I can only assume that Olly's writing is a publication of an older article. I have often admired him for his forerunning discussions. The above article puts forwards arguements that are as fresh as yesterday's fish and chip wrapping.

NA, I read this only last week, & is his column for March (older colums can be found at http://www.empowereducation.com/newland.bz).

Olly, thanks for posting on interest.co. I note you cut the article short??

Lets say the free gifts; tax advantages; justifyable accounting treatment- call it what you will- are removed in part or whole in May; and assume that I am the only person in NZ with an un-tenanted property. I now need some sort of income from my rental as I have had an element that I previously relied upon to support my investment, removed. What am I going to do? Get a tenant. How do I do that? Make sure I undercut a current or prospective landlord, whether rents are going up or down. What will that, now, tennantless landlord do? The same as I did, because I still have the fixed costs with less off-set.

Olly Newland says - "who pay the wages for painters, carpet, appliances, plumbing, architects, builders, concrete workers and suppliers of all kinds."

It seems that you don't know property investors very well. I have been in my current rental property for 2 years and the landlord has refused to do any repairs, forget about any upgrading. I have had the same experience in other rental properties. It is a myth that property investors spend a lot of money repairing their properties, their wallets are locked tight.

Olly,

Clearly you are an astute property investor, but you seem to be missing an opportunity.

Given that your tenants must be willing to pay more for their leases, why not just raise rents right now?

You could steal a march on everyone else and make a windfall gain.

Alan.

What a long article to make a simple argument. Rents are determined by Landlord's on a cost plus basis.... I didn't know that, and I have a very hard time believing it.

Olly Newland says - "Frustrated Aussie investors (and Asian too) could see NZ as a soft target with cheap real estate." & "We have a current shortage of houses"

That's the reason why housing in NZ is so unaffordable, because houses in NZ are being bought by overseas investors. When are regulations going to be introduced to ensure housing in NZ is for NZ'ers only.

It's your job to subsidise renters, Ben! Didn't you know that? The fact you haven't been asked is incidental.

There is one one blindingly obvious alternative outcome that Olly fails to see. That is landlords can't raise rents for all the same reasons they havne't been able to in the past despite falling rental yields so instead they SELL. House prices drop, first time buyers and new landlords (who will now revieve a better yield) enter the market and they spend more on appliances and tradesman than the original landlord. Improved housing affordability means home buyers now have more disposable income, less money will leave our shores servicing foreign debt and the economy is now on a much more sustainable growth path.

It's facinating watching the comments being posted after an article on this topic is published! It's like fire-ants attacking a cricket that's stumbled into their nest.

Well it was an Olly in the eye wasn't it!....full of BS.....truth is the landlords game has had so much support from stupid Labour policies and slow to get of the bum National idiocy....when tax breaks make landlords rich they will claim there is a need for the breaks to continue because otherwise there would be shortage of rentals...BS....what they don't point out is that the 'breaks' and govt stupidity leads to fatter returns for landlords who embark on a buying spree and contribute to the bubble and ponzi scheme killing the country.
Cut the bloody tax breaks off and let the market sort the mess out. Those in it for the tax handouts from idiot govt will be forced to bugger off. Those in it as genuine providers of rentals who make genuine profits will be better off and some of the insane buying pressure will come to a bloody end.

Re Olly's calculations.
Could this be clarified please.
If he receives an $8000.00 tax credit for depreciation he then deducts his loss of $2000.00 leaving a credit of $6000.00. Taxed at 30% equals $1800.00 leaves a Tax credit of $4200.00.?

If the property is sold then all the acumilated depreciation has to be paid back to the Govt.??

Ollies argument is full of holes one could drive a bulldozer through. Indeed he is showing a similar intelligence quotient to those he is most disparaging.
For example, I am not even a little convinced that investors would pay more in property maintenance than self owners, especially those selfers past the initial years of ownership when their mortgage payments etc., may be at their highest levels. However, it seems quite possible that should there be a marked increase in first home buyers there may be a few initial years when maintenance outgoings decline somewhat.
Furthermore, I would expect that the avaricious nature of those who wish gain to wealth from their less fortunate fellow citizens means they are probably already getting as much as they can glean from the rental market.
Also there has been little mention of the immense social costs of rental avariciousness. Before spending many years in Australia, I sold my immaculate Pakuranga home to a god bothering investor. That house has been rented ever since and is now a disgraceful poorly miantained blot in what was a solid if not upmarket neighbourhood. How many such rental properties are lowering the aesthetics of once good neighbourhoods and the value of surrounding homes? How much is this rental rape contributing to the horrific squalor I now see in too many parts of Auckland.

