Tighter bank lending criteria only really kicked in very late in November. The election is always a volume killer so we will have to wait now for February and March statistics before we really know what is happening. December has been much busier especially since Wednesday last week.

Do the majority of people seriously think that with mortgage interest rates in 2009 probably below 6% maybe closer to 5% that house prices really will drop 30% from peak and take 8 years to recover. Many buyers lately have given up waiting for this big drop!

I suspect that we will not see the NZ median drop more than 10% from peak and in fact would not be surprised to see it increase as interest rates drop, especially if the OCR goes to 3.5%.

The "30% price reduction" theory is probably the single biggest discussed housing based issue raised on interest.co.nz. The majority of "most commented" threads on this site relate to the housing/mortgage sector.

So interest.co.nz will have a credibility problem if the prediction fails dismally which it looks like it will.

Prices are falling..

Firstly the days to sale stats are rubbish. They don't take into account private sales (though still minor) but also relisted properties with different agents. I.e Barfoots, to Ray Whites etc as each 90 day period ends.

Secondly as Bernard has pointed out lower value houses aren't selling due to the drop off of buyers thereby skewing the market. I can think of a number of properties in the Auckland region (stock standard houses that is, not apartments) which are now selling or have been listed for the same values of 2 years ago, or have sold for 15% less.

Prices haven't fallen to the 30% predicted level only becaues there is still the stand off between buyer and seller. That won't last...

As Bernard clearly illustrates within his article - the latest median prices are being held up due to greater sales activity within the higher price bands and further to this ,lending criteria has only recently tightened considerably.

The New Zealand Government will be becoming increasingly alarmed with the persistent monthly falls in new residential construction - now down to an annual build (from the latest monthly numbers) of 14,000. They will not wish to see these "tank" to British and California levels. This is showing up with the decreasing manufacturing activity as advised by Business NZ today.

Further to this - the State of Victoria has released land sufficient for 250,000 homes this year - enough for a further 650,000 people. New starter homes on the fringes of Melbourne can currently be purchased for $A230,000 - $A260,000 and these prices will likely fall further going forward, with the substantially increased land supply. As expected - Victorias housing construction industry is holding up very well - as is its population growth rate.

The New Zealand Government has only two choices going forward - either open up land supply quickly to arrest the decline in the residential construction sector - or do nothing and watch migration increase dramatically to the State of Victoria and other Australian States,

There are no other choices.

Hugh Pavletich
Performance Urban Planning
www.performanceurbanplanning.org
Christchurch
New Zealand

Realist I agree there are certainly houses selling much below previous valuations and even 30% below in some desparate cases - I dont think many in my camp could disagree that this is happening and it will continue for the interim but these sales are outliers. What we disagree with is the prediction by Bernard that the 'majority' of houses will fall 30%. If this was to occur we would be seeing outliers of 50% price drops or more. Can you imagine houses valued at $1,000 000 now selling for $500 000 by Nov next year with interest rates at 5% - I cant!

does your 30% figure refer to a nominal price fall or in real terms (after accounting for inflation etc)

Bernard replies
The forecast is nominal rather than real. The real number may be more or less than 30% depending on whether we have inflation or deflation. cheers/bernard

Paul, unfortunately, yes, I can definitely see $1m+ homes struggling to get $500K in future.

Just like we saw similar outlier price inflation of that sort of magnitude over the 2003 - 2007 period. And frankly, it wasn't all that uncommon and we are reminded that the deflationary swing often overshoots as well.

Bruce,

To add to that...

"Getting an unconditional deal in a market like this was a great result, she said, refusing to disclose the final price."

So, we can safely assume that the last $2.65 million bid wasn't what was actually paid?

Needless to say that the often found secrecy by real estate agents around actual sales price when the market turns sour is a useless strategy. It all comes out eventually when you do serious homework before buying anything anyway. Just a desperate last try to keep buyers' impression/expectation of prices up. It ain't working and is actually quite funny to watch the reverse from the boom market where you wouldn't find any real estate agent who doesn't want to trumpet the latest highest value of a sale (and whatever increase that represented on prior values). :)

It would however be safe to predict that this thread will become another addition to the "most commented" list on the right side of the site!

> Needless to say that the often found secrecy by real estate agents around actual sales price when the market turns sour is a useless strategy.

