Shame the government then also bailed out leaky buildings....how much did that cost?  More than SCF will...

No fair, if you want to set new records for thread count, you should have posted this in the morning!

As it is, I reckon it could still easily crack a hundy!

People who think bricks and mortar and housing a population is a business are the ruin of the country.

Seems a new phrase has entered the lexicon on the RE's down Nelson way, if the listings in this Friday's property rag are to be believed.

First we had 'Price Reduction''.

Then we had 'New Price'.

Now they give us 'Price Adjustment' - this gem from Harcourts.

Chortle.

There were an awful lot of the 3 examples above in this Friday's mag, and precious few 'Solds'.

I find the discussion regards the developer friend and the ANZ Bank interesting.  The borrower has a 2/3rds deposit - wants to borrow the other 1/3rd of the development cost.  I'm guessing however, that the borrower has no regular self-employed or salaried income and hence, if the developments don't sell, then regardless of the deposit... the borrower can't make repayments on the loan.

Had all banks and finance companies followed ANZ's example on lending criteria, we wouldn't have had the problem we now find ourselves in... that being developers defaulting en masse due to the slowed market in terms of sales to end user/purchasers.

Such prudence in lending does indeed deny the labour market those jobs, but there is little sense in the banks propping up the labour market through taking unnecessary risk on lending.  To take such risk is speculation - not responsible lending on capital development proposals. 

Isn't Ollie a beaut? So many points here to address, I don't know where to start. Let's start with return on investment. When financing the house and keeping it in trim, costs you more than what the going rental rates will cover, you know you have a bubble and painful adjustments are coming. It is the same as when the P/E ratio on the sharemarket goes insane.  Investors are anticipating capital gains rather than "income".

"10% capital gain per annum" is a phrase we hear again and again, often used by people who simply should know better. 10% per annum, represents a doubling every 7 years. What is the difference between this and any Ponzi scheme? Why would it, too, not run out of liquidity, or "greater suckers", somewhere along the line? We often hear Wall Street scapegoated; the fact is that a wide range of cheerleaders are implicated in this madness everywhere it has occurred.

There is a recent OECD Report, "A Bird's-Eye View of OECD Housing Markets", in which they make the following observations:

13 of 17 OECD nations surveyed, have had a housing price bubble simultaneous with "The US" one. There had never been more than 4 OECD nations experiencing simultaneous housing price bubbles previously. Furthermore, all 13 nations current price bubbles exceeded in severity, the single biggest one previously recorded. Lastly, this is the first time that housing bubbles have de-linked from the "business cycle", and continued to inflate through recessionary cycles in the rest of the economy.

This last factor, the sustained length of the housing price inflation, far longer than anything experienced before, is what has led to the forming of unreasonable expectations regarding capital gains. Modern monetary policy has widely been assumed to have solved the old problem of economy-wide serious boom and bust cycles, so that apparently no crash like the Great Depression can happen again. These assumptions might be reasonable to an extent, but have been less reasonably transferred onto the recent unprecedented bubble phenomenon in property.

This bubble phenomenon is obscured somewhat by its being referred to everywhere as a "housing" bubble. Actually, the realistic depreciated prices of dwellings have barely changed - almost all the increase is in the land. These increases are in the vicinity of hundreds of percent - a far more glaring phenomenon than "100% increases" in "house prices". There IS a connection whether Ollie likes it or not, between the implosion of property developing and the coming implosion of property prices. It is the anticipation that the "land", either under development or with an existing house sitting on it, is going to inflate by some insane rate, annually. Not "10% per year" as in "house price" expectations, but several times this much, perhaps a doubling every 2-3 years. See my comments above about "Ponzi" schemes and their sustainability.

The few local property markets in the OECD that ESCAPED these bubbles, (all in the USA and Canada, by the way) give analysts evidence of its cause. The property markets that escaped these bubbles, all had low regulation of new development, or urban growth boundaries wide enough that "land banking" did not occur. It seems that around 20 years supply of zoned developable land is necessary to forestall "land banking", although there are other fiscal incentives and disincentives to councils regarding whether or not they will allow development to take place, that are relevant too. 

