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Consents for house building rise 3.1% in November to highest level since May 2008 (Update 1)
January 14th, 2010The number of residential building consents issued for new houses continued to improve in November, with seasonally adjusted figures showing consents for new homes hit its highest level since May 2008, figures released by Statistics New Zealand show. (Update 1 adds economist comment.)
Taking away seasonal fluctuations, residential consents for houses rose 3.1% in November to its highest level since May 2008, after a 11.5% rise in October, Stats NZ said. The positive trend for non-apartment residential dwellings continued, but has dropped off slightly from 6.1% in August to 4.4% in November.
“Although the trend for new housing units has been increasing since March 2009, it is still considerably lower than the levels seen before mid-2007,” Stats NZ business statistics manager Louise Holmes-Oliver said.
Seasonally adjusted figures for house consents peaked at 2,087 in June 2007, before falling to a low of 911 in January 2009.
Unadjusted figures show there were 1,500 residential building consents issued in November, including 42 for apartment units. This was up from 1,168 in November 2008. Apartment figures often vary from month to month and have been held up recently by retirement village building.
ASB economist Chris Tennent-Brown said he expects overall building activity should pick up over 2010. “We expect housing construction will recover to a degree over 2010 and provide a solid boost to GDP growth,” he said.
Here is the release from Stats NZ:
The number of new homes authorised for construction (excluding apartments) rose 3.1 percent in November 2009 when adjusted for seasonal effects, Statistics New Zealand said today. This follows an 11 percent rise in October 2009 and brings the number of housing units authorised to its highest level since May 2008. When the volatile apartment category is included, the number of new housing units rose 1.2 percent.
“Although the trend for new housing units has been increasing since March 2009,” business statistics manager Louise Holmes-Oliver says,”it is still considerably lower than the levels seen before mid-2007″. Residential building consents were issued:
- for 1,458 new housing units (excluding apartments)
- for 42 new apartment units.
The value of residential building consents was $537 million, an increase of 18 percent compared with November 2008, while the value of non-residential building consents was $389 million, a decrease of 2.3 percent. The decrease in non-residential value was partly offset by a large increase in the hospitals and nursing homes category, due to consents for several hospital projects.
Tags: Building Consents, Chris Tennent-Brown, statistics new zealand
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January 14th, 2010 at 11:38 am
over supply
January 14th, 2010 at 11:51 am
Net annual migration of 20,000 people have to go somewhere…
January 14th, 2010 at 12:02 pm
welly,
maybe they can go into the record number of houses built in 2007.
January 14th, 2010 at 12:19 pm
Jimmytoo…what is the average national home cost in nz ….does anyone have the figure????
January 14th, 2010 at 12:23 pm
…more media fodder from the “property boffins” who can’t see past residential property as a way of getting Aay-Ahh-Tay-Arooa out of the crap …… if we had as much media attention on this country’s national debt as we have on the property market, we would actually realise the sh*t we are really in.
too true jimmy (the other one)
January 14th, 2010 at 12:28 pm
welly, I’m wondering what the REAL immigration figures are, including all categories.
I wouldn’t be surprised by government’s “helping hand” supporting the Real Estate/ building industry, but at the same time making houses less affordable for Kiwis – a never ending vicious cycle.
January 14th, 2010 at 12:38 pm
Phew, thought I was going to have nowhere to live if/when I come back from aussie.
BTW they love property over here too guys…………….
January 14th, 2010 at 12:50 pm
Spidy,
Everybody loves schemes where you can get money for nothing and recently property has been the biggest ponzi/pyramid scheme in town.
It’s a zero sum game though.
January 14th, 2010 at 1:01 pm
I hear you Andy, I see it more like a game of pass the parcel – problem is when you open the last peice of wrapping – “oh it’s a potato, and it’s friggin hot!!”
January 14th, 2010 at 1:35 pm
You can understand it though right? The majority* of the population has seen, or believes, that more money can be made through owning houses than a lifetime of saving/investing through other forms.
* no proof, lets call it an anecdotal “majority”
The statement itself should sound preposterous, and since its based on the last 10 years experience, requires believing that house prices can grow faster than incomes forever. This is even more preposterous. But people believe it, and people buy houses (to live or as an investment) with this expectation. When this expectation breaks down (see the USA) for buyers and bankers … house prices will suffer, probably for quite a long time. Its surprising that it didn’t happen during the GFC, and begs the question “when” (do we wait for another GFC!?!).
