By Gareth Vaughan
Property investor Olly Newland says hawkish new Reserve Bank Governor Graeme Wheeler hasn't changed his view that interest rates will remain low for some time still and house prices will double over the next few years.
In a Double Shot interview with interest.co.nz Newland also said the Labour Party's idea of building 100,000 houses over 10 years at an average cost of NZ$100,000 to tackle housing affordability issues was a nice catch phrase but wouldn't happen, and Auckland property owners were 'asleep at the wheel" over the Auckland Council's proposed rail loop.
Of Wheeler, who replaced Alan Bollard in September and has adopted a more hawkish, anti-inflation tone hinting the next move in the Official Cash Rate could be up, Newland isn't worried.
Newland says he has never seen interest rates so low, and has suggested they'll remain at or near the current levels for many years to come, and could even fall further. This, he says, provides a "huge wage rise" for the mortgage belt and working classes, plus property investors and first home buyers. And in his previous video interview with interest.co.nz Newland advised people to "borrow until it hurts" to get onto the property ladder.
Now, despite Wheeler being on the helm at the Reserve Bank, Newland's unmoved.
"No, my views haven't changed at all. I think there's a lot of politicking going on there. The Reserve Bank, whatever they'd like to say, are not as separate from the Government as you might think," says Newland.
"I'd imagine they have a cup of tea and have a chat with the politicians. I think it's the politicians that'll be driving any changes in the (housing) market. I think if the market is left alone, it will continue strengthening and eventually plateau off in the future and I don't think the Governor of the Reserve Bank, with all due respect, has much control over it."
He argues the further back you look into history the further forward you can look.
"And I've been around now over half a century and they (house prices) have been doubling every 10 years or so and there's no reason why they shouldn't carry on doing it," Newland says.
"The question you've got to ask is how much does it cost to buy a second hand house as compared to a new one? Now a new house is still much dearer to buy than the one next door, so to speak. There's GST which is 15%, so a NZ$500,000 house new has NZ$75,000 of tax in it and a second hand house two doors down doesn't. So when second hand houses catch up with new houses, then things may change. But at the moment they're no way near it."
Labour's housing affordability policy might work if the houses were built at Eketahuna
As for Labour's "KiwiBuild" policy, Newland says it won't fly.
"It sounds good but I think it's impossible. If they can push the price down to that (NZ$300,000 average) then somebody else is paying for it. I just don't think it's possible, unless of course you build the houses at the back of Eketahuna or something. But if you're trying to build them anywhere near a major centre like Auckland or Wellington, I think it'll be impossible because there's not only the house you've got to build, You've got to provide the infrastructure - roads, schools, power, sewage, working places, shops, offices. You can't just put them in the middle of the country. You might as well put out 100,000 caravans it'd be cheaper and quicker to do it," said Newland.
"I think it's a good catch phrase but I don't think it's possible."
Meanwhile, Newland also says Auckland property owners are "asleep at the wheel" over the Auckland Council's proposed multi-billion dollar rail loop.
"It may never happen but the moment the Council under Auckland Transport are putting their name on all sorts of properties they want to buy up," says Newland. "The owners will wake up one day and find they effectively no longer own that property, they can't sell to anyone, they're locked in there."
"This happened before in the 60s. The Council came out and put down where road widening was going to go, much of which didn't happen. It destroyed the values left, right and centre, that were near where the proposed road widening was going to go."
"Unless they (the Council) buy them up soon, it's not going to be right. It's supposed to be done by negotiation but at the end of the day they can take them under the Public Works Act. At the moment this has no effect because there's a lot of apathy around. But as soon as this starts to get more serious then I think we'll see fireworks," Newland adds.
Capital Gains Tax 'a dead duck'
In the video he also talks about the potential impact on the property market of a Capital Gains Tax, which Newland says appeals to those who have no idea how the property market works and as a feasible option is "a dead duck." He suggests a simpler Stamp Duty, as Australia has, might ultimately be brought in, although notes he's not in favour of this either.
He also criticises proposals for the strengthening of earthquake prone buildings, saying they're not practical. Standards proposed by the Ministry of Business, Innovation and Employment suggest it could cost up to NZ$12 billion over 15 years to upgrade all the country's earthquake-prone buildings.
Meanwhile, Newland says the rippling out of house price increases from central Auckland into previously unfashionable suburbs is a very common phenomenon, and something he has seen many times before.
"The boom starts in the centre of town where everyone wants to be, and then if that's too expensive it moves out like the ripples in a pond. And then it'll move out to the towns near by. This ripple, if it continues, will end up going through Huntly and Mercer and Cambridge and Hamilton and going north and so forth. This is just the way the system works," Newland says.
"I think it's important that people get on the property ladder as soon as possible, even if it hurts, and if necessary buy in a suburb just beyond the ripple at the moment."
That said, he adds: "Auckland is becoming too dear."