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Bernard's Top 10: Auckland housing a 'property ponzi scheme'?; Will the workers ever unite again?; Peak steel demand in China; Andrew Niccol and the drones; Clarke and Dawe; Dilbert

Bernard's Top 10: Auckland housing a 'property ponzi scheme'?; Will the workers ever unite again?; Peak steel demand in China; Andrew Niccol and the drones; Clarke and Dawe; Dilbert

Here's my Top 10 items from around the Internet over the last week or so. As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz

See all previous Top 10s here.

My must read is #1 on the future of work, unions and wages.

1. Protest in an 'Age of Acquiescence' - This Atlantic piece on 'Why Workers Won't Unite' is a useful lap around the decline of the union movement in America (and the rest of the developed world) and whether the rise of the precariat and income inequality might actually spark some sort of mass protest movement that forces political change.

The conclusion is apparently not, now that so many are independent contractors and freelancers.

It's a dystopian vision that may be truer in America than here.

Last night's capitulation by Restaurant Brands over the issue of zero hours contracts suggests the power of collection action isn't completely dead.

But the look at the issue of worker power in an age of contractors is well worth reading.

It's instructive that the Unite union behind the successful zero hours campaign here is not one of the 'traditional' industrial unions.

With the on-demand economy thriving, the ranks of freelancers are growing—one can now hire a lawyer, doctor, computer programmer, or run-of-the-mill office worker for short-term service via the Internet. They, too, generally lack the basic perks of stability, such as a retirement plan and health insurance. Describing one boss who compelled his workers to set themselves up as legal corporations so the company could avoid the cost of employee benefits, Geoghegan writes, “Sometimes I think: one day, every American worker will be a John Smith, Incorporated, every cleaning lady, every janitor, every one of us—it will be a nation of CEOs in chains.” His bleak vision captures the culminating challenge facing a labor revival. That hurdle is rooted in the contemporary ethos of work itself, never mind global and technological factors: how to liberate wage slaves who are, however perversely defined, their own masters.

Today, even as jobs get more precarious, the ideal of independence endures, and a seductive language of artisanship flourishes, promising opportunities for self-realization and freedom from the routinized, bureaucratic workplace of yore. What today’s workers are missing is the pull of collective action. The rising generation grew up not with the memory of labor’s early tenacity and vigor, but with the reality of unions under attack from without and in disarray within.

2. No wonder the Australians are struggling - This Economist piece on steel demand and production in China is sobering, particularly for Australians. The chart below says it all. No wonder prices of steel are dropping all over the world. I hope they are here too, although I'm not a Fletcher Building shareholder...

Aside from the risk of undermining the rationale for investments such as these, what are the potential knock-on effects of China hitting peak steel? Trade wars, for a start. Unable to peddle all of their output at home, Chinese steel producers have been exporting increasing quantities—to the consternation of producers elsewhere, who accuse them of dumping. MEPS, a consulting firm, estimates that China exported more than 90m tonnes of steel last year, which is greater than the entire output of America’s steel industry and was a rise of over 50% on the previous year. Exports are continuing to surge this year.

3. The problem with HSBC - This global bank has rightly taken a lot of criticism lately for its enabling of tax evasion and money laundering on a grand scale.

Now the FT is calling for the end of the 'non-dom' status of British residents who classify themselves as foreigners for tax purposes. Guess who has done this: the CEO of HSBC...

This anomaly has been highlighted in recent days by the case of HSBC’s chief executive, Stuart Gulliver. While a British citizen born and raised in the UK, Mr Gulliver badged himself as domiciled in the low-tax haven of Hong Kong. Yet not only has Mr Gulliver worked in Britain for the past 12 years, he has also retained links with the UK, for instance sending his children to school there. Whether or not the arcane rules have been obeyed, this hardly counts as severing all ties.

It is hard to know how much the Treasury is losing out. There are no reliable figures for tax foregone. But the inherent unfairness of allowing the richest in society to avoid paying their fair share of tax has become a matter of fierce public irritation.