All the more irritating because its publicly available information.

Those pointing at low interest rates justifying price, should consider:

- that the interest rate curve is upward sloping - implies higher/normal rates in the future
- that there is little correlation historically between interest rates and prices. If anything they kinda move in the opposite way (makes sense if you assume the interest rates are a response to economic conditions, and house prices are a reflection of economic conditions)

Thanks for the link AREINZ, already seen that pdf but that's just the summarised data. By *raw* I mean the actual sale price (+ QV and other details etc) for each and every house sold for that period.

Its going to be more than 19 pages ;-)

Realist - Interest .co.nz have predicted nominal house price medians will have decreased 30% by Nov '09 from their peak in Nov '07

That's okay guys so long as you understand the how radical the prediction is. The reason I mention the outliers is because I know a lot of people that agree with Bernard think yeah I can see a house price drop by 30% - I've already seen it happen at an auction down the road!. But to say the majority of houses will fall by 30% is a much more unbelievable notion and these types of outliers are what we should expect for this to happen.

So just to clarify Kate you believe that in 1 year (or more) if one has a job and $100 000 in the bank they will be able to buy on occasion an average home in Herne Bay (or a palace in Mt Eden) for $500 000 (based on what a million would buy now). So borrowing $400 000 at 5% I'm paying $20 000 interest plus a bit of principal which one could easily afford on an above average salary of $65 000 a year. That's a big call don't ya think? That's a very large percentage of Aucklanders with entry level options to Herne bay next year - in fact an IT grad with 2 years experience and a small donation or his loan deposit guaranteed from mum and dad will be house hunting in Herne Bay. Sorry I just don't it see happening guys!

Hi everyone,

We have just put up a guest blog post (a new feature on the website) from Peter Ryan of Ryan Realty concerning how QV works and saying that prices are dropping fast.

http://www.interest.co.nz/ratesblog/index.php/2008/12/11/opinion-a-real-...

Debate away.

Cheers

Alex

The proof of the pudding is in the eating.
Since March "08 I have put in 7 bids on houses/appartment through a variety of methods, most notably of late by auction, and ALL of them are still for sale! Now you may say,"But your bids must have been unrealistic!". Maybe. But you would have thought that with (is it) 58 day selling time someone else would have been more realistic?

As mentioned before, I keep a record of houses listed, houses sold in a Sth Auckland suburb...
Just as Bernard says, the # of higher valued houses over 400,000 sold are holding the numbers up, and houses that sold for the 300,000 to 380,000 mark 12 months ago, are now selling in very small numbers, and in the range of the mid to high 200,000.
The listed houses that are not selling in the 300,000 range, most have been listed since Feb 2008...
When markets (any markets) are going thru a dramatic change, those who have been around for a few decades, know means/aves/stats get so out of wack they are meaningless...
Yes, I had my doubts about Bernard's and my predictions (made on very different basis,) but going over the figures I have in front of me, I am still confident the rectification process over the 2 yrs from Jan 2008 is still right on the mark of a 25 to 30% drop minus the ave increase over the last 30 yrs...where the 2 graphs expo-lated out and eventually join up.

Paul - based on what a million would have bought at the peak - then yes, I can see outlier 50% reductions on properties that must sell. High end commerce is in bad times and the ripple through effect will hit Auckland quite severely, I suspect.

A single number can never capture the huge variation in house prices. So the montly medianss can only indicate the direction of themarket movement well but not the actual rate of fall or increase in house prices. We all like our occam's razor to shave our bald heads. :)

Sam is on the button ,except the monthly figures by real estate cos are the most up to date.The way to get a better picture of the way the market is going ,is to keep all suburbs seperate and work out the medium sales in any given area.It seems to me that all sales are collated across ,sayAUCKLAND AND THEN THE MAGIC MEDIAN IS GIVEN ,If that is the case the medium would be completely inaccurate.I despair when Quotable Value come out with their misquotes.

Can someone tell me what's REINZ interest by not providing accurate and honest data? Real Estate agents are suffering the most in present situation. Unless vendors drop expectations and prices they won't sale and get commision. On the other hand media need public, and if someone drops a bombshell about 30% price drop it will attract lot's of attention. More readers/viewers media gets more attractive is to sponsors, etc.