WOW !! Such a good article.....it's called "I will kill my goose if you take some more of my golden eggs !!" theory.

Chicken or egg ??

IF rental return falls because of depreciation losses, will the value of the house go up or down ?

Is rental a function of income or a function of landlord's demand ??

Answer: If rental remains the same, a rental property should fall in value if depreciation allowances is void. The return to capital has fallen, therefore the capital value should fall to reflect the new rate of return.

Answer: Rental payment is a function of income...you can only pay what you can afford...until you starve to death for your landlord.

Answer: You never kill the goose that lay the golden eggs...even if the eggs goes down in value.....

I keep seeing the same logic applied: someone borrows money for an investment. The investment doesn't give the desired returns. The 'obvious' problem is the customer isn't paying enough. Therefore the customer must be made to pay more. Not many seem to consider the possibility that maybe, just maybe, that it was a poor investment to start with.

We're in a depression for goodness sake; it's more difficult to make money in a depression than when times are good.

Plus we're in a real estate bubble. Maybe Mr and Mrs Smith made a bad investment by spending so much on the house in the first place; buying during a bubble seems like a bad idea generally speaking. If they had bought during non-bubble times the house would have cost them about $200K by my estimates. Now the return is much better.

I'd have much more sympathy for this whole argument if I hadn't observed rising interest rates during the same period that rental yields fell.

During the boom (during which time rents increased remarkably predictably at approximately wage inflation - there's a lesson there), there was litte evidence of landlords trying (or perhaps that should be succeeding) in getting interest rate increase related rent increases.

What makes the tax saving on non-cash depreciation so different to changes in interest payable? In Olly's example, losing the ability to claim depreciation for tax is the equivalent of a change to an ~8.4% interest rate (which is likely to happen in the next 1-2 years).

A further point to support what Chris B says - the best reference I've heard is that First Home Buyers are the plankton of the housing market. Its true, when you think about it.

Further, I'd argue that house prices have become relatively disconnected to the underlying ability of the asset to generate income. Why should that income generating ability suddenly matter? (I think it matters)

See #1 here,

http://www.interest.co.nz/ratesblog/index.php/2010/02/15/top-10-at-10-la...

Confusion, blurring issues, always a good tactic.

Olly et al

Here's our interactive chart showing median rents for NZ and various areas for both homes and apartments for the last couple of years.

http://www.interest.co.nz/charts/gallery12-170.asp

It shows rents have been broadly stable since early 2007, despite much higher interest rates, rates and increased migration. Landlords have been unable to push through those higher costs. Rents are determined by wages and employment, rather than landlords' wishes.

Commenters above are correct. The adjustment that will happen is in house prices. The era of easy capital gains is over. That changes the equations. Some people haven't worked that out yet...

Kin
I loved this characterisation of Olly's views.
“I will kill my goose if you take some more of my golden eggs !!”

cheers
Bernard

mmmmmmmmmmm....................
Ollly...mmmmmmm....
this guy has put himself up as a property guru over the years, and hasn't always been that accurate in his predictions
Of course he can argue that rents need to increase to compensate for potential tax changes. It could also be argued that property prices need to drop.
Shortsighted and one eyed

Olly has been around since i was a teenager in Wgtn and Bob Jones was just starting to emerge.
To my knowledge he's been bankrupt from the 87' crash and housing investing.
All he's trying to do is beat up stuff to sell seminars and books..i get spam email quite often from some guy called Peter Aryani and Olly spruiking seminars and investment seminars.
Of course he's brassed off that his well is drying up by the Govt's repostioning of our country as a vibrant economy..
Olly's another one of those dinosaurs that don't know that they're extinct ?

@MartinV: "I keep seeing the same logic applied: someone borrows money for an investment. The investment doesn’t give the desired returns. The ‘obvious’ problem is the customer isn’t paying enough. Therefore the customer must be made to pay more. Not many seem to consider the possibility that maybe, just maybe, that it was a poor investment to start with."

Totally agree....this is because we seem locked into an asset appreciation strategy, which is faulty IMHO...its gambling not a sound business case...To me a sound business model has a recurring INCOME....from the production of a GOOD...

101 business IMHO...

The comment is landlords will leave the market and rents will rise because there is less property, well if there is 6%? empty property (BH's charts?) there wont be rent rises until that is absorbed...or 1/2 of the 6% anyway...