4. Property Ponzi? - Shambeel Eaqub from the NZIER has stirred up a hornets nest of debate with his latest comments in the New Zealand Herald that Auckland's housing market is "essentially a Ponzi scheme."

I'm not sure I'd go that far, given real incomes are being used to pay interest on all the debt underpinning the prices. But he has a point in arguing there's an element of people buying each others homes with pumped up equity. That equity is not completely sustainable if either interest rates spike or employment slumps (or heaven forbid these things happen at the same time

Shamubeel Eaqub, NZIER principal economist, said this decade's housing market was like last decade's finance companies, being run as a high-risk money-go-round which could eventually end in misery.

"Essentially it's a Ponzi scheme because you need more and more new entrants to keep prices rising and that's exactly what's happening in the housing market. We've seen this in all kinds of businesses, for example finance companies were a classic. Who are the people buying the houses? We're paying higher and higher prices to each other," he said.

5. Finally - All the celebration this week about almost hitting parity against the Australian dollar seemed to ignore the very real impact on exporters.

So it was good to see the the Timber Industry Federation point this out via TVNZ.

The industry has relied on the Australian market but since 2012, the rising value of the New Zealand dollar has eroded 20 per cent of the value of our timber sold in Australia, Mr McVicar says.

"There simply isn't that sort of margin in the product and mills will now be supplying at a loss to stay in the market," he says.

"That scenario is not sustainable and will be devastating for many mills."

6. Top half of the OECD - It's not often New Zealand is in the top half of the OECD.

This week the OECD reported that New Zealand was in the top half of the OECD when it comes to the growth in our house price to rent ratio over the last four years (ie how much more out of whack with rents our house prices have become). Woohoo.

We're the seventh best (worst) in the world.

7. Gotta love this pic - I've tried to ignore the British election because I'm still trying to get over the New Zealand one last year. But this pic caught my attention.

Some politicians should stay away from schools and children.

8. A climate of distrust - We're lucky in New Zealand that we don't have to bribe our doctors to treat us.

This is normal in China, as Didi Tatlow reports in the New York Times.

Another reason to migrate to New Zealand.

During a two-week stay in a Beijing hospital, here’s what I wrote in my diary: ‘‘One has a curious sense of being in a machine, an irritant, like a grain of sand. … No one has the right to anything, not even medical care. You can only demand, beg or seize.’’

And people do. ‘‘Kan bing nan,’’ or ‘‘It’s hard to see a doctor,’’ they say about the country’s oversubscribed, underfunded, often corrupt, health system. In frustration, patients may attack their physicians. Bribery is common.

9. Drones and the military - I'm a big fan of New Zealand screenwriter and director Andrew Niccol. His 'The Truman Show' is one of the great movies I reckon.

Niccol has directed a new movie about the US drone pilots that push the buttons to attack targets in the Middle East. Here's an FT interview with Niccol.

The film’s combination of eye-in-the-sky omniscience and fateful fallout is surreal and perturbing, even by the standards of a film-maker whose Hollywood calling card was the script for The Truman Show (1998). “All the incidents we depict were based on true events. There was a funeral in 2009 where 60 people were killed. Although George W Bush began the drone programme, it has been escalated by Obama. In fact, on his third day in office a drone hit was ordered and it hit exactly the house targeted. Only it was the wrong house.”

Mistakes happen. But it’s no accident — it’s true to actuality — that the film’s mordant vision of drone war as a giant video game played for real is set in the gaming capital of the nation. Creech Air Force Base, the model for Niccol’s fictive 61st Attack Squadron base, is near Las Vegas. “It was intentional. When they train pilots, they want terrain that looks like Afghanistan. So they use the Sierra Nevada.”

10. Totally Clarke and Dawe  - Tony Abbott is planning some Budget changes...

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66 Comments

RE the Auckland ponzi, although the market is probably peaking it doesn't mean that a ponzi style collapse is even remotely possibly.