C'mon seriously, why are we even discussing these useless statistics, the fact that the media slavishly reports these numbers is a disgrace.
Even if you go through their own numbers you can see the uselessness of using their median sales figure. They report October - November '08 Auckland (43% of sales) down $8k, Waikato/BOP (12%) down $13k, Wellington (12%) unchanged, Canterbury (13%) up $8.5k. Do the maths, how can that result in a $2,500 increase in nationwide prices without either a Manawatu miracle or the fact that these numbers are just one big statistical distortion.
The only useful figures would be based on repeat sales of unimproved properties... considering the policy implication of real estate prices in NZ maybe a job for Statistics New Zealand?

It is absurd that the REINZ does not supply (along with the median) the range of prices each month and the decile values (increments of 1/10 in prices from the lowest value up to the highest). When the median is evaluated these values drop out very simply and the degree of skew would then be plain. Are they trying to keep these values hidden or do they just not realise how simple they are to evaluate?

Similarly why doesn't QV provide the standard deviation of the values used in their index??? This number will fall out from a computer program when the average is evaluated.....

"Bevan Says:
December 11th, 2008 at 8:19 pm
As a buyer, my wife and I have been using the excuse that finance might be very difficult. We use it as an excuse, but in reality we're waiting for house prices to come down. "

Bevan. how are you going to know when they have come down enough ? when they start rising again, or when they have risen for 3 months, or a year ?

Are you looking for a home or investrment, there is a difference.
For an investment property, if the numbers work then the only reason to wait is greed.
If it is a home, then what is it worth to you to live in that house at that location. The Perceived value is much more important than any arbitrary number that QV may come up with.
If you have decided you want to spend $500K but you want to wait for that million dollar place to drop to $500k, you could be waiting a long time & still not get a place.
In my book that is also greed.

Why do you want to own a place, what does it give you that you can't get now ? What is that worth to you & can you find a place that meets those needs for what you want to pay ?
What QV say its worth is irrelevant if it meets your needs at your price.
You are the buyer so you set they "Value"to you.
The seller has their own "Value"
If you can't find anything that fits the price, then change your price or change your needs.

All this nonsense over how accurate QV valuations are is irrelevant

Ha, you lost me at "The Real Estate Institute of NZ has reported".....
Averaging doesnt work, there are too many variables in each suburb alone.
if you are buying you need to become an expert in the area of interest. That means go and look at every house you have sales info on and compare them. Just like a real valuer does and not this median sales and QV/CV rubbish.
It is always worthwhile spending $600+ to get a Registered Valuers report just to get the recent comparable sale info to get you started.
It amazes me people baulk at spending money on a RV when thinking of committing hundreds of thousands of dollars. False economy otherwise.

So Capt Crab, whats happening to Bernards favourite area of Epsom, has it wiped out 20% worth of equity yet, or is it more of a Ponsonby ?

Bernard, what would it do to stats if there was a breakdown of the medium sale prices, say, 0 to 450.00 and 450.00 and above?

Bernard replies
Neil. Hard to say without seeing them and we'll never see them from the REINZ. cheers/bernard

Guys, check out this article..........
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=1054...

A house valued at 5Mil has sold for half that.. WHAT DOES THAT SAY?????????

Captain Crab/Keith

Epsom/Mt Eden is down 17% from its September 2007 peak to NZ$612,000.
cheers
Bernard

Hey Bernard, there is a lot of talk of stats (fair enuf) & anecdotes (sometimes fair enuf too) on this chit chat. However, how about the Big Picture, looking ahead? What are we facing? A demographic time bomb as Baby Boomers start retiring and downsizing all their McMansions & liquidating their large property holdings. Collateral increases in pension & healthcare costs sucking wealth out of the economy. A new generation starting their working life in hock to the eyeballs with student debt. A probable escalation in the cost of living when the reality of supply constraints of oil (and other resources) start to bite. Surely with all of these headwinds, not only is the housing market going to tank, but stay in the cellar for decades?