January 14th, 2010 at 1:51 pm
Property is not a zero sum game when it is new contruction or renovation, building houses is just as productive as any factory/farm etc. However the sad truth is that most renovations in NZ do little to rectify the poor construction techniques in the majority of the NZ building industry.
New houses should increase the supply and hence put downward pressure on house prices.
January 14th, 2010 at 2:14 pm
IanC – the reason why house prices didn’t suffer in NZ during the GFC is that we still had decent employment here and the GFC kept interest rates at record lows. So the GFC actually helped housing in NZ. The real test comes when interest rates climb, catching all those who think its all over. Property is a market, and just like every other market, it has its cycles. We have just had a massive upswing cycle…. so no prizes for guessing the next phase in the cycle.
January 14th, 2010 at 2:21 pm
building costs for nz
http://www.dbh.govt.nz/building-construction-costs-indices
January 14th, 2010 at 2:28 pm
this one,s better
http://www.dbh.govt.nz/quick-calculator
January 14th, 2010 at 3:00 pm
Hey no pressure Bernard and Alex, but I was just wondering if we would see the return of the top ten at 10 in 2010? Its probably a complete mission for you guys to put together each day but maybe we could have it one day a week, e.g. Friday. So maybe top 10 of the week or something.
January 14th, 2010 at 3:30 pm
Hi Sam,
It’ll be back next week when Bernard officially starts again after his holiday. He came in and did a video today cos we had some people in to see how we do everything.
Cheers
Alex
January 14th, 2010 at 4:33 pm
I dont blame the NZ punters putting their hard earned cash into property eg housing. What else should they do – deposit it with finance companies or invest in the share market !!?? or put it in the bank and have the interest milked by IRD ? yeah right. At least they can see what their money purchased
January 14th, 2010 at 6:14 pm
goNZ. it’s easy to look backwards and say housing, bricks and mortar what a great investment it has been if only.
Looking forwards, housing is an investment just as likely to collapse in NZ and Aus as it did in the US and England. It may seam far fetched especially given the way interest rates have been dropped to keep the current prices sustainable, however, as with the Tulip revolution – a bubble is a bubble is a bubble.
January 14th, 2010 at 6:23 pm
Backs up a previous posting of mine that there have been significant increases in building consent in the last 6 months. This will provide a small surge in new houses on the market over the next 12 months. This will help keep any price increases small or non-existent.
From my discussions in the architecture profession and my own work this is mainly wealthier baby boomers who are typically building massive new houses. This will free up quite a bit of middle of the road suburban housing later this year
Very interesting working for some of these asset rich but relatively cash poor boomers. Some of them are very poor payers. If the housing market does go bust some of these folk will be in a fair bit of trouble
January 14th, 2010 at 6:38 pm
Matt, there were “1500 residential building consents issued in November”. I presume that that is nation wide so it’s a drop in the ocean and not likely to effect anything related to small or non-existent price increases.
As for some of them are poor payers – that’s just the nature of the beast.
January 14th, 2010 at 7:03 pm
Aaron – my point was more than just a moan – also an observation about our asset driven wealth and what it could mean if our housing market went wron at some stage like almost every housing makret in the developed world has done at some stage following bubbles
Sure its not a huge increase but its a steady one and in light of rising interest rates, falling immigration and other factors such as the high exchange rate its just one of a number of factors that will limit potential for price increases
January 14th, 2010 at 7:12 pm
Any one interested in house prices should go to the latest edition of “The Economist”. Very good piece on how assets are still overinflated. Says that houses in USA are now probably fair value, but houses in UK and Aus are 30-50% overvalued based on rental yield.
Imagine the same would be the case in NZ
January 14th, 2010 at 9:44 pm
Matt – many of those building consents will be for leaky house reclads.
January 14th, 2010 at 10:19 pm
Matt,
good points. And dont forget tax changes, I think this is a likelihood now. Combine rate rises, tax changes, high exchange, falling immigration AND and you have potential fall falls again. And onece it starts to fall, who know what psychological factors can do??