I dont think landlords will leave, the speculators will leave...once they have left, real professional landlords and first time buyers will be left to pay a fair price, lower than it is now, (about 3~3.5:1 earnings) this means the margin on the rent will increase as the mortgage is less hence less cost to support it....so professional landlords will do OK I suspect...

At that point personally I might enter the market and buy a rental...basically because I can maintain it myself....and its giving a positive income. All else being equal, however given peak oil I suspect that I'd lose money on the house value...so that would need to be considered and probably best avoided.

regards

The present government does seem to be aware of the precarious situation and that is why it has rejected out-of-hand some of the recommendations that BH and others have been advocating, and thank goodness for that!
But, depreciation is currently liable for tax in the year of sale, so any adjustment simpy means landlords can not defer their tax, that's all.
However, Olly N is probably right that there are usually unintended/unexpected consequences that will probably occur, and we will just need to wait and see to what extent that results in an economic down-turn, which of course will affect businesses and their employees, not just landlords.

The younger generations need a political party that represents them. 5% of the vote. Quick before they get rid of MMP!

I agree we are in a precarious situation, Muzza. But if we finally admit that the cut on our leg has gone gangrenous, do we get our leg cut off now, or wait till the poison has spread to the rest of our body? That's what we pay the doctor for ; to tell us and operate. Sticking plaster and a fizzy drink aren't going to help.

With regards to "affordable housing":
(1) What exactly is it?
(2) Would you want to live in it?
(3) Show me a country where housing is both 'affordable" and good.

This article is as busy as the housing market

Just re-reading - this is alarmist and sensationalist stuff from Olly
Extremely myopic, unbalanced and unhelpful

Your completely right Matt.
Any articles that purport to present a convincing business case should not use emotive language and name calling to persuade. As such his views are not worth the paper they are written on.
Serious business writing uses facts, figures, and logic to convince.

Investment properties are bought with the anticipation of tax free capital gain. Its an anomoly/distortion, revenue without taxation.

If I were a PI I would be taking my lumps on things like depreciation and not rock the boat, hoping like hell they dont front up to dealing with the tax free status of capital gains on property. Anyone else think its better not to wake the lion???

"Don’t say I didn’t warn you!"
Hmm, Olly's said a lot of things that never came true (property price fall anyone?), ill reserve judgment on this one.

"If the deprecation rebate was abolished three things would immediately occur:"
Bit of a straw man made here, there are other alteranatives (not involving Mr and Mrs Smith's current situation to be fair). Their purchase price on future rental purchases would fall, helping reduce the repayment requirements which would increase the yield and counter the lack of depreciation. I wouldn't get too worried here.

Olly: what's your view on a house which depreciates because, say, the paint needs redoing, and it gets painted. Painting is a claimable expense, what about the depreciation claimed side of things? [including prev years]

Cheers
AndyC

I've seen painting be capitalised and depreciaited.

Olly Newland says – “who pay the wages for painters, carpet, appliances, plumbing, architects, builders, concrete workers and suppliers of all kinds.”

If these houses were owner occupied instead of rented out, is Newland implying that owners don't maintain the houses they live in and so these poor painters, carpet, appliances, plumbing, architects, builders, concrete workers and suppliers of all kinds will be out of a job ?

Olly,
My head could easily begin to hurt here.
Then I think about all those nasty problems for landlords and what might just happen.
A. Landlords will try to raise rents
B. Some landlords will have to sell up because tenants cannot pay more.
C. Property prices may have to fall.
D. Some tenants will be able to afford to buy the cheaper housing stock
E. New landlords with cheaper buys will need less cash to service the interest costs.
F. Balance restored between landlords and tenants and between sellers and buyers.

I think the pain in my head is beginning to ease already.

JC says.. "Olly seems to imply that the NZ economy revolves around property, and there is no doubt that it is a significant contribution to national wealth."

Going back to basics for a moment, how exactly is property a contribution to national wealth? Housing is an expense, like food or electricity. The more these things cost, the less money people have surplus, and the 'poorer' we are.

Maybe you say that some people become rich from real estate bubbles, and that is certainly true, but only if you buy lots of properties when they're cheap and sell them when they're expensive. Only a small portion have done this. On average we're worse off. For the single dwelling family, pricey houses only make people wealthy if they cash in by down-sizing their house.