In parts of the USA, some of the highest metro area population growth rates have been accompanied by the most stable house prices, because supply of new homes was able to keep up and the price of land remained low. NEW Townhouse type dwellings have been typically $20,000 for the fully serviced land, plus $70,000 for the dwelling; right through both the boom and bust experienced in the bubble markets even in the same country. Nice family homes that would be half a million dollars in NZ or Australia, are typically $30,000 for the land plus $110,000 for the dwelling.

Older homes frequently sell for less than these trend-setting new prices; this depends on location as well as age. But a typical price premium reflected in the land value, for convenient location, might be $200,000 - and the old, depreciated dwelling on it might be worth $50,000. In NZ and Australia, the dwelling might be worth $50,000 to $100,000 but the land value might be three quarters of a million or more. (One irony of this is that FEWER people have the choice of buying a conveniently located home or even an apartment on this kind of overpriced land. This is exactly the opposite effect to what the urban growth regulations are supposed to achieve).

Even adjusting for exchange rates, it is clear that a massive rip-off of those NZ-ers and Aussies entering the property market for the first time, is taking place - and then there are all the other consequences for the wider economy, investment patterns, productivity, and so on. Imagine the difference between an economy where Joe Average pays off his house in 7 years - as in Texas - and in economies where Joe Average is a mortgage slave for 30 years. What has Joe Average in Texas been doing with 23 years of disposable income meanwhile? THIS, my friends, is "WEALTH".

Seeing Britain enacted similar highly restrictive limits on urban growth in 1947, we can see the result in the long term. They have a cycle of bubble and bust in land values that takes 13 to 16 years to run through. At NO stage, not even during the peak of the price "bubbles", does construction of new homes reach a level that is remotely "adequate" to cover population growth and replacement of dilapidated old homes. Construction drops from "inadequate" to "non-existent" through the "bust" phases.

At no stage, not even the bottom of the "bust", do property prices reach a level that is "affordable" by comparison with the lightly regulated markets in the world, or historical norms prior to the tightening of regulatory nooses. These phases, furthermore, are accompanied by high unemployment and tight credit, making fresh difficulties for first home buyers who have waited out the inflationary phases of the cycles.

Counter-intuitively, even in economic disaster zones with high unemployment for decades, property prices remain unaffordable as a consequence of actual definable shortages - the proportion of housing that is "social" is high and waiting lists for such housing remain long - and the burden to the taxpayer is high because of the sheer cost even to the agencies of government, of land and properties.

The amount of floor space per person in Britain today is the lowest in the OECD,  lower than Japan. The average age of a first home buyer is 38 years.

Ollie, is this where you want to see NZ headed?  This is very much a political issue, not just an issue of the financial decisions and attitudes of individuals. I suggest that the recent gains for investors, from, say, 1999 to 2006, were ONE-OFF and never to be repeated; as our property markets moved from a relatively free, affordability-promoting model to a strangulated "planned" model along British lines.

I suggest that the dramatic "crashes" that have occurred in the bubble markets in the USA, are because of the USA's "non-recourse mortgage" laws. I suggest that if NZ-ers, too, could walk away from their underwater mortgages leaving the lenders to carry the loss of equity, we too would have had a dramatic crash by now. The same applies to Australia and other markets with slower-deflating bubbles.

A task force inquiry has taken place in NZ, a report presented to the National-led government, and an official statement is due out this month. Arrayed against the possible political reforms and the mutual interests of the young, oncoming generations of home buyers and the wider economy; is a toxic alliance of land banking investors and utopian "stop urban sprawl and save the planet" activists and planning types. Not to mention the perversely engineered interests of all existing home owners and mortgage holders.

The "costs of urban sprawl" are a completely invalid pretext for these utopian planning regulations, as the costs of inflated property prices (and the numerous social and economic consequences) are demonstrably and quantifiably many times more severe. Even the odd bit of "over-building" is only fractionally as destructive of capital. This case can even be made in 15% urbanised Britain - let alone 1.4% urbanised New Zealand or 0.8% urbanised Australia.

