speculative"values" on paper, the suckers gambit, just like the dot-com bubble, only much bigger and more tragic for many. Hugh is doing a great, voluntary job for which he deserves more credit. As he says, approximately 45% of the damage in the US bubble, occurred in California; and these factors deserve urgent recognition and study.

JH and Mother Hubbard -

JH and Mother Hubbard - may I just clarify a few points with you - further to the excellent points made above by PhilBest and a number of the other guys.

I do not support housing getting "special favours" (i dislike the "dream" rhetoric) - nor do i think it should be "punished" with inappropriate regulation and infrastructure financing arrangements. Please go to my websiite and check out the Harvard University Median Multiple Tables for US cities going back to 1980. There is a world of difference between a "boom" and a "bubble".

For example - Im rather duisapointed in the comments reported in The Herald yesterday of Richard Carver of Jennian Homes advocating we copy the Aussies with first home buyer grants. Indeed - I get rather fed up with the self serving nonsense dished up by industry people in NZ and Aust dressing up welfare schemes for themselves as though they are in the wider public interest. Refer to my website and the communication of mine to Ron Silberberg CEO of the Housing Industry Association in Australia late 2007 "The Need for Clarity".

In my experience - confusers are losers - and the issues we are dealing with are not at all complex. The Demographia Surveys (and the wealth of other reputable international research out there) clearly shows that NORMAL urban markets should not exceed 3 times income and new stck should be going in on the fringes at around 2.5 times the grass annual median household income of a specific urban market.

Thats where Governments at all levels focus needs to be. It will take us many years to restore affordability in this country - but the real work must start now.

Hugh Pavletich

keep up the good work

keep up the good work Hugh. I agree that there is nothing worse than self interest from property players dressed up as something that benefits society. The first home owners grant extension is proof that K Rudd really has no idea and certainly no desire to help first home owners. I would put into the same catefory the greenies who want to restrict development in outliying areas (generally these are wealthy middle class boomers) and those who want to restrict development in so called "character" areas (often the same crew). Clearly their financial interest lies in making land and housing a scarce commodity - even if their motivation is not purely financial, it is selfish in that they believe they are entitled to maintain their pampered lifestyle with "character" and "no unsightly sprawl please" whilst the poor and young are further marginalised. Disgraceful.

Hugh - I agree with

Hugh - I agree with your points above. I'm not in favour of the first home buyers grant that they have in Aussie, all that serves to do is heat up the market further at cost to the taxpayer.
James -good points. A lot of the NIMBY types oppose development on their doorstep because they perceive new residential developments will adversely affect their property values. There is little evidence to support this.
Indeed when NIMBY-ists oppose developments on the flawed assumption that they will protect their property values they are actually probably doing their property values harm. As developments get stalled left, right and centre by vexatious interest groups, the supply of housing is limited therefore inflating housing bubbles. And we see how destructive to house values bubbles can be when they pop.

James and Matt - excellent

James and Matt - excellent points. In my experience - the two major "blockers" to the supply of affordable housing are (a) the protectionists within the property sector and (b) the bureaucracies as central, regional and local level. And when these two groups hold hands - I refer to this as the "unholy alliance". The reason for this - is because these two groups have enormous incentives (financial and control) to engage in this behaviour.

In my dealings with the Greens here in New Zealand - i have found them to be very reasonable and sensible. Indeed I would be more than happy to work with these people in exploring solutions. It is not generally understood the depth of the social justice theme that runs through the Green Party. Note also - within the Preface to this years Demographia Survey, Planning Professor Solly Angel commended the work the Greens do. I share Sollys thoughts in this regard.

i have no difficulty whatsoever exploring ways to enhance the environment - and restoring affordability. They go hand in hand.

Hugh Pavletich

Here's Harvard's Ed Glaeser, the

Here's Harvard's Ed Glaeser, the hottest urban economist around, on the environmental reasons why housing supply should be bolstered in the urban cores rather than through urban sprawl.

Matt - Wops! With respect

Matt - Wops! With respect I think you may have miisunderstood Harvard Unibersity Ed Gleaser - and suggest you and readers Google Search a Glaeser article from mid last year "Houston New York has a problem".