How can we be so wealthy when we owe so much foreign debt for the mortgages on these over-prices houses? This debt will hang around for decades, yet the value of the underlying assets relies on there being willing and able buyers. Willing and able buyers are becoming more scarce.

So Bernard any bottles of champayne should rents rocket by the end of the year?

this is alarmist and sensationalist stuff

Sounds like another property commentator I know......

It already started.
Got notice, rent up by $ 25/week. Second time in less then a year. Seriously thinking about buying now. Or moving back to parents.

Great response Olly? Zero out of 72 so far and about right for a load of illogical nonsense.
The problem for landlords is low yield to value (ROI) ratio caused by house prices being bid up above their real value. Aided and abetted by the distortions you are trying to preserve. Not hard to get your head around is it?

Also good thought from Roelof and worthy of further discussion - Why not a depreciation deduction for savers to compensate for the declining value of their dollars? Makes a lot of sense.

Our last flat, the landlord tried to stiff us for replacement of a square of mouldy carpet in the back room, of this unlined basement flat which had issues with water getting in the ceiling. It was on the day we were actually vacating when he tried to suggest we should split the bond even. I asked to see the receipt for the carpet repair to check the cost he was essentially quoting. "Ummm, that was a cash job by a friend......"

In 15 odd years of flatting, I've come across one level headed property manager, and one (beginner) landlord who were both prompt with addressing any issues. The rest of them were in total avoidance when it came to any issues with their properties. In 2 years living in our first home, would have spent more money on maintenance (budgeted for and not upgrading or extending) than I'd seen in those 15 years of renting.

Our over priced houses in NZ, and the huge debt we now owe overseas due to this, in order to buy these over inflated houses, are the big elephants in the room that noone wants to fix. Olly does have conflict of interest, in that he would be negatively affected by any change. If we got more owner occupiers, buying cheap houses off these investors in the future, then we would probably have more DIYers too, so maybe investing in DIY stores could be an idea.

Thank you all for your comments. I am pleased so many agreed with me. The proof of the pudding will come soon enough. We have a housing shortage in the main centres, very little is being built, immigration is still strong, there is a flood of money around the world, interest rates are low and rents have fallen off the cliff. That leaves two choices if the depreciation "subsidy" is axed property prices will crash or rents will rocket. I will bet the farm on the latter.

"I am pleased so many agreed with me"

Surely this guy is taking the p##$

"That leaves two choices if the depreciation “subsidy” is axed property prices will crash or rents will rocket. I will bet the farm on the latter."

Simplistic black and white thinking - actually a combination of the two could occur. In fact I would argue that house prices need to drop AND rents rise, to get property investment even remotely close to becoming a good investment again

Well Olly seems convinced that rents will increase, but surely that will mean that renters will look for other accommodation options. It's interesting that rents in central Tokyo (where supply is limited compared to the burbs) have remained flat, despite incomes being some of the highest in the world. Somehow, Olly has come to the conclusion that rents are inelastic to price in good ol' NZ. Only time will tell I guess.

@Olly, what don't you get about my 10.25am? In regards to proposed tax changes, potental for rent increases is effectively net zero sum. Your'e not doing an ostrich are you?

The other reasons you offer for upward pressure on rents, may be valid, but the tax changes will not change the related causation analysis and does not mean they should not be done - unless of course it's going to negatively impact YOUR wallet, or only about 180k of Kiwis, ie. < 5% of the population. Plus see other comments re. rents pegged by tenants ability to pay - that is reality.

Or are you saying, that what little some may get because of any tax cuts, you and the SPIs will happily leech from them? So government/taxpayers subsidise you still, but simpy using a different route in comparison to the subsidies and rorts your kind enjoy now. Not so smart PIs will have to sell, either smarter SPIs will buy the stock, or FHBs, as affordability increases, and the latter will not be renters any longer. Hence the zero sum arguement re. proposed tax changes. It's just a shame Key etc don't have the wotsits to do more.

Julz Says:
"
There is one one blindingly obvious alternative outcome that Olly fails to see. That is landlords can’t raise rents for all the same reasons they havne’t been able to in the past despite falling rental yields so instead they SELL. House prices drop, first time buyers and new landlords (who will now revieve a better yield) enter the market and they spend more on appliances and tradesman than the original landlord. Improved housing affordability means home buyers now have more disposable income, less money will leave our shores servicing foreign debt and the economy is now on a much more sustainable growth path."