Oliie insinuates that property development is in trouble because these people were anticipating Chinese-style population growth. Rubbish. Build rates in NZ have been dropping as the land values escalated like crazy, and the developers unreasonable expectations were that they built these escalations in land value into their sums. We are now moving into the same sort of phase as Britain experiences again and again. We will alternate between serious underbuilding and catastrophic under-building, while canny investors will be looking at speculative bubble returns, not at making honest money building things for people. The jobs that Ollie refers to in building, are gone forever thanks to the urban planners, not just gone temporarily thanks to Bill English and Allan Bollard.
 

As for Ollie's complaint about Bollard's interest rate setting; the OECD Report I refer to above stated that these property bubbles, thanks to the land racket, seriously reduce our ability to control our economies by monetary policy, because the property market becomes a monster that is independent of all other business activity and cycles. The property bubble becomes a monster devouring all the investment that should go into more productive activities, while nothing the central bank does with interest rates has the slightest effect unless the whole economy is killed off in the process. It is like a seriously virulent cancer and overdoses of chemotherapy. The OECD is merely repeating what the Aussie Federal Reserve's Governor Glenn Stevens has been saying for years, along with Anthony Richards from the same organisation; and our own Owen McShane and Don Brash as Governor of the RBNZ were saying this back in the early 1990's; which puts them well ahead of the rest of the world's experts, most of whom have not woken up yet.

With stress situation and unhappiness accumulating in many western countries, people are looking for better alternatives. New Zealand/ Australia are certainly countries, where 100’000 of people like to immigrate. So, the Real Estate market does certainly well, in case the immigration department is generous.  

Anyone advocating that people run up more consumer debt is a short-sighted irresponsible idiot.  Looking at you, Olly.

just because someone seems to have their head screwed on the right way does not mean they have any content inside.

olly is known for making and losing millions, but mainly for losing other peoples millions

however nasty tactics to one side i think he is right about positioning oneself with a property portfolio for a long term benefit

however anyone that mentors for a fee is not a real mentor in my view, a mentor is someone you look up to.

the most amazing thing out of all of this is is BH having a differing viewpoint published rather than feedback on his own site - must be a sign of the times

olly is right, but what most fail in is not getting the point of the benefits of postponing instant gratification for long term goals, and that is not just generation Y it is generations A thru Z

in the meantime my mentoring is free.........................................................................

the lesson is always the return of your money not the return of it, hence you get a return on it too...

Olly says "Life has taught me that the thinking is almost always worse than the doing." Wrong Olly. The thinking part is what stops situations like SCF getting you. Think before you invest, in anything, then do ( or don't in the case of property at this juncture), but think ( and do the sums!), before acting. It really isn't the 'worst' bit!

Bernard

After this effort by Olly, I fully expect you to invite someone from McDonalds to write a piece on the benefits of a dietary investment in hamburgers. 

Bernard seriously how can you publish this garbage? I know you like free and open debate from all perspectives but  this is really taking the cake!

Ollyy is wrong wrong wrong - there won't be another boom like 2002-2007. That was the product of a range of exceptional circumstances that won't be repeated

I could spend an hour critiqueing each of his points, but there are better things to do. The guy is a charlatan and should be ignored

The last boom was due to many events such as excessive cheap credit etc are not going to return any sooner. Highly debted countries will have to slowly repay and reduce debt levels. Banks cannot act anymore like Alan Hubbard by borrowing on call and lending long term.

It is only a matter of time for a future governmnet to tax capital gains because they cant raise taxes any further. This risk is going get real once Key goes.

Given our low wages and poor saving rate, there is hardly any reason to believe we become wealthy in few years and start buying houses at any cost.

All are entitled to have their pipedreams as well as dreams to naive public to make capital gains on their investment.

The most ironic and laughable classified I ever read was in the PUBLIC & BANKRUPTCY NOTIFICATIONS column of the Herald.

It was for a company name 'SAFE AS HOUSES' that had gone bust.