 

House prices are underpinned by the replacement cost and the availability of land.  The fact is that if you try to replace a renovated villa with an equivalent modern construction (same stud height, quality of materials etc), you will probably spend $1m plus to replace a 150m2 house (including everything).  Hence the $1.5m pricing may not look that unreasonable.  And that when you consider inflation will continue to increase the costs and that land in central locations is unavailable, then prospects for large declines whilst people still want to live in that city are probably unlikely.

 

Hence expect the cream to be skimmed off when a correction comes, but don't expect $300k villas in Ponsonby, or even $700k ones!

 

Unfortunately for Mr Eaqub, I doubt he would have actually been better off renting than buying if he had chosen to live in an inner suburban Auckland house (not apartment or unit) over the past decade.  (Remember the key to home ownership is that it locks in the cost at the time of purchase, so if you bought in 2001 in Grey Lynn for $300,000, on average it has probably cost $550pw or so in repayments and the mortgage is probably mostly paid off.  This would be substantially less than the current cost of renting, and on top of that you are sitting on an almost mortgage free asset worth $1.3m ish).

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Yes. Good properties will always be good properties. What kind of man, with a family, still rents in his 40's? Might as well move his family back in with his parents.

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Why do you Troll this site Onwards...go for a walk or drive in your mini or something please and spare those of us looking for informed comment from your 1 liners?

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Still renting I take it? Don't worry champ, hang in there Auckland houses prices will drop one day. Then you can swoop in with your piggy bank of coins and buy us out. I wasn't 'trolling', I was affirming that the Auckland property is nothing like a ponzi scheme. There is an actual real asset involved. I don't own a mini btw. Poor quality.

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"What kind of man, with a family, still rents in his 40's? Might as well move his family back in with his parents" 

Looks like a Troll Comment to me "Champ". 

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one who went to University, racked up a loan, went travelling, earned less than a tradie for many years because NZ proffessional wages are only now becoming viable and missed the cheap money property upcycle and decided renting a $1M house for the equivielent of 2.5% net yield was a good idea.

Agree the fundamentals are solid for AKL property prices to at least hold ground. One does not need to live in AKL, taking on a very large mortgage is crazy if there is a good chance prices will go sideways in the long term.

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One could say the same about you frazztroll

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On a long enough timescale perhaps a clever one.  Credit availability is what keeps prices up.

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When the FED raises interest rates later this year (supposedly) what do u think they are going to raise it by? 0.1%? Ooooh. Easy credit and cheap money are here to stay for a very long time. So on a long enough time line anyone who rents too long is an idiot.

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You obviously didn't observe what happened in emerging markets in early 2014 - and that didn't even involve a rate hike

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Unless interest rates keep going lower then house prices won't keep rising. If they stay where they are now, prices will hit an affordability ceiling

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what kinf of man?  many of them.  what kind of a..h..e uses his position of lucky fortune to poke ridicule at others less fortuate?

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Smugness is the new black.

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Absolutely agree (for different reasons).

 

The colourful description is probably getting through to some people that the property market in Auckland is not real. Unlike a true Ponzi sceme, however, there is no built in day of reckoning followed by total collapse.

 

In 2012 Auckland Council declared to whoever could be bothered reading their turgid "Housing Action Plan" that it would take a minimum of 30 years to clear the backlog of demand for housing in the city.

 

Of course that was predicated on building 13,000 dwellings a year for that whole time and net immigration not increasing etc. The build rate in the 2 1/2 years since then has yet to top 8,000 dwelling p.a. while net migration has soared so the actual time to clear the backlog of demand can be assumed to be closer to a century.

 

Any casino bets on property prices are likely to remain one-way unless some external event occurs to either shatter the NZ economy or household finances (e.e massive hike in OCR).

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Agree.  House prices are at least in part underpinned by replacement cost, which neatly subdivides into House Build and Developed Land.