Spot on...They have purchased and are purchasing in an over inflated market
Now do some numbers on the long term ave price, we have reasonable affordable rent and a lower than ave return on rentals..but hey..its a recession and the market is still rectifying

yep, 15 years. About 5 years as a student. Then a couple of stints overseas travelling and short term contracts back here with irregular income, but a lot of free time and adventures around this great country (I called it taking some retirement early while still young and fit enough to enjoy the outdoors) . Finally getting around to saving a deposit and working in Wellington and trying to buy there just didnt compute. Now happily in Taranaki with our own place, 20% deposit down, just over 25% of the mortgage now cleared in 2 years, conceivably could pay off in another 5-6.

Just consider how long some proffesionals will be flatting these days with full student loans. I was lucky to get out of varsity with only 2 years of debt to clear once finally in full time employment.

i love it!

this is like a new form of Rollerball or something..a new sport and all courtesy of interest.co.nz.....today Olly -baiting, tomorrow?... who's the next guest to be thrown to us blog-jackals as we tear their mad ideas to shreds and leave them stumbling off into the wilderness , swearing never to go near a blog site again!
Serves you right, Olly...coming on here with your antiquated and endlessly recycled mantra's.....should have stuck with Sudoku or something..now say after me,Olly..we old property investing Dinosaurs ARE extinct !

The only thing you got going for you Olly is Bollard. He's sh*tting himself also. So afraid the bubble he created will crash like everywhere else in the develop world. But NO!! not in NZ, never happen here!! hehehe. watch and learn pal.

And then he says this in the blog, "...there is a flood of money around the world..."

Yeah right!

I say:
Never trust a man with shaded spectacles

I used to enjoy watching Mel Gibson. You know, Mad Max, Hamlet et al. Then we had the mad rants, extremism & racism. The shades fell from my eyes. No way am I ever watching another moment of Mel.

I have read several of Olly's books & various articles in the past.

But sorry, Olly, you have had your "Mel Moment" today.

Sayonara

@Kate "So Olly thinks the vast majority (the “masses”) of NZers are ignorant."

IMHO - Olly thinks everyone except Olly is ignorant.

Olly your comment that "I am pleased so many people agree with me", you will have to highlight these many people in flu-resent orange for me because I cannot see any.

And as for "there is a flood of money around the world", true enough but none of this money is in NZ. When was the last time working class people got a pay rise? and, this is the same reason why rents wont rise.

Would you really bet the farm? I wouldn't be surprised, given the latest figures, if you had lost money on this bad investment as well as the soon to be realized housing collapse.

Also, if property is such a good investment for the future? Why are so many people trying to sell and why did this past February have the lowest number of sales since REINZ records began in 1992?

Mr Newland,
Are you advising those with rental investment properties to hold onto them?

That's a turn around Olly, and once again nothing but supposition. You talk of hyper inflation and city land prices taking off - where is the evidence? Just the ramblings of an old man who should know better.

We are heading in the opposite direction, deflation, atleast as far as housing is concerned. Look at your farm as an example - prices down 40% in just 2 years.

Personally, I'd rather rent for life knowing I did my research and concluded that housing (like farms), are 40% over valued, than took the plunge to find myself a slave to the bank for life.

MartinV - "Maybe you say that some people become rich from real estate bubbles, and that is certainly true, but only if you buy lots of properties when they’re cheap and sell them when they’re expensive. Only a small portion have done this. On average we’re worse off. For the single dwelling family, pricey houses only make people wealthy if they cash in by down-sizing their house."

Too true. The single dwelling family has to sell and downsize (or move to a less desirable area) or borrow against an appreciating property to access the capital gains. There is a property ladder but all that has happened is that the rungs are now twice as far apart and many can't even get to the first rung. If property prices were much cheaper and people's mortgages much smaller everyone would have more disposable income, to save or consume. Even property investors would be better off as their yields would be higher. No one wins in this market except flippers who pay no tax and banks that rake in higher interest payments.

The fuse is burning but if there is another leg down, it could well be the fuse of social unrest.

Olly : Are you hinting that our host , one Bernard Hickey , is wrong in his prediction of a 15 % fall in house prices this year ( 30 % fall the previous year ) ?

A good old debate was had, really? I didn't see much of Olly debating, attempting to answer questions and clarify, like other guest bloggers we've seen on here, eg. Hugh Pavelitich, Andrew Coleman, David Cunliffe, Selwyn Pellet and John Walley. Why is that Olly? Instead we see the arrogance of Cullen - I'm right, your'e wrong.

Olly,
Are low interest rates here to stay...?? Is it a contradiction to say that we will have hyper inflation AND Low interest rates..???