Have a Super Day....remember to save for yer own SUPER.

Cos....The Govt wasting all yours. And ye will pay TWICE.

Bollards to the lot of em. 

A well deserved match made in HELL-en and perpetuated with KEY.

or is that OFF-KEY.

Interesting stuff! I  agree with Ollie that  real estate that gives a reasonable return is a good thing. The problem is that a lot of it does not. He is a cantankerous old coot though, I'm sure he wrote this to provoke a bit of outrage.

Don't feed the trolls, in this case Ollie.

It is quite possible he is right of course, all it would take is a bit of inflation at 15% for a couple of years. Say, China has a wobble and stops buying iron ore and coal from the Aussies, their housing market collapses by 60% US style and their currency likewise. Our beloved NZD would follow and, voila, inflation of 20% with oil at USD 200 a barrel because of trouble in the Middle East. Unfortunately it is not so far fetched. Strikes bring down the government and we get air heads running the place as usual. Crikey, I'm starting to believe it!

<i>a: The vast majority of us can't save because we are a low wage economy.

It only needs a set of tyres for the car, and urgent dental job, or new clothing for the kids to blow any chance of saving out of the window.</i>

If everyone is so poor how are we going to afford even bigger mortgages how are we going to fuel this next boom?   

"and I must say I am mouthwateringly envious" . . . . a statement devoid of hope.

Yep lets all spin up the property wheel , and get this party started again. More borrowing & spending is just what we need..

It is always good to have other people on this site with a differing opinion otherwise it would be very boring.

Olly has been around along time and love him or loathe him he has made plenty and probably still does.

The difference  between him and most commenters on this site is that he gets off his backside and is looking for opportunities that are out there at the moment.

If you continue to bemoan and be jealous of others continuously then you will end up bitter and twisted and POOR.

Property investment is not for everyone but still represents the best way to get ahead bar none.

Keep smiling

Things will never change, history will repeat......dont argue with human nature.

People wish to see the price of their property go up, that is greed.

People hoping for property to crash so they can afford to buy one without to work/save extra hard, that is greed also.

People always trying to pay less and keep more, this is why the prices are forever going to go up.

Same with food and power...etc.

Dont  expect to get any reward for doing nothing.

What you fail to mention Olly is that in the housing cycle we are at the absolute peak so your next so called boom will likely be in more then 10 years from now. What a great idea "buy at the peak of the market, stagnate and lose money for 10 years and wait until the next boom".

Why doe BH publish this guys articles????

 "Why does BH publish this guys articles".......

It's a fair question Bernard....Olly appears to be selling Olly's book of property gospel!

Olly's article 'Safe as Houses' one day, a massive earthquake the next.

Coincidence? Or the Newland kiss of death?

Olly and Wolly, the flip side of each other, both righteously absolute in their beliefs, what a duo

What a lot of "hollier than thou"  twaddle you lot  of losers spout.

If every one of you had a chance to make a quick million in the same way as in the article you would run over broken glass to jump at the chance.

Come on- admt it.  You are just envious. of someone elses superior skills. 

Stand up Olly.

Someone will try to get you a spot on TV3s "7 Days"

You will be a star.

Olly's found a business that's easier and more profitable than property investment - selling advice to property-mad idiots.

Actually after this night's quake, the title "safe as houses" on the home page doesn't feel appropriate. It was freaky and having the whole house and roof shaking sure didn't feel safe at all.

Ollie is Mad!

He has little time for export generated income, agrees wages here are too low to save, so to get ahead we must borrow and invest in residential investment property, which will produce income 52 weeks per year mostly forever.  

In our low wage economy he predicts rents to rise significantly and this of course won't mean defaults from renters. Just as well as since we can't save, we cant meet mortgage payments without rental income.

No more mortgagee sales  - yipee!!

So without being able to save ( have to be lucky to even have a deposit these days) and with little export income generated, most capital for his scheme must come from abroad. 

And we keep borrowing forever ad infinitum and never end up like Greece which is a classic example of a country with expensive spending pattterns and little export income relative to spending...............