January 14th, 2010 at 10:32 pm
have a look– through this lot–this is a breakdown of consents–
open the link—there are 2 file.s——–go to the november 2009–tables–102 kb
it.s in pdf—there are 3 page,s—labled as tables 1—3
do these govt dept,s deliberately make these hard to access ?
http://www.stats.govt.nz/browse_for_stats/industry_sectors/Construction/BuildingConsentsIssued_HOTPNov09.aspx
January 14th, 2010 at 10:46 pm
Stats NZ give the seasonally adjusted number of new dwellings (excl apartments) as 1,339, so probably best to at least mention this number if you are going to make comparisons with the 911 low in Jan 2009 or the recent high of 2,087 in June 2007, Alex.
Calling June 2007 a peak is a bit of a misnomer anyway. The peak number of consents for any month during the past 20 years was 2,411 in June 2004. In fact from April 2002 until November 2007 the average seasonally adjusted number of house consents was 1,958 – 46% above the figure released today – even the lowest monthly figure during this period was 1,743 – 30% above today’s number – so don’t even think about calling this over-supply jimmy (too).
Please remember that during the 1970s building boom consents were something closer to 4,000 per month (you’ll have to excuse me but I haven’t got the exact number in front of me) so even the 2004 construction peak looks tame in comparison.
Officially (according to Stats NZ) our population is growing at 64,000 per annum (natural internal growth plus immigration), if new houses are occupied at the census average of 2.8 persons per dwelling then we need nearly 23,000 houses built per year to meet demand.
Add in that 2-4,000 houses per year are demolished or become permanently unlivable and then consider that over the coming 10 to 15 years perhaps 3 or 4,000 leaky homes built 1995 to 2005 will need to be demolished or virtually rebuilt every year, then you will see that we actually need 30,000 houses built each year.
But wait: Stats NZ projections predict the number of persons per household to decline by roughly 0.01 per year over the next 25 years due to changing demographics etc. So every 0.01 decline requires an extra 15,000 houses built. Obviously this just can’t happen right now with the number of new houses being built however these demographic pressures won’t go away either and all of this is before even considering houses that are built as holiday or second homes.
In short the 30-35,000 dwellings built per year in the mid 00s wasn’t even enough to meet real demands. So 12,600 houses and 1500 apartments built in the 12 months to November isn’t even a drop in the bucket.
At current construction costs and house prices, a return to construction activity of 30,000+ units is unlikely in the short term. The only outcome that is certain is increasing house prices will follow from the supply shortage, I really wouldn’t be surprised if the prices in the main centres continued to rise faster than incomes in the main centres – maybe 30% up from now in 5 years? Maybe in 2 years? Who knows? But I’m certain they won’t be down (unless there’s some mass exodus of course).
All of that should get the bears agitated!
January 15th, 2010 at 3:20 am
wow!nice analysis Chris j, especially factoring in leaky building syndrome which is having a huge effect on supply of non leaky houses in auckland
January 15th, 2010 at 7:49 am
Chris J – that has to be one of the best new housing comments to have been paced here ever! It puts the real data related to housing out there – something the journalist heading up this post should have been able to do.
So looks like very,very low supply of new homes at present is nowhere near enough to match the 64,000 net population gain each year and lower number of occupants per household – result – existing house prices should see a sharp rise in 2010.
Oh and of course timber prices set to rise rapidly so probably even less new homes built as costs of construction rise, labour force tied up in major infrastructure and rugby world cup projects should also see a shortage of subbies push labour content up too!
January 15th, 2010 at 7:57 am
Wally – average NZ house would now cost $2,000 per m2 plus GST ie for a 120m2 house $270,000 plus a section at say $150,000 = $420,000 ie more than the national median house price. (Or say in Auckland $750,000 total in an area like Stonefields)
Building will not truly pick up until the NZ median house price exceeds the cost of building a new house – so a way to go yet.
January 15th, 2010 at 8:27 am
ChrisJ, they are good points on the +ve side. Even adding that some buyers buy because they are scared houses will keep going higher in price.
On the other (-ve) side though, as Matt mentioned, there is the big question of affordability and ability to pay for higher prices. I can’t see any easy way of measuring how much spare cash the population has to put to a higher mortgage, but it cannot be much as noit many are rushing to the shops for consumer goods sales. PLus the expected increae in OCR and still worries over job security.
I still think flat prices or minor growth in 2010.
January 15th, 2010 at 10:39 am
Chris. Where did you get the 64,000 per year increase figure from?