I sold out of property about two years ago, at the peak, and am renting. Great, I get cheap rent courtesy of the tax subsidies to landlords and consequent competition in the market! I don't know if I'll ever bother to buy again.

from "The Housing Bubble and the Boomer Generation" by Robert Bruegmann

""¦"¦starting about 1970, there was an explosion in regulations on the use of land including tighter zoning and building codes, regulations governing environmental matters, historic preservation and land conservation, growth and building caps and growth management schemes. It became harder to build at the urban edge because of the environmental rules and efforts to limit "sprawl." It also became harder to build at the center because of substantial down-zoning and other regulations to "preserve neighborhood character," particularly in affluent neighborhoods. This aspect of the 1960s progressive agenda has led to grumbling about NIMBYism but has otherwise generated surprisingly little negative commentary.

Nevertheless, this movement has created one of the most paradoxical legacies of the 1960s as programs justified in the language and logic of "rights," have turned into bulwarks for the status quo and a mechanism to transfer wealth from younger families of modest income to more affluent older families"¦..

""¦"¦. Starting in the 1970s, though, particularly in some of the most desirable markets in the country, the same people who most benefited from the developments of the early postwar years turned against those development practices. They advocated regulations for many things that most people, then as now, would agree were desirable "“ conserving scenic areas and wetlands, protecting coastlines and animal habitats and preserving open space, historic buildings and neighborhood character.

Yet the net effect of all of these regulations was to limit severely the supply of land for urban uses. Even more important, existing homeowners, what I have elsewhere called the "Incumbents' Club," created a political system that allowed them to dictate how much growth and what kind of growth would be permitted in their cities.

This shift of decision-making about development from private developers and individual property owners to public planning bodies, almost always controlled by homeowners, was hailed by many observers as a triumph of democratic process. The community rather than the developers, so this line of thinking went, would henceforth dictate the growth of the community. The problem with this equation was that it failed to consider who was speaking for the community and whose voices were not heard or to calculate the costs and benefits of these policies.

For existing homeowners in affluent communities like Boulder Colorado, or Nantucket Island or San Francisco, this regulatory rush turned existing land ownership into pure gold. By limiting the supply of land for development and driving up the costs of development where the land was available, it pushed up the perceived value of all houses, including their own"¦..

""¦"¦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"¦"¦

""¦"¦This leads us to the great challenge we face now keeping families in their homes. The sad truth is that in areas where housing prices have vastly outstripped incomes there may no easy way to do this. In many markets either housing prices will need to fall quite a bit further or income will have to rise substantially, and there is little likelihood "“ particularly with this weak economy "“ of the latter happening any time in the near future.

One good thing that might come out of the current crisis, though, is a recognition that regulations, however well-intentioned, can come at a price, sometimes a high one, for some parts of society. I doubt very much that the boomer generation ever intended to create the current housing bubble or enrich itself at the expense of less affluent families and generations to come"¦"¦.."

http://www.newgeography.com/content/00452-the-housing-bubble-and-boomer-...

QV must stop giving a single number value estimates. Instead QV should give a likely range for their valuation for land & building separately such as Land: $120,000 plus or minus 15% + House 150,000 plus or minus 25%. All valuations involve an error. Valuation when done by various valuers will lead to different estimates, and hence the likely error in valuation, roughly the margin of error, must be given. Public are familiar with the concept of margin of error.

looks like there is a neo-liberal tag team here with Hugh and Captain crab employing the standard neo-liberal trick of blaming regulation for high house prices.
whilst it is a factor, the housing maket is much more complex, and influenced by a much wider range of factors, than merely planning regulation.
And the houston example always bores me. I've got a brother who lives there, sure he tells me housing is cheap to buy at face value but thats a bit of an illusion because he has to pay the equivalent of much, much higher rates than here!!!! So factoring in those very high rates he reckoned the costs of a house over a lifetime in houston was equivalent to here
yawn, neo-liberal idealogues are just as blinded as the socialists on the other side of the ledger

The regulation argument just doesnt hold water, the biggest major city bubble-bursts in the US have been Phoenix and Las Vegas, definitely no lovers of big government out there. The sprawl across their respective deserts is a sight to behold and if anything I would argue that their lack of constraints permitted massive construction projects to sate the demand created by the debt orgy (the real cause of the unaffordability). The subsequent market overhang there is massive.

Hugh,
"ignore the juvenile ideological stuff "? Does this insult, coming from a Property developer who wants to free up land planning controls, mean that Matt & I may be hitting a little too close to home? I have read your demographia reports in the past. I've read Keen's view on this. I've read your writings. I know which set of writings make more sense to me.