Also look at his glee at seeing a  naive property owner turned into a big time looser based on his strategic advice to a client.  If thats his attitude then he should wear a sandwich board declaring " if I come within 10 miles of you - check your pockets" 

'' In our low wage economy he predicts rents to rise significantly and this of course won't mean defaults from renters. ''

But don't worry about it mate because WINZ will pick up the tab and property investor landlords will be the WINZers!!!!

PhilBest - thanks for the compliment, you are one of the best too. :)

And like me you will no doubt disagree with Kate's comment that planning has had nothing to do with over inflated property. As we know Kate was an ex- Central Govt employee so she obviously still clings to a centrist's philosophy.

I think what she is missing here is that booms in places like Coromandel were a byproduct of the Auckland boom, which was primarily a regulation-caused bubble (of course easy and cheap-ish credit was a factor too). And that once prices skyrocket as a result of these factors, they are stickier on the downside, even if there is a surplus.

Mr Newland, you clearly are delusional and have no grasp of PRODUCTIVE value. Credit Crisis was just that. Previous gains in housing have always come about via a relative freeing up of Credit. None of that going to be around for a very long time. Did you not remember the TRILLIONS of dollars spent around the world propping up economies. That is one hell of a balance sheet to retrench within the timeframes you mention.

I hear enough drival Monday to Friday from Bank Management without having to be subjected to this self serving tripe on my weekends.

Hey Ollie - your client is a con-man who is setting you up as his next mark. First, he's got you jealous and salivating.

Next he'll be bemoaning the fact that another similar opportunity has come up but his cash is tied up elsewhere.

Then he'll allow you to persuade him to cut you in as the middle-man. He'll ask for 50% of the profit, but let you beat him down to 20%.

So your purchase will go through, but then the sale for twice the price falls over. You won't have looked at the price you paid too hard - after all, what does it matter if someone else is paying you twice as much - it's a blue-chip opportunity, right?

Funnily enough, you won't be able to find another buyer at the price you've paid. If you're bright enough, you might realise at this point that instead of being the smart middleman like you thought, you've actually been cast in the role of landlord number 2. Your client will be behind whoever you bought the property from. 

Even if you do realise this, you'll probably be too embarrased to admit it - and if you do, well, nothing illegal has happened, has it?

Then your client will rope in his next mark by crowing about the profit he made by selling to you at an inflated price. And they'll be SOOO jealous.....

I wonder if you'll still feel that your client is such a great bloke then?

Everyone hates on Olly Newland....

Why?

I think he is bang on the money.

Look at the home loan affordability, you freakin loon.

Yes and i fondly recall the "lolly for ollie days" at the bnz in Auckland prior to everything sh*tting itself in 87.

C'mon Ollie things are going to take quite some time for the Housing Market to get back into a correct synch this time pal. 

In the meantime go for a walk along Paratai Drive in your beige suit , grey slip on shoes and Martyn Crowe hair piece.

What are you suggesting? Living in Tents.

Christchurch population would not tie up anything like Auckland does of our social welfare spend.

Anonymous, don't shout, might trigger after shocks

If Super fund is iwith Todd etc then shows that more big boys know a good thing when they see it.  They do. Whingers dont.

We need  investment in hi tech and quality manufacturing not tied up dead in bricks and mortar, Mortgaging the Nation

Kate...

You are right about credit growth being the "fuel" for the boom.  

Housing credit went from 54 billion in Aug 1998 to $ 169 billion in June 2010.... which gives a compound growth of about 10% per yr.

Without that growth in credit it is IMPOSSIBLE to have had the growth in house prices that we have had.!!

Throw on top of that the inflation rate of building construction costs.  http://www.dbh.govt.nz/bc-approval-costs-5 

Throw on top of that the the "restrictive limits on urban growth" .. that Philbest mentions.