House Build is in turn subject to a plethora of price floors or ratchets, which ensure the only move is Oopards:

  • Duopoly in most materials
  • Regulation via Building Act and numerous TLA Plans, all administered by expensive and obstinate minions.
  • Elfin Safety:  a classic case of vast cost compared to benefits

Developed Land is even more subject to price ratchets, as everyone involved, from original owners through developers to TLA's, has figured out how to invent and then to clip the many, many tickets needed to convey a chunka dirt from growing ponies and thistles, to a fully serviced building plot:

  • CG on original land (at rural cost values) is tax-free if the owner is suitably structured
  • Consultants and engineers - many Plans, Specs and other lines on paper are needed to even start.
  • TLA's inject massive Time into every subsequent process (plans, consents, inspections) which, quelle surprise, is worth Munny
  • TLA's demand fees, leveies, contributions and other direct cash imposts, often, early in the cycle which exacerbates -
  • The Carry - interest paid (or foregone) on capital employed
  • Sales and marketing
  • GST
  • Profits to developers
  • All paid for (typically) by the issue of yet mo' debt.....to the lucky purchaser.

These price ratchets are so well established that it will take a technical revolution (multi-proof consented, modular homes, on leased land, perhaps) to break their lock.

I would not bet the farm on such a revolution occurring in a dispersed country with a total population the size of Melbourne (I'd sell the farm for Housing and trouser the CG tee hee).

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Rubbish go down to Cheche and have a look at what they are building for far less then 1m.  Of course you will always have the high end suburbs for the elites, but to say that house prices can't fall because of the replacment costs is not true.  Someone recently moved to Orcs is definatly better of renting then buying, especially when rents are so far below interest costs.

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You're missing the point, as per usual, if you put 1m of house on 500k of land then the property is worth 1.5m. 

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That wasn't the point, why make a point of basic addition?  A 150m2 house of good quality costs far less then 1m to build, case in point Chch.

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What is quality?

 

A cheap as chips brick and tile on good land of 150m2 floor area with the lowest quality fittings?

 

An architectural home to Ponsonby renovation standard is a whole different game.

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$1m for 150m2 is $6667/m2. That's a lot of gold taps

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You might think so, but that's what it costs.

 

Check out last night's Fair Go.  A 13?m2 house costing well over $1m for insurance replacement.

 

That's reality sorry.

 

Keep in mind a bog standard small standalone Housing NZ style home will cost $2000/m2 all up if a single contractor manages the whole job.

 

A DIYer can achieve a lot of savings on that though.

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You're showing your ignorance, again, this is why people with no involvement or knowledge of the Auckland housing market shouldn't comment on it.  CBD fringe buyers expect high spec homes and when I develop CBD fringe sites spending 1m on a house wouldn't be unusual, it's the high spec the market demands. 

I'm sure the Chch slum you live in is built on far less. 

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If the citizens can't afford a house, let them buy a mansion.

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It's "worth" what the market is willing to pay, although true value is difficult to define when we're talking about shoddy little Kiwi wooden boxes on mushy patches of dirt.

 

some people today are convinced that capital gains are a divine right mandated in perpetuity by a loving god and so will pay any asking price, no matter how ludicrous.

 

I'm sure they are completely correct and "Ya can't lose with houses. Mate."

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You may live in a "shoddy little wooden box" but don't speak for the rest of us.  Maybe if you invested more in Auckland housing you could afford to not live in a shoddy little wooden box. 

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Is CheChe ChCh or Chechnya?  Because I know that in ChCh a replica villa style property and landscaped garden to the Ponsonby spec will cost a million to build easy.

 

A neighbour is building about 180m2 to replace a grand villa and they aren't even doing it as a replica so no grand chimneys or cast iron fretwork etc as it was, not even as high a stud, and that is costing close to $7000/m2 all up excluding land but including architect fees etc.

 

You can build a modern style high quality subdivision style 250m2 house for $3000/m2 but that is not a Ponsonby or Mt Eden style home.  Of course the housing NZ, bog subdivision house of 150m2 will cost at least $2000/m2 if you include everything (drive, fencing, landscaping, carpets, curtains etc).  