I'll put some links up so people who read this blog can go to and see for themselves on whether Keen's writings ring true for them, or whether your particular dogma & ideology rings true for them.

If you focus on his view on how we got to where we are today, I believe you end up with a better long-term view on how this whole mess evolved.

One of Steve Keen's sites is at http://www.debtdeflation.com/blogs/ - much like the interest.co.nz site runs a blog so does Keen.

Inquiring minds may wish to check out the following links:
http://www.debtdeflation.com/blogs/2008/11/02/debtwatch-no-28-november-2... - subtitled "Why Did I See it Coming and "They" Didn't?" Part 1

http://www.debtdeflation.com/blogs/2008/11/30/debtwatch-no-29-december-2...
- subtitled "Why Did I See it Coming and "They" Didn't?" Part 2

http://www.debtdeflation.com/blogs/2008/11/26/parliamentary-library-vita... - Australian Parliamentary library debate between Steve Keen and Rory Robertson of the MacQuarie group. You can find the powerpoint slides from Keens side. I found the MP3 from the link to the Australian Library Vital issues page

http://cpd.org.au/sites/cpd/files/u51504/KeenCPD_DeeperInDebt_NoApp.pdf => written last year. Gives a view on the bubble and the mechanisms by which it formed

Regards,
Gibber

Matt,
So I'm a neo liberal and my comments are politically biased?
Gee, for awhile I thought my observations were based on 30 years experience in property and finance! That and my partners comments based on the three Remax agencies he owns in Scottsdale near Phoenix.
Thanks for clearing that up for me.
sigh.
How about doing what most of us do, and that is look at information and instead of applying it literally, as you seem prone to, to just taking what you think is relevant and see how it fits into the current situation. Less ad hominem and perhaps more debating what was said.hmm

Bernard replies:
"It depends on how much you need/want to live in your own home. If it's worth more to you in terms of peace of mind, stability and life style to live in your own home, then go for it. If it's for investment reasons then wait until the price of the home you want is 30% below what it would have sold for last year. Find a desperate seller and if you have the cash offer than 30% off. You should get it and then you've got what you wanted without risking losing money in the next couple of years if you need to sell it. cheers/bernard "

Be it investment or lifestyle, it is the same...we did this in the last turn down 15/16 yrs ago...a large section 3 bed home, on the market for 107,000...1st offer was 72,000 finally settled on 82,000 with 6 months rent to own...we at the stage hadn't saved the full deposit....We did this many times over for nearly 18 months before finding this one.
Just take your time, and be prepared to walk away...eventually something turns up.
A good honest real estate agent, helps to do the leg work, every few weeks or months she would ring up and say "want to look at this one? drive past and let me know"

And this is what my son is doing...and many buyers now...it just the sellers dont want to , or cant afford (yet) to sell that low

Hugh, I read many of your writings and learned a lot. We should actually salute you for the pragmatism.

Hugh Pavletich,
I was unaware that you were out of property development for four years. If you search on google on "Hugh Pavletich" you find lots of references to "Property Developer". An honest mistake

I apologize for making what you percieved as an ad hominem attack. My only defense is that the comment was made in response to what I percieved as an ad hominem abusive attack by yourself.

I believe that the type of ad hominem attack I made, if any, was ad hominem circumstantial.

From wikipaedia
"Ad hominem circumstantial involves pointing out that someone is in circumstances such that he is disposed to take a particular position. Essentially, ad hominem circumstantial constitutes an attack on the bias of a person. The reason that this is fallacious in syllogistic logic is that pointing out that one's opponent is disposed to make a certain argument does not make the argument, from a logical point of view, any less credible; this overlaps with the genetic fallacy (an argument that a claim is incorrect due to its source).

On the other hand, where the person taking a position seeks to convince us by a claim of authority, or personal observation, observation of their circumstances may reduce the evidentiary weight of the claims, sometimes to zero"

When you made the comment "Lets ignore the juvinile ideological stuff" I perceived that as ad ad hominem abusive attack.

Again from Wikipaedia
"Ad hominem abusive (also called argumentum ad personam) usually and most notoriously involves insulting or belittling one's opponent, but can also involve pointing out factual but ostensibly damning character flaws or actions which are irrelevant to the opponent's argument. This tactic is logically fallacious because insults and even true negative facts about the opponent's personal character have nothing to do with the logical merits of the opponent's arguments or assertions. This tactic is frequently employed as a propaganda tool among politicians who are attempting to influence the voter base in their favor through an appeal to emotion rather than by logical means, especially when their own position is logically weaker than their opponent's."