In my view - Glaeser is at his best with his articles - but things get a little wobbly with some of the "modelling" within his academic papers. Refer my paper "Housing Bubbles and Market Sense". Im hoping that before long academics from the economics, planning and valuation fields lighten up on the modelling approaches and focus on the "nuts and bolts" structural issues.

Refer Performance Urban Planning website articles regarding land 071111 and house pricing / productivity 080428. There is no land shortage in New Zealand - and due tio years of prescriptive planning, the productivity / pricing of our residential construction sector is currently woeful.

Its going to take years to sort this mess out. As you will be aware, my view is that the focus needs to be on (a) local government performance (b) land supply and (c) appropriate infrastructure financing.

Hugh Pavletich

Sorry all left out the

Sorry all left out the link:

Hugh, as you will see from Glaeser's article I haven't misunderstood him. Although he is obviously critical of planning regulation's restriction on housing supply, he would seem to favour freeing up development within cities rather than on urban fringes

Matt - many thanks for

Matt - many thanks for drawing our attention to the Glaeser article - which I note is posted on the Planetizen website as well - with a most interesting report from the Pew Institute as well, outlining the results of reasearch carried out to assess where people prefer to live in the United States. Well worth a read.

The energy / ghg aspects of this issue are outside my area of competence - a specialist subject Im more than happy to leave to others. Im surprised however that there has not been substantially more international research in this important area - comparing the energy of bricks and sticks suburban development with the concrete inner city density type.

The only report Im aware of is one going back to mid 2005 by the New South Wales Dept of Infrastructure comparing the operating costs of suburban with dense inner development - which clearly showed the suburban as more efficient.

Go to the Demographia website - International Section - Australia - to read the NSW Dept of Infrastructure Report.

We know of course that on the development / construction front the inner dense development is far more expensive to put in place on a square metre basis. Yet there has been no research done on this important area of "capital costs" that Im aware of. i would assume that if it costs substantially more to put in place - the energy required would reflect this.

I am awaiting responses from the United States to the Glaesser article - and will advise when these become available. I for one have serious doubts about Glaesers findings - but lets see what experts in the field come back with over coming days.

Hugh Pavletich

FYI to all Here’s our

FYI to all

Here's our measures of income to price multiples broken down by region and including the latest data. It's essentially the same data we use for our affordability indices but sliced in a different way.

We welcome your perusal and suggestions.

cheers and thanks to Joey and David for this.


Hugh - could you please

Hugh - could you please provide further direciton as to where to find that NSW report - I tried on your website but had no luck

Matt - To access the

Matt - To access the NSW Energy Efficiency Comparative Report - go to Wendell Coxs website Demographia - then down to National / International Reports News Commentary Section - then Click on Destroying the Great Australian Dream section - then within the Reports Section click on "High Density Residential Buildings More GHG Intensive.

It is a little expedition getting there Matt !!!

Hugh Pavletich

Matt For a chuckle read


For a chuckle read this one from Hughs site. The conclusions (stated repeatedly in case you are really thick) are:

Lower GHG emissions are associated with urban fringe locations, not the core.
Lower GHG emissions are associated with higher rates of detached housing.
Lower GHG emissions are associated with greater automobile use.
Lower GHG emissions are associated with lower population density.

how can this be you ask? well they forgot to tell you that (also in the report) Lower GHG emissions are associated with lower income, so if you earn less you consume less, your GHG emmissions are less, If you live in a city centre you are likely to be wealthier therefore...

They also conveniently ignore any 'potential' to consume less, the logic being this is how it is, how it will always be and by the way it aligns with the outcome we prefer.

The one thing they did get right s the "eco fraud" that diesel bus based public transport is

Another gem from Demographia


Thanks Hugh I have seen

Thanks Hugh
I have seen this before. It actually shows that townhouses and villas are the most energy efficient housing forms, rather than detachd suburban houses.
Also it doesn't look at greenhouse gas emissions from private vehicle use.
To me it says that medium density (townhouses, duplexes, low rise apartments) with good access to public transport is the most desirable form of development (from an environmental / energy use point of view) over both high rise - high density and large detached houses on large lots.

Neven and Matt - as

Neven and Matt - as i noted clearly in an ealier posting the GHG / energy aspects is not a subject i am competent to comment on.