 

On a higher spec house the professional fees (architect, QS, engineer) will probably exceed $1000/m2 on a 150m2 house!

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And what percentage of Orcs is in Ponsnoby, or Mt Eden? 

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That is where the million dollar plus homes are.

 

In Glenfield or Henderson a $600k house would probably cost $400-500k to replace like for like (if not more), the land value is way higher than the residual amount.

 

Overall you cannot in general replace homes anywhere near there current prices.  In some cases the land value would have to be zero or much much less than zero for you to be able to replace like for like.

 

Hence in ChCh everyone with a written off $250k house in 2010 has found themselves in a $600k one if everything went the way it should (unfortunately the Crown screwed a lot of people by red zoning and insurance companies haven't always fulfilled their obligations completely).

 

For example, the neighbour mentioned above paid about $200k above land value in 2010 for the villa, but has had a $1.3m rebuild.

 

House prices are unpinned by build costs.

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Glenfield?

 

You've no idea.

 

Used to live there. Hillcrest/Northcote end. 10 minutes to the city. Wasn't bad. Some years ago, built a couple of single-level 2 bedroom home units, 75 sqm each, end-to-end with concrete-block dividing party wall, double carport at the front, cross lease, nothing flash, on approx 700 square metres of land. Sold them couple of years later for under $100k each.

 

When ACC released latest valuations recently went and had a look at the valuations

 

Unbelievably frightening

 

Both are now valued at $500,000 each, shared 350 sqm of land

 

By way of comparison

we are moving back to nz

sold our house in a southern Bayside suburb of Melbourne

1950's era house

200 sqm

Plus external single car garage 30 sqm

Land area 540 sqm

Sale price $490k

 

Signed contract price for new build house, 200 sqm includes 40 sqm attached garage, not in Auckland or Christchurch $530,000, excluding land. House 160 sqm. We weren't happy about that. But what could we do?

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"In Glenfield or Henderson a $600k house would probably cost $400-500k to replace like for like (if not more), the land value is way higher than the residual amount"

Like for like?? You mean old, run down, some 70s 80s builds with asbestos james hardy cladding??

Anyone would prefer a 140 sqm factory built house with double glazing etc for 200k over their current Glenfield house, no way 400k is a reasonable valuation for the dwelling alone.

The exact same dwelling in rotorua for example would have a GV that accounts say 100k for the dwelling a lone, and 120k or so for the land.  Why is it that the exact same dwelling, when in auckland, carries a valuation of 400k, with land 250k? Does it cost 300k to put a house on a transporter and move it to auckland? No.  You are all deluded.  Reality is the land value has been bid up, to say 500k for a 650k glenfield property; which is seriously bubble territory and will be exposed for such once new sections are brought onto market at 300k

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What 140m2 factory built house costs $200k all up on site?

 

Their price lists exclude foundations, delivery, carpets, vinyl, painting, landscaping, paths, drives, site works, garages, consents, services, project management etc etc 

 

You won't get much change out of $300k if you want the whole job done by someone.

 

A pretty standard suburban house would easily cost $400k to $500k to replace (and your insured value should be at least that level).  Ask a QS or anyone involved in Chch insurance rebuilds how much a house will cost.  

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You'd probably get in under 200k if you were building in town, includes all chattles, foundations etc, not included is landscaping/driveway.  You should look it up.

 

Fletchers were quoting $1700m2 for the Chch rebuild, and that is at the higher standards for the earthquake.

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What twaddle.

 

Prices per square metre are generally quoted on larger houses, for smaller homes the price goes skyward per square metre.

 

$1700 is probably doable for a 240m2 basic house with a large garage but still wouldn't probably be an all up price including landscaping and drapes etc.

 

A 140m2 Keith Hay or A1 Homes or Initial/Lockwood will cost how much all up??

 

The total price will be substantially more than the $180k or so they may say the transportable version costs.

 

All up unless you are DIYing a lot of the work and management, the cost would getting on to $2000/m2 all up.