I stand by the rest of my comments. That is, I encourage people who read this blog to go and read Keen's writings on how we got into this mess.

And they should go and read your writings. Let them decide for themselves.

Hugh, I think you'll find the Government is about to embark on a State Housing build and improvement program. They'll want to keep the people (and skillls) here and not lose them to aussie. It needs doing anyway.

Two days after ONE News broke the story about the numbers of people living in a garage, Housing Minister Phil Heatley said he would be increasing state housing particular in south Auckland.

"Ive seen how serious the situation is, the waiting list the people in south Auckland ... now I know how difficult the circumstances are we'd expect an increase in state housing stock that is what we are aiming for but also to do up state housing stock" he said.

Just last week Mr Heatley said there would be a cap on state housing and the money would be instead used to upgrade Housing NZ homes.

But on Thursday he announced the government intend to do both - there's no cap and a promise of more state houses. Backtrack or not, kudos to National for listening. Providing more houses is not going to be

Matt, Japan does not allow migration from other countries much. It has little resources of its own. On the other hand, US, NZ and Australia can take millions. If these countries open up to Chinese and others, housing & other economic downturn will change to upturn. But there are social issues to tackle though.

Matt - thank you for your comments. Bear in mind though that our land use environment is similar to those in the other countries surveyed annually by Demographia. And secondly - that middle North American cities generally remained affordable through the recent period of easy money. Note too - that the fast growing (in excess of 2% annually) cities of Dallas Fort Worth, Houston and Atlanta did not inflate.

Its very much a case of "following the numbers" - and when you do that you will find "artificial scarcity values" with the fringe urban land and inappropriate infrastructure financing arrangements. So the numbers very much speak for themselves.

you and other readers may like to read the recent Scoop Open Letter to Hon Bill English - where I outlined these matters, with hopefully sufficient clarity. I also suggest within this letter the broad approach I think needs to be followed in addressing these issues. It is accessible via the Performance Urban Planning website.

i do hope readers will consider these issues over the Christmas break - and communicate their views to the appropriate Ministers early next year.

Hugh Pavletich
Performance Urban Planning
www.performanceurbanplanning.org
Christchurch
New Zealand

Following your suggestion Roger Witherspoon - i checked out Professor Michael Hudsons website and read some of his material. Isnt it interesting that he appears to be based in Kansas City, which is one of the affordable markets identified by Demographia.

The key difference I suppose between Hudson and myself - is that he looks at these issues from a financie / economics perspective while I come at them from a property / development perspective. Its interesting to me how the finance / economics school seems fixated by the debt aspect of these bubbles - but from a property perspective, i would see the inflating bubble equity being a largere and more damaging component. To illustrate (refer NZ Reserve Bank numbers) - it took around $NZ70 billion of additional mortgage debt to inflate out housing market by a further $NZ350 billion. Both thedebt and bubble equity added enormous liquidy to the economy - and we all thought we were getting rich flicking houses to each other at ever inflating prices (fools gold).

The party is well and truly over now of course - and what a hell of a hangover.

One important point I think Hudson misses is that "affordable housing" was invented with Bill Levitt late in the 1940's. Go to my website Performance Urban Planning and there is a link down the left column to a superb 1950 Time article on this great man - "The father of affordable housing" as I like to call him. As I walk through these issues in attempting to come up with suggested solutions to the issues we currentll face - I coner the Levitt story within "Getting performance urban planning in place".

What Levitt managed to "crack" was the massive problem to that stage of providing housing below 3 times household income. So today we know how to get affordable housing in and can ramp up production to meet demand,

The two key things to focus on are "artificial raw fringe land scarcity values" - and secondly "inappropriate infrastructure financing". Everything pretty much flows fromn thee two key issues in sorting out these problems.

Hugh Pavletich

This from Westpac is the best and most balanced analysis of the state of the housing market in NZ that I've seen all year, well worth a read:

http://www.westpac.co.nz/olcontent/olcontent.nsf/content/FM_Bulletin_20081218B/$FILE/The_house_view.pdf

Hugh - any thoughts on the economist's contention that restrictive zoning had little influence on the boom???