When people are making decisions to purchase property - no doubt this is one area they do consider. But only one.

We could save energy by sleeping and eating on the office desk I suppose!

Its all about "balance" guys!

Hugh Pavletich

Bernard - its a great

Bernard - its a great credit to all you guys at Interest Co NZ in how you generate helpful information - and congratulations on generating the family based median multiples - which as we all know differs from the Demographia approach slightly as we use the "Whole of Population' approach with respect to household incomes.

I do look forward to David Chaston of Interest Co NZ and Wendell Cox of Demographia communicating to see if a "Whole of Population" Household Income for New Zealands metro and regional areas can be compliled as well.

The whole of population Household income approach is extremely important as we explore political solutions to these issues - as it allows us to focus on the structural issues to be dealt with. Put simply - that housing should not exceeed 3 times household incomes and to ensure this happens - that new stock is put in place on the fringes at 2.5 times household incomes.

Again - congratulations on the enormously important work you people are doing in providing a forum for these issues to be discussed. In my view - New Zealand has the capacity to be a world leader in solving these problems

Hugh Pavletich

Hugh Unfortunately it is 1/


Unfortunately it is 1/ a thing most people don't consider and 2/ very difficult to change once built (nearest we get is infill) and therefore needs to be dealt with at a planning stage


Bear in mind these numbers are for Australia where most of the electricity is generated by fossil fuels (90%) this is the basis for the GHG calcs. In NZ we are 30% fossil fuel (and could be way less)


Neven - very good point,

Neven - very good point, although we should be concerned about energy consumption (which the higher density aparmtents consume more of per capita) as well as GHG

Matt Yes it is important,


Yes it is important, but also important not to misrepresent it (as the ARC did over the northern busway)

"Higher density aparmtents consume more of per capita". Are you basing this on that report, because; look at the percentage of high-rises that had aircon, pools, inefficient 24 hour carpark and hall lighting, ie they have potential to be far more efficient and as you said this ignores transport


Neven - fair point Hugh

Neven - fair point

Hugh - something which has been nagging away at me is why would we want to be building lots of new, large houses on the urban fringe when demographics tells us that smaller households (empty nesters, young couples without kids, young couples with only 1 kid, single older people) are becoming increasingly dominant???
Surely as many of the baby boomers start downsizing over the next 10-15 years ample supply of suburban homes will be freed up?
I look forward to your insightful answer

Nev - out of interest

Nev - out of interest what did the ARC say re: the busway?
they are infamous bull#$%%ers

Matt - Im distressed to

Matt - Im distressed to learn that some things are nagging you - and I will do my best to ease the pain!

Now - if they "allow" sections at $30,000 to $50,000 on the fringes of our urban metros - we will soon learn if people are interested in living there. I could be quite wrong - and as soon as it happens, they could flee the country to fill up the currently vacant 1.3 million concrete sl;ab units the East Germans have bolted from since reunification. Or even those "beautiful" 76 sq metre shoeboxs the British crerate for themselves!

All jokes aside - people will decide where and how they live. My only concern is to assist in hopefully providing them with the greatest choices possible.

Hugh Pavletich

"We forecast a 30% fall

"We forecast a 30% fall in the nominal median house price between November 2007 and November 2009"
BH 04/December/08

So, Janet, what facts have changed markedly since December last year?

Matt Miss Clarke stood up


Miss Clarke stood up at the opening of the northern busway and stated that this was going to reduce our GHG emissions unfortunately:

1/ One of the advantages of a bus is that it uses less roadway so why build a dedicated road for buses?

2/ A rushhour bus can never be more than 25% utilised (starts empty, ends full, basically returns empty) which makes all the optimistic calcs BS, FYI the average load of a Bus in auckland is about 6 (if you count the driver), in order to increase bus use we increase service frequency which is a little self defeating


You flip from US style suburbs to communist gulags, it does nothing for your credibility.
"people will decide where and how they live." quite possibly but whether that is a wises choice only time will tell.


Neven But surely a dedicated

But surely a dedicated busway which makes bus travel much quicker must increase the appeal of bus use, therefore increasing patronage and then as a result service frequency?
And sure if they are diesel buses then not so great in terms of GHG but hopefully there is a longer term vision of green buses?
Dr Pavletich - thanks for your medicine that has eased the pain, I can go to bed comfortable

Matt <strong>But surely a dedicated


But surely a dedicated busway which makes bus travel much quicker must increase the appeal of bus use, therefore increasing patronage and then as a result service frequency?