 

Insurance companies are pricing rebuilds of 90m2 basic 1950s w/b and tile houses at circa $300k on reasonable land, much more on bad TC3.

 

A DIY builder can definitely achieve a house under $200k, but try to get a contract to get one totally completed and you won't even come close.

 

 

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Bernard

I wouldnt get to carried away about New Zealand hospitals being different to those in China.  If you are in a private hospital you can bribe someone to see you.  If you are in a public hospital - Kan bing nan - old boy.

I am sure that many have felt the sensation of feeling like an irritant.........

 

 

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I would get carried away - NZ Hospitals are staffed by Doctors and Nurses who care, and we dont bribe anyone to get attention in this country. Also they look after anyone who turns up...including foreigners...so your comments are wrong on all fronts.

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frazz, on interest.co.nz the custom is to post the humour posts on Friday.

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Will take a note cowboy, was commenting on my experience and my fathers, top notch service with a smile to boot.

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and I was referring to mine.  The level of care I got would have been what has been described in Indonesia.  The contact staff in some areas are awesome, but the overall process... abysmal.

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Like Bernard, I would take what Shamubeel Eaqub says with a pinch of salt. As an economics expert he backed the wrong horse in housing in Auckland. I like the so called Ponzi scheme as you can live in it if things turn for the worse. Nothing like a tangible to own.

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...take any economist/forecaster with a grain of salt....

Growing companies generally grow every year, so analysts generally predict growth. Of course, every few years, something bad often happens, and companies get clobbered. But you rarely, if ever, see analysts correctly predict the clobbering in advance

http://www.businessinsider.com.au/economist-forecasts-wrong-2011-12

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still waiting i guess.....12 Reasons Why New Zealand's Economic Bubble Will End In Disaster

http://www.forbes.com/sites/jessecolombo/2014/04/17/12-reasons-why-new-zealands-economic-bubble-will-end-in-disaster/

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The punchline is that things have all been moving in the wrong direction.  The situation today is even worse.

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I disagree with Chris_J.

Is the cost of second-hand car underpinned by the cost of a brand new replacement? Of course not. A house is worth what a buyer is prepared to pay and a seller is prepared to accept. That value can be well under replacement cost as many people have found out over the years.

Although I do agree about the replacement cost of a like for like villa, well over a million, and to think they were paid for by single income families in the early 20th century. One example of how we are clearly not better off today.

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yes the prices of second hand cars are underpinned by the new cars market.   When car restrictions dropped, new car prices dropped 20-40%, and the second-car market halved.

Even now the "shopping basket" round-town cars set an upwards limit on low end prices for many secondhand dealers.

You can see this with the introduction of "signature range" of secondhand cars, attempting to re-establish a premium identity and brand to capture some of the value by sideways movement around the "travel and carry" utility branding (a cost orientated value).

The house is similar that what the buyer can pay is limited by income (as opposed to softer, what they are willing to part with for a service or prestige), income decided by wage, investments and interest situations.  
 For the seller it tends to come down to how motivated they are.  A car sitting in the garage isn't going to be costing you much, but an empty house especcially one on a real estate agents list is going to be costing significant money, and also representing significant interest cost/loss from the dead equity.

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I think I see your point.

In a rational market the replacement cost places an upper bound on the price of a second hand good not a lower bound.

The ongoing costs of owning and maintaining assets is also an important factor, which is why rimu framed houses should start losing their value once the wood starts losing its integrity. My experience in Dunedin is that rimu framed houses become expensive to maintain around 100-120 years after construction.

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Yeah, I would think that the same issue exists in Auckland. Some of the best villas and bungalows built and held their shape are in Whangarei. 

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Yes, and that upper bound is futher affected by the skill and drive of sales professionals (poor in New Zealand) and _perception_ of market movement (in NZ it is perceived that getting into property as early as possible, and that it is a "no-brainer" investment, drive up the whole second hand market - as it is perceived as cheap entry; while the new market is perceived as expensive and out of reach; money is made catering to that perception.) and also the cost and hassle involved into entering the new house market and uncertainities involved.  So I can buy a "good secondhand house"  ie pay too mcuh,  OR buy into a cheap bottom end of the new house market with the expectation down the line that I paid too little.