What Philbest says is so true.....  for example...  Why on earth should the subdivision of rural land be based on the main criteria of coventing native bush or replanting in native trees.. . ( subdivision policy based largely on environmental criteria .. being far more important than demographic issues... seems strange ) 

Councils and local bodies are not interested in housing being affordable to average people, nor are they interested in allowing market forces to balance the supply/demand dynamic in housing.

Sadly... I think Olly is right about the supply/demand situation for quality housing. By quality I'm simply meaning houses like ex-state houses on a bit of land in a "leafy" suburb... I'm not talking about rich peoples homes.

I have noticed that these kinds of houses sell very quickly in Auckland.

I have changed my own negative view... somewhat... I think that the property mkt will become quite fragmented...   with "crap", infill housing properties  taking longer to sell and may well fall more in price.... but  the good stuff that Olly talks about is in short supply. People with money will keep buying the quality properties.Immigrants with money will buy these properties.

It is a sad state of affairs.... It may well require inherited wealth for the next generation to live in the kinds of houses we take for granted. ( I'm 48 ).

I think Philbest has listed the probelms AND the solutions... but nothing is going to change, in terms of Councils attitudes nor in the regulatory quagmire that drags things out and makes development a more risky business.... and then on top of all that we have the banking system that never learns.... they hand out the umbrellas when the sun shines and take them back when it rains.

cheers  Roelof

Hey Olly, I hear there are some real bargains to be had around Christchurch right now. You should pile in and offer the locals low low low prices for their property, and make yourself a mint. I'm sure they'd really appreciate it.

This aussie guy has done some excellent work on the Australian housing bubble. No doubt the same principles apply here. Check out his articles:

http://www.unconventionaleconomist.com/search/label/Australian%20Housing%20Bubble

What I don't understand is how Olly came to the conclusion it was - either:

a) he made it up

...

Yes, he made it up.

Or more accurately, it was a lie created by his fellow property spruikers which was then enthusiatically repeated at every opportunity in the belief that if they said it often enough people would come to believe it as fact.

Yet anyone who spends more than two seconds thinking about it can see it's a lie.

Property investment had essentially nothing to do with the wealth of people such as the Sultan of Brunei, Bill Gates, and most of the rest of the world's richest.

Olly is desperate. Without property worship he is nothing.

Keep "spruiking" Olly ... it's the way you have been and always will be.

I bet secretly you are trying to pump up this market, with a view to actually selling most of your stock, to primarily cash up.

Also I disagree that very wealthy people have earned a lot of money through property. Most have been through industries such as IT, steel, banking etc.

Not to get too personal but seeing as Ollie has plastered his mug at the top of the page

....isn't that visage the quintessential face of real estate?? 

You are all whinging losers. Ollie is 100% right ad u cant admit it.

"www.trumprealestateschool.com"

Quote :  “90% of the world's millionaires made their wealth in real estate.”

Lets use common sense and be realistic here.  The so called "average income( where the payroll and GST taxes are yet to be paid)" is a very misleading way of various vested interest groups trying to play down the housing affordibility problem facing this country, especially potential home owners in the high priced cities. Lets look the following scenario:

Average Auckland house price = $500,000

Average nett income (after paying your PAYE taxes) for a wage earner = $45,000

20% deposit (i wonder how many people has this amount), mortgage = $400,000

Weekly repayment (interest only) @ 7% bank rate= $538

Weekly repayment (interest+principal) @7% bank rate=$600

Other weekly expenses (rates, insurances, car expenseses, power, food etc) = $400

Total weekly outgoings = $1000

Weekly net income after paying PAYE tax = $865

Weekly budget balance = minus $135

Based on this scenario, the only logical thing that can happen is for the house price to come down to a more affordable level.  Until the average wages rise in the foreseeable future, only a fool will want to see house prices to increase.  Many people seemed to have a very short memory, it was the affordability issues that caused the melt down in the US housing market.  Bank lent moneys to people who could not afford to keep up with their mortgage repayments.  Unfortunately in NZ, especially in Auckland, many still hold the view that house prices will double every 10 years, these people need to go back to redo their basic maths lessons and face the reality. I honestly cannot see our average net income is going to increase to $150,000/yr in year 2020!