I actually believe that the secular trend in interest rates is upwards...

Here is a VERY interesting article from the FT that BH posted on this site.
http://www.ft.com/cms/s/0/c8655bdc-2c78-11df-be45-00144feabdc0.html

Basically it says that Western Countries public deficits are not going to go away.
At some point these countries are going to have to make the difficult decisions ie. higher taxes or lower spending.

I agree that the debacle of leaking homes that has wiped out a decades worth of house supply, and with Councils using the building consent process as a money gouging monopoly, I can see that the supply of good quality housing must be tight.

Because of that it is hard to see a crash in prices.
But a Boom also seems unlikely, and when you look at all the Global uncertainty, it is a brave or foolish person that would advize people to borrow and Buy Property.... now

My best guess is that realestate will stagnate for a number of years... a little bit like the 1970s.
Governments will continue to stimulate and deficit spend... until they they decide to get thier own balance sheets in order.
AND... as the linked article states... that day will come.... and things might be difficult.
Apart from what you stated above , do you have other reasons to support your view.??

With Asset Markets as leveraged as they are, if interest rates rise, it will have a severe impact on Markets.
Longer term I do agree with you about inflation...
The paradox is that initially inflation will have a severe impact on Real Estate.
I think Real Estate will stagnate as yields realign with interest rates, as interest rates climb.. ( Just my opinion)

How about a post on why you think House prices are going up..
You might find that the resulting debate will bring forward lots of views and ideas that you might not have considered..???
cheers RK

@reolof

"Are low interest rates here to stay…?? Is it a contradiction to say that we will have hyper inflation AND Low interest rates..???"

I was wondering the same thing. I was giving Olly the benefit of the doubt for a while and rereading his stuff to see if I had misunderstood his meaning, but I don't think I did.

Its OK to take a viewpoint based on assumptions which ends up being wrong, like BH was with the property price fall predictions. But this seems more like a conclusion supported simply by random and uncoordinated statements cobbled together.

My larger concern though is simply Olly's apparent flip flop on advice. SELL SELL SELL one day, BUY BUY BUY the next, SELL SELL SELL day after (not literally a day, but you get my drift).

These 2 observations have all the classic hallmarks of an opportunistic bullshit artist to me (sorry Olly - calling it as I see it).

Credit where it's due though, at least he's added to the comments (sort of..)

Cheers AndyC

AndyC..

I don't think Olly is a Bullshit artist. I think he has wisdom and experience, in regards to Real estate.. and probably life in general.... He has lived thru a few "cycles".

I don't know him ... but I read what he says. Generally he makes really good sense.

In his comments above , he may just be reacting to some of the other comments made.... shooting from the hip.

It would be good if he could elaborate on his views.... I think he would be worth listening too.... ( even thou I mostly don't agree with his article about leftie loonies and depreciation ).

cheers RK

"But so will every other asset class."...not necessarily Olly and you ought to know that...if we did not have a bloated Elephant of debt in the housing sector with properties at grossly inflated values, the impact of sharply rising rates...and we are talking in the high teens...would cause only limited impact in the housing sector...but that is not then case. The Elephant is here and now. Rates shooting into the high teens and stopping there for a few years, would murder the property sector.
It is the reason why people should and probably are avoiding new debt. It's why many are clearing what debt they have. No doubt two of the factors why the economic activity is stagnant at best and will stay that way.

@Olly

"I have never said Sell Sell Sell "

Sorry??? Did I believe my lying ears when I heard you on the radio (cannot recall if radio live or talkback) advise people to cash their properties in and wait to pick up bargains again during the imminent crash???? It wasn't within the last year, but it wasn't that long ago either. Think around the time of the book on how to make money in the upcoming property crash.

Maybe I recall wrong [and olly can righfully reprimand me if so].... anyone else recall this?

@roelof

"I don’t think Olly is a Bullshit artist. I think he has wisdom and experience, in regards to Real estate.. and probably life in general…. He has lived thru a few “cycles”."

heh. Talk to someone old enough to recall Olly from back in the 80's. My dad has some pearlers about smart ol' Olly. He may have some good advice now, hell it might even be so damned good everyone who follows it gets super rich. But there is a saying about fool me once shame on me... But if the 80s is too long ago, start the analysis with "was there a recent property price crash as predicted".

We're not picking on Olly for the sake of it. We have simply seen this type of modus before. Hyperbole maximus, sell some books or seminars, then do it again. As such we apply dump trucks of salt to this sort of commentary.