Other effects are a secondhand house is security/reassurance, what you see is what you get, you can see it measure it assess it.
A new build, even brownfield, require imagination from scratch.
this means the salesperson can capture the persons dreams with the vision of what is there and start them on the processes of mental ownership and what they would do with the place, how they would improve it, thus mentally invest in it.  this drives price up.
With the new build, it is a tougher sell, which means the price ticket is much harder to sell - if the margin between the two is slight, then a good salesperson can find a average property start the sell on that, then up-sell to a new property.  If the margin is significant, then the upsell is likely to be a uncomfortable level of risk, and to be challenged on $ to value by the buyers peers; such doubts when there is a seed of risk because of the price differential is likely to result in the customer either fleeing because they don't want to be in confrontation with the salesperson (or worse be convinced thus feeling like they are loosing their choice) or they find a replacement more security orientated purchse that satisfies the fear.

With a secondhand house, the actual integrity depends on the target market and perception of value.  Some people will pay well for places falling apart, sometimes through simple foolish ignorance ("the bigger fool"), or because they know they can work with the "bones" (and consents in place) and will be renovating those areas anyway, so they're not looking for "paying twice" - so many people buy a secondhand property with a recently renovated kitchen only to rip out most of the kitchen and rebuild...effectively "buying the kitchen twice".   Something you seldom do with a new property...for better or worse.

but it's that ability to upsell from second hand to new that is the big change.

also location is important - secondhand houses are around developed amentities so tend to have more secured location.  Greenfield builds tend to be more remote and undeveloped.   Brownfield builds have the location but the buyer must buy the secondhand house, pay to remove it and prepare the site, then pay for the new house, thus brownfield (eg inner city) development sets a very high price point for inner locations... which as you've mentioned that sets a high upper bound for people wanting the same location but willing to put up with a secondhand house....which in turn lifts the whole market in that town of that style building.

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Thanks for the reply. Love this part: "capture the persons dreams with the vision of what is there and start them on the processes of mental ownership"

Those cunning sales people.

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Bill English decreed that houses do NOT depreciate a few years ago now, when he outlawed depreciation.  So it must be true.  Buildings do NOT depreciate!

 

The fact is houses can last 100, 200 or in the case of Europe 500 or more years.

 

Houses won't depreciate much because with a few cosmetic improvements a good older house can appear as good as a new one, hence there isn't a massive premium for new over old.

 

Also inflation in costs (both material and labour) mean that a villa which cost £500 to build in 1900 might cost $750,000 today even if the modern conveniences and century of renovations weren't included...

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Hehe. Bill "Canute" English says it is so.

I think it remains to be seen how long Rimu framed houses last. There are no 200 year old examples to judge from. What I have seen in my limited experience is that the maintenance on a Kiwi colonial house starts to rise exponentially after 100 years or so. Like a Jap car starting to rust after 15 years or so. Therefore, those cosmetic improvements become more regular and invasive until it becomes more cost effective to start again.

I doubt many NZ houses will be around past 200 years, other than a few fine examples in dry areas where the owners have kept up with the maintenance. Leaky 90s' houses on the other hand weren't cost effective to maintain from the day they built.

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246 Kerikeri Rd is 195 years old and built of timber (Kauri or imported pine??).

 

http://www.kerikeri.co.nz/Kemp_House.cfm

 

Plenty of Rimu ones are 150 years old.

 

I have a couple of houses over 150 years old and there is no obvious difference to the 100-120 year old villas.

 

In fact the original timbers in some of the 1870s houses we have are in better condition than many bungalows which are 70 years younger.

 

A properly built timber structure can last indefinitely if maintained.

 

Simply rule - avoid plaster clad homes without cavities (even if the timber is treated).

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Thanks for the reply. I'm glad to hear your 150 year old houses are doing well. I will visit Kemp house next time I'm in Kerikeri. It does, however, meet my criteria above.