Hugh. Interested in your contention that we should rush out and free up loads of fringe land to build houses. Just touring the Wellington Region and there are currently masses of residential zoned empty sections (Aotea, Whitby, Camborne, Parapraumu, Rieverstone) to name but a few. Here we have hundreds of undeveloped sections that are not being built on. Why would anyone in their right mind want to create more? Why not focus govt policy on brownfield development and encouraging current vacant section owners to build? There are plenty of commercial and industrial land areas that would be more effectively utilised if rezoned to residential use. All of these are already near to sources of public transport, schools, hospitals etc. Your comment about developers having to pay "grossly excessive artificial prices" just makes a mockery of your argument - I was looking at sections yeaterday which developers had bought for $ 1m for 5 hectares, and the developers are trying to flick on for $ 250K for a 700m2. Who is charging the "grossly excessive artificial prices"?

Strummer, easy credit to developers is one of the reasons for this problem. Socially and ethically irresponsible banks are to blame. Lowering interest rates will save some strongly capitalised developers and they will be back in 5 years time with further mega-projects. The Government has an obligation to provide social housing. Greedy right wingers may say "Governments are not supposed to run businesses". Housing is a basic human need, and it is not just a business. If private developers failed to provide affordable housing to the population, then the State must enter to provide equity. At least 20% of the NZ population is starved of housing and the political parties are failing us.

Strummer - many thanks for your comments on the Wellington land situation. May I suggest you ask yourself why these "developers" think they can get away with asking an astronomical $250,000 for a (I assume) serciced lot. To engage in that monopoly pricing, they must indeed be confident that the authorities will "protect" them by withholding adequate supply.

Do you see any "monopoly pricing" going on in the car market or most other things we buy? It is my view that because planners have for too long had a distain for economics - they have sadly turned themselves in to effectively "The Speculators Protection Society". Why dont you ask arouind the protectionists within the property industry in New Zealand - what they think of me?

Strummer - I would be grateful if you could read my papers / articles closely - just to see how out of whack our monoply priced land and construction costs are currently in New Zealand. I do wish planners would wake up and recognise the importance of acting in the wider public interest.

Sam P - the "easy credit" arguement can be put to rest easily. Why did LA bubble out to in excess of 11 times annual household earnings - California in excess of 9 - while Texas and most of middle North America stay at around 2.5 times household earnings? And why the pricing of most other goods and services did not inflate in real terms.

The Law of Supply and Demand is still relevent guys.

Hugh Pavletich

Hugh yes they did say that - refer to the link above.
You didn't answer the question though, which I think is a valid one.
Why didn't rents soar if we had housing undersupply caused by planning restrictions?
Look forward to your answer.

Firstly Matt - my apologies for missing your question. What essentially happened as inflation took hold was that existing owners used their inflated equity to leverage their way in to the housing market, creating more rentals. So with the increased rental stock - rentals didnt inflate greatly. In Australia for example - there is greater pressure on rentals with an annual population lift of about 1,7% compared with just 0.7% here.

But as "accommodation costs" rise - people understandably work around that - and occupancies per household tend to increase. Outwards migration, living in second / holiday homes anf mobiles and choildren staying at home longer etc. Due to these factors - there is far greater elasticity than most economists / property commentators realize.

I trust this response is adequate.

Strummer - with the greatest respect, your approach is muddled and its would appear that your havent read the "mountain of material" I have generated over these past four years or so. I have done all I can to explain these issues in "laymans terms" - but it would appear, I have got some considerable way to go in explaining these issues more clearly.

Our comprehensive housing costs are "through the roof" and the quality of our stock is sub standard.

Please be aware that this economy is going in to a massive hole - and on the residential construction front, it will continue to tank, until we figure out how to get affordable housing built. This needs to be treated with urgency - unless of course we wish to sit idly by and watch residential construction collapse to Californian and British levels (i.e less than 4,000 units per year or a build rate per thousand of 0.7 if we get down to British levels).

Supplying adequate land and appropriately financing infrastructure - is not "rocket science". The only "ingredient" required is the political will at Central and Local Government levels to start getting on with the job.

Hugh Pavletich
Performance Urban Planning
www.performanceurbanplanning.org
Christchurch
New Zealand

Hugh, as one proficient in the housing sector, where do you see house prices going from here?