"In his comments above , he may just be reacting to some of the other comments made…. shooting from the hip."

I was actually complimenting him for staying in the debate, he deserves credit for this.

Im still interested in my initial question re depreciation expenses. Does anyone else have a view on this?

Cheers
AndyC

Sure AndyC...I have a view...why should business be able to claim depreciation as a cost of doing business!....when was this first accepted!..To claim that it is a 'cost' would surely set a precedent whereby business could claim for an aging workforce..seems to fit the model...think of what it 'costs' a business to train new staff and to cope with a staff that has aged to the point where zimmers have to be provided....Likewise, why would it not be acceptable to claim for poorly maintained roads...washed out bridges....Telecom's XT....

AndrewJ... many thanks for that link... cheers

Olly Newland Says:
"Thank you all for your supportive and mature comments. I always appreciate constructive feedback. For those of you who disagree with me I would respectfully say: I am right. You are wrong"

Definite black and white "wrong" ?
You disappoint me Oly...
Putting aside the comments that get a bit personal, there are others who actually have a logical point...Even I see some good logic in some of your thinking here..thu I disagree overall, I do concede and adapt to my overall view.
And after all thats what healthy debate is about.

At least I still get the bottoms of my jeans wet when I walk on water.

Let's look at Olly's prediction track record shall we:

2004: The Day The Bubble Bursts - "how to profit from the coming property slump". Presumably by waiting four years for it to arrive.

2006 (Aug): "Mr Newland says he has been busy cashing in his own holdings and believes highly geared investors have only months to decide whether to hold, or fold. If they wait till the end of the year, they may find everyone else jamming the exit door at the same time, with predictably bloody results. " An expensive mistake, missing the peak by more than a year, but understandable.

2006 (Sept): "why do you think the media is cluttered up with a myriad of advertisements seeking funds for finance companies? Because the investing public would rather have 7% for sure from a government-controlled trading bank than 9% from a Mickey Mouse Finance Company. This is a great shame because most finance companies are honourable and creditworthy, and good to deal with"! Ooops.

2007 (Sept): "Rental Demand:
Increasing interest rates will certainly help push up rents -- but increases can only be small. To rely on higher rents to cover costs is foolish and for two simple reasons. Firstly, wages have hardly moved over the past five years so renters simply can't afford higher rents. Secondly, the huge number of existing and new shoe-box apartments on the market will compete with and absorb much of the demand. With immigration down to a trickle and emigration of much greater proportions, higher rents are a pipe dream to be grasped by desperate investors encouraged by the developers and spruikers who try to convince you that rents and prices can only go in one direction -- up. I promise you they can go down too. I should know. I have the scars to prove it. "

2008 (June): "At the time the book was published I was also interviewed on TV1's Sunday programme and asked: "What will cause the bubble to burst?"

My reply listed a number of factors and included: higher interests rates, terrorism, slowing immigration "or another oil shock -- take your pick."

The oil shock prediction, as it turns out, was right on the button.

I can confidently predict that this present oil shock will have a profound and permanent effect on the NZ property market in ways for which other noisy 'experts' will have little answer." Nope, or at least not yet.

2009 (Feb): "As discussed last week, in New Zealand I can foresee maybe another fall of 5% or 10% overall but then I think we will flatten out." Bzzt.

(Same article) "by the end of this year [2009] we will be reading about Kiwis coming back disillusioned, often penniless, hoping that at least at 'home' and in familiar territory they will find a job.
Imagine with me the pressure on the housing market if 60,000 people returned home." Nope, net immigration went up but mostly because no-one went to Oz.
http://www.empowereducation.com/Olly_column_12Feb09.bz

Dont be too hard on Oly...read a lot of Daves quotes....
yeah Oly may have been wrong on the how etc
I will stand up and say I was wrong on the 'how' to back in Early 06 and 07
But like him we knew very well the proverbial was going to hit the fan big time...and hunker down....One hunkers down and regardless of the 'how' we do ok.
We dont ignore or go opposite, take note of the bottom line...otherwise is a case of not seeing the trees for the forest.
And this is where most miss the piont...but rather like to think they are 'smart' to cristize in hindsight, yet more often than not they are the same ppl who got burnt and dont have th guts or knowledge to stand up against the general opinion of the time...
Im no fan of Oly, regardless I give credit of where credit is due.