 

Your simple rule rings true.

 

I can add from first-hand experience that there are 120 year old houses in Dunedin (that fail your rule) that are in poor condition and not worth repairing. Fortunately no one is paying big $$ for them.

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Dunedin has a dampness issue, involving small dark houses and not enough heat & airflow.

The Rimu frame I'm currently renovating, most of it looks as good (if not better) than the pine we're introducing into the structure.  
 One problem with the Rimu structure (and any untreated or processed product) is once one part starts to fail* then it tends to cascade quite quickly, making simple repairs expensive.

There is a question of whether or not such obselescence is a good or bad thing.

On a different note, you wouldn't happen to be a Industrial Chemist by profession?  would you Mr MAPdruid.

*  eg from crack in external stucco, or from idiot doing butt-patches in weatherboard, is

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the building won't depreciate much but the other factor is that maintainence to hold its purpose (eg similar for similar repair & rework) is deductible.  

The fittings are all depreciable as they have much shorter life times

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People in Orcs aren't buying property because they need a home, and they think that is what it's worth.  They are buying because the price has been going up for the past few years and they are scared of missing out.  They think prices are going to keep going up for ever and this is their only chance to buy before prices put another hole in the ozone layer.  Totally absurd behaviour, animal spririts or irrational exuberance is being polite, stark raving mad would be more accurate.  Even at 5% interest, the interest portion of an 800k mortgage is 40kpa, think about it, 40k of dead money, what a waste.  Nucking futs, probably a close second behind milk prices as a risk to our economy.

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$40k insurance plus $3k rates, $2k insurance plus $5k maintenance gives $50k after tax. That's $75k before higher rate tax.

 

To all those who think that this can't end badly, show me a housing metric (any metric - you can choose) that shows that Auckland houses are not overvalued.

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Tulips....

Bound to end well.

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Re HSBC what do they say about a fish rotting "from the .......?"

 

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John Hussman, The Coming $10 Trillion Loss in Paper Wealth   http://davidstockmanscontracorner.com/the-coming-10-trillion-loss-in-pa…
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This is a good piece as well,  http://davidstockmanscontracorner.com/robert-j-gordons-challenge-to-the…

Its energy stupid....(not you, LOL).

 

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Housing may not be a Ponzi scheme but it is facing classic Ponzi financing as defined by Minsky:

http://en.wikipedia.org/wiki/Hyman_Minsky

"The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat."

Now see:

http://www.interest.co.nz/personal-finance/73840/elizabeth-kerr-shares-…

Where the readers are on an interest only mortgage for their "investment property" that they have to top up to the tune of $1220 per month and Elizabeth Kerr hardly bats an eyelid at the idea. I'd love to see statistics on how widespread this is.

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Who wants to take economic advice from an economist who is still renting....hands up?

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Are you that shallow of thought that you cannot see risk? past impacts? guess so.   Yep me, Steve Keen, (last I heard he sold up and now rents) Minsky, how about Japanese economists? with 30 years of deflation in house prices from a huge bubble.

Does Bernard Hickey now rent or own I wonder?

What about many eastern EU countries say Latvia? Estonia?

How about an economist living in say Invercargill instead of say Auckland?

 

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BH sold his auckland property and bought a wellington property if I recall correctly.  Would have missed some capital gains, but got a better house and/or lesser mortgage.  Wellington property is well overdue for some catch up, much greater physical barriers to new supply in wellington, particularly for apartments which have helight restrictions for a lot of the cbd. Better train network though which sees sprawl happily going long distances north and east of the city, the wellington weather makes a lot of people opt for central apartment living to aviod feeling like you've been through a car wash waiting for the bus/train to and from work

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Who prefers to hear their own biases confirmed...hands up? Unfortunately most people.

 

We need more people who can look through hype and see the big picture. I'd suggest you take the time to understand all sides of the argument.

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It's the economically rational thing to do. Let a property investor with a huge mortgage subsidise your living costs.

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