Strummer - it would appear that you are becoming increasingly irritated! Again - I would ask you to read caerefully the March paper "Getting performance urban planning in place" - where I walk through this whole issue and come to the conclusion that we need to (a) get a small suite of simple performance measures inculcated in to the local government culture (b) free up fringe land supply and (c) get appropriate infrastructure financing in place.

Then - as I see it - it should be up to the Local Authorities themselves to work towards restoring and maintaining housing to an affordable level at or below three times annual household income over a reasonable and realistic time frame. Then it should be up to the Local Authorities to take the steps neccessary in achieving this - and if they are experiencing difficulties, there needs to be a Central Government agency (I suggest a Local Government Performance Authority) to assist them in achieving phased housing affordability targets. In extreme cases, where particular Local Authorities are for whatever reason incapable of meeting these phased targets, it would then be necessary for this central agency to step in, to get them back on track.

The major problem is what is termed the "artificial scarcity values" on the fringes of the urban areas (I explain this within the above paper) where the fringe raw urban land values grossly exceed the true rural values. It is not uncommon to have true rural values of between $10,000 - $50,000 a hectare that explode out to $1 million, $2 million or more per hectare as soon as the land is zoned "urban". Local Authorities will need to ensure that these "artificial scarcity values" are drastically reduced over a reasonable time by regularly monitoring supply of raw fringe urban land.

I note within the paper that all infrastructure / development levels should be added in to the fringe urban land values. After all - subdividers deduct these when they are purchasing fringe urban land - which is the "residual value" of course. All they essentially do is assess what they are likely to sell the completed lots / sections for - deduct the total development costs to arrive at what they are prepared to pay for the raw fringe urban land.

Dr Arthur Grimes of Motu Research has completed studies on this issue for the Center for Housing Research Aotearoa NZ (CHRANZ). You may like to check out the CHRANZ website to read the reports of Dr Grimes and others with respect to these matters.

With respect to infrastructure financing - we need to study the Municipal Utility Districts (MUDs) structures employed in the United States - where essentially this is appropriately long term debt financed by the entity that owns the infrastructure. Strummer - may I suggest you and other readers / researchers study this issue - and let us know how this financing structure can be best adapted to suit New Zealand conditions.

It is extremely important to keep the focus on these "three themes" - and you will find that if these issues are dealt with effectively - the performance of our residential construction industry will start improving dramatically as competition intensifies within the construction sector. As "development ratios" - where the lot / section component moves down from the current unsustainable 50% mark to between 17 - 24% on the urban fringes, consrtruction costs in real terms will improve dramatically as well.

In turn - this will ripple through to the "brownfields" land you speak of where it will make it more economic to get better quality developments up in this area as well. You might like to check out on the US Census and US National Association of Home Builders websites - the comparative construction performances of the States of California and Texas. There is way more brownfields residential development occurs in the State of Texas than there is in California - where the latters residential construction sector (like the United Kingdoms) has virtually collapsed. So by openning up the fringes - it helps all forms of residential development.

There is no "one right way" - and I would expect in coming months, we will see greater clarity from Central Government in addressing these issues.

I trust this is a little clearer for you.

Hugh Pavletich

There is the view, that while land planning may have had an influence on the housing bubble, the main driver was the readily available credit and "bubble thinking" amongst the bankers and borrowers.

If land planning controls were the cause for the boom then what is the explanation for why the bubble has deflated so far in California. They haven't changed their land planning controls there have they?

If NZ follows the US housing bubble trajectory and house prices drop 30% or more from late 2007 peak, then what does that do to the Land Planning controls theory?

Especially if there has been no change to land planning controls in the meantime. But there has been a dramatic tightening in credit availability.

My own view is that Hugh is mistaking correlation for causation. Were there strict land planning controls in place in Florida in the great Florida real estate boom of the 1920's? Or was it the free and easy credit of the time?

Inquiring minds might wish to review the drhousingbubble article on the Florida real estate boom of the 1920's and then ponder on whether the planning controls of the time were strict or not. The following drhousingbubble article doesn't tell me that explicitly one way or another. But it does cause me to question Hugh's explanation of the housing bubble. I suspect in Florida in the 1920's land planning controls were more like Texas today.

http://www.financialsense.com/fsu/editorials/drhousing/2007/1109.html