AndrewJ... this relates to things mentioned

http://www.moneyandmarkets.com/the-great-credit-squeeze-38303

Cheers Roelof

Olly - Why haven't rents fallen with the unprecedented decline in interest rates?

@Olly, you say, The first target will be the tenant. Sure, but can they pay? See Greg N and BH's opines. Some may indeed choose to pay the increase, with the tax cuts they get, assuming they get em' that is. Some may turn into home-buyers, using the tax cuts they get and given the discounted properties on the market precipitated by over leveraged/distressed spec PI's, hence reduced pressure on the demand side. So seems quite zero sum to me, in regard to the proposed tax changes you are resisting.

I don't dispute four of the five influence you bring into debate to muddy the evaluation of tax policy change-impacts. Re. 3 - tenants will pay what they can bear, no more, see Greg N's and BH's opinions. The remaining four influences deserve their own specific obvious solutions, eg 1, why not get together with Hugh P and address the landbanking and RMA issues?

The five influences do not justify arguements against the proposed depreciation/property tax changes. It's about rebalancing the economy for the benefit of all, why don't you want that?

elephant in the room
http://www.interest.co.nz/ratesblog/index.php/2010/03/15/opinion-why-a-d...

I haven't read everyone’s comments so I apologise if this has already been said.

I actually agree with Olly. I'm not sure if rents will go up initially, but it could happen by the following means:

- more tenants living in the house, garage, shed... all sharing the costs
- more subsidies from government organisations

I have seen how many kiwis/aussies... can live in a house in London - I'd suggest it's already happening more here.

If there is a shortage of housing stock (in the next ten years) and the government is unable to provide housing, then something will need to give - more living on the streets or in caravan parks?

To suggest all landlords don't spend money on their property is a little silly. Some properties in certain areas are always being re-painted, re-carpeted, 're-hot water cylindered'.... When it becomes a worthless exercise to keep doing this, then it will stop and become the governments (our) problem. Note , insurance only covers some costs, but agree chasing after the tenant for the loss will have to happen more (I know, ... yeah right).

The true point of Olly's article is not the rents going up or even less work for contractors, the point is that when there are 'changes in the rules', then things can happen that were not originally factored into the equation when the decision makers considered the possible outcomes.

There are a lot of people renting in NZ, and the cost to build housing is getting crazy expensive. If something can be done resolve the latter, then we could see some positve results - are the decision makers interested in that happening or know how to fix it?

Regards,

Landlords must accept changes, by Mary Holm

http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&obje...

I've seen several comments lately in the business section warning that if property investors are made to pay more tax they will raise rents or even create a shortage.

How? If they sell up, the houses will still exist, and be bought by people currently renting or other landlords.

I'm with you. If taxes are raised on rental properties, they will become less attractive investments, so we would expect their value to fall - or at least not rise as much as they otherwise would have.

Some landlords may react by raising rents. Others will sell, perhaps at prices that are rather disappointing to them.

However, disappointing prices to sellers mean attractive prices to buyers. As you say, other landlords - including some new to the game - will buy some of the houses. At lower prices, they will still be a viable investment despite the new tax rules.

And the rather appealing bit, as you point out, is that some people currently renting will be able to afford to buy their own homes.

This will reduce the pool of tenants, which means landlords who raise rents might find it difficult to find somebody to rent to. I doubt if many will be able to keep their rents high for long.

I can understand why landlords feel angry about the likely changes. But - as stated in the Q&A above - I think they are going to have to swallow their change in fortune. Too many have been too arrogant in the past about their burgeoning wealth for non-landlords to feel much sympathy for them. Yes, how sad, nevermind.

Oh the delicious irony - 20-25% in 6 years is wage inflation, exactly what you'd expect for rent increases.

Do you stop to wonder why house prices moved up so much more quickly?

What is it that you think you contribute to the economy that an owner occupier woudn't, Fraz?
Both of you pay rates; insurance; and I'd argue that an owner/occupier spends more on maintenance/decorating than a landlord, for personal prides sake.
Landlords get to use deprecitation offset, interest free, that owner occupiers do not, and they get to offset mortgage interest that owner occupiers do not. Yet both compete in the same market for the same product ( housing) that only one party gets an advantage over the other with.
In a negative ROI environment, all that speculators do, is deny the possibility of ownership to other citizens, by taking advantage of an unlevel playing field.
When business and the individual compete for the same social necessity, I'd argue that the playing field should be set at the lowest common denominator. ie: the rules that apply to owner/occupiers should equally apply to landlords.