That is all correct but if a normal bus has a maximum theoretical occupancy if 25% (an express bus is 50%) then you are fighting a losing battle as evidenced by the Auckland bus average of 5.9 pax per bus Km traveled (it is actually less than this because the ARTA do not count bus repositioning, so all those 'out of service' buses moving around Auckland are conveniently ignored, when I queried them on this they said it was because it is "commercially sensitive")

And sure if they are diesel buses then not so great in terms of GHG but hopefully there is a longer term vision of green buses?

They think so, ARTA did say that all buses on the northern busway are Euro Cat 4 (a particulate standard) which is the sort of posturing you get out of them, they stick all the 'good' buses on one route and trumpet it. My point is there was a far bigger GHG upside in car-pooling (max theoretical 100% occupancy) but that is not the function of ARTA, basically start from the precept that public transport is a social service and mostly offers nothing in the way of energy efficiency in intra-city transport. But it is far more topical to say its good for the planet (even if it isn't). This is a problem from the Greens down, Remember that idiot Fitzsimmons stunt of trying to get a bus from Onehunga to the Airport, to supply the level of service she wanted would be grossly energy inefficient.

To put it another way t costs you $3.20 (subsidised) to travel 6k on a bus at this rate a flight from Auckland to Sydney would cost $1150 one way.

Intercity buses (or better still electric trains) do offer significant benefits.


What made affordable new homes

What made affordable new homes more affordable 30 odd yrs ago.
1/ no garage
2/no paths
3/no driveway
4/no fences
5/no lanscaping
And the list goes on
But one was obliged to put up fences and a few other things within a certain time
And as time progessed one built a garage, put in gardens, paths driveways.

I wonder if our modern new home was built to the same spec how affordable they would then be.

Steps We will never know


We will never know because the building act wouldn't allow one. I think it irrelevant to Hughs argument anyway because he is basically suggesting lowering the cost by flooding the market with cheap land, He also conveniently ignores the ongoing environmental burden of the resultant sprawl.


Steptoe, good points, to that

Steptoe, good points, to that list you can also add "smaller homes".
The size of the average home has increased massively over the last 30 years, despite the fact that households have got smaller.
If we started building 3 bedroom homes at 110m2 rather than at 180m2 then that would help affordability too

Matt and Neven - we

Matt and Neven - we dont enhance the environment by inflating and degrading the housing stock.

And surely - it must be becoming clearer to you (please read closely the Bernard Hickey US deleveraging post today) that we wont be seeing further housing bubbles anytime soon. Deputy Prime Minister Bill English made the same point clearly yesterday.

Some havent yet grasped the significance and consequences of these hugely destructure housing bubbles. May I suggest readers Google News Search "California economy" to understand the issues better. And its long overdue the daily print media kept the New Zealand public adequately informed of the ongoing shambles in California - the epicentre of the global financial crisis.

Hugh Pavletich

Experts have talked about this

Experts have talked about this before. How many times have you read about the importance of "˜adding value' for your audience? How many times have you read about "˜building trust' with your readers/prospects?
Many, many times. You know it well. Every marketing guru has spoken about this topic. I'm sick of hearing it. But it STILL bears repeating.

Greate post! thanks for sharing.

Greate post! thanks for sharing. my idea when there is hard times you have to get some extra cash i find out how you can make money taking surveys, this way i have earned to get me a new computer. especially through paid surveys for cash

Ways to Influence People Online

Ways to Influence People Online and Make Them Take Action
Influence can be defined as the power exerted over the minds and behavior of others. A power that can affect, persuade and cause changes to someone or something. In order to influence people, you first need to discover what is already influencing them. What makes them tick? What do they care about? We need some leverage to work with when we're trying to change how people think and behave.

Experts have talked about this

Experts have talked about this before. How many times have you read about the importance of "˜adding value' for your audience? How many times have you read about "˜building trust' with your readers/prospects?
Many, many times. You know it well. Every marketing guru has spoken about this topic. I'm sick of hearing it. But it STILL bears repeating.