Heres the first thing I found from stats nz:
“The estimated resident population of New Zealand was 4,331,600 at 30 September 2009, Statistics New Zealand said today. The population increased by 51,700 (1.2 percent) in the September 2009 year, the highest growth in three years. In the September 2008 year, the population increased by 39,900 (0.9 percent). ”
So 51,700 in ‘09, 39,900 in ‘08.
Much lower than your 64,000 figure.
January 15th, 2010 at 10:57 am
Using data for last 13 years, NZ pop has grown on average 1.1% pa.
So 43,400 would be a good estimate of future population growth.
From this same data (http://search.stats.govt.nz/search?w=population) the scary thing is the provinces.
Over last 13 years most have NEGATIVE population growth (for the region, likely to main town has increased slightly).
These provincial regions include: gisborne, taranaki, manawatu-wanganui, westcoast, and southland.
Yet these regions all would have atleast doubled there land/property prices over this period. Just something to think about.
January 15th, 2010 at 11:28 am
That provincial/regional data I quoted above INCLUDES the main town. So must really be a case of auckland, welly, chch pulling in people from around the country, a trend likely to continue as unemployment rises and people are forced to move to where the jobs are.
January 15th, 2010 at 1:04 pm
Chris_j,
The easy answer to your analysis is this – WHY ARE RENTS NOT SKYROCKETING?? Because the demand does not exist. Remember demand means want or need backed by AN ABILITY OR DESIRE TO PAY THE AMOUNT ASKED. People dont speculate on rents, they do on houses. That explains the gaping difference between rent and price. Why is it that developers and lenders are not chasing this GUARANTEED bonanza by meeting the so called demand??? Because they know it does not exist.
Also remember the effect of our “strong” currency. You now need an additional 50-60% of new UK immigrants and almost 90% more USA residents to have the same welath effect impact they had in the early to mid 2000s. Actually you need more given they will have less cash in their own currency due to their property having crashed.
January 15th, 2010 at 1:16 pm
Macca,
“These provincial regions include: gisborne, taranaki, manawatu-wanganui, westcoast, and southland.
Yet these regions all would have atleast doubled there land/property prices over this period. Just something to think about.
”
Good points. What it shows is that speculation can have a far greater impact on prices than population growth. Real demand is from those with a good savings record and deposit wanting to buy a place to live in, as well as investors after a cash flow positive property. During a bubble new people enter the market eg get 0-5% deposit types not wanting to miss out, capital gains hungry speculators, mum and dad chipping in so their kids dont get locked out for ever etc etc. It is easy to imagine a scenario in which the number of people looking at buying a property DOUBLES/TRIPLES in a few years, simply due to speculative factors. Or in other words, bubble conditions can add aggregate demand that 3-4 decades of population growth would add. This is where the property bulls just dont get it. Wild speculation is PRICED INTO existing prices. Even if there were a myriad of factors leading to a large rise in the real value of property, this is a drop in the ocean compared to the existing speculation. Look at the NASDAQ – it was always the case that tech companies would be a bigger and bigger part of the economy. But the nasdaq is down about 50% what it was 10 years ago, despite the fact that the income generated form these companies is now far higher than 10 years ago. WHY? Becasue 10 years ago the price was too high!!!!!!!!!
January 15th, 2010 at 1:21 pm
Bank Manager – I thought the figures were for new builds? I doubt very much that would include re-clads
Pretty difficult to look at population growth and deduce housing requirements etc.
For example, if the increase is driven (like last year) by fewer young people leaving, many of whom are staying at home or sharing flats, then that has limited housing demand impact. Remember too that birth rates are significantly higher amongst our polynesian population who are disproportionately housed in State Housing. With the govt heavily reducing house building, there will be more overcrowding in existing state houses and again this has minimal impact on demand for housing on the private market
January 15th, 2010 at 1:41 pm
Matt in Auck,
we would also want to include the large numbers of boomers wanting to downsize. Remember in many cases it is not 2 boomers in a nice big family home, its 1 due to divorce. It will be common for 1 person to move from a standalone home on 700 sqm and going to an apartment, out of town lifestyler or a townhouse on 250sqm. This person will not be replaced by single baby boomers, but by a family of 2 adults and 2-3 kids. So we are swapping 1 (maybe 2) for 4-5 in desirable houses in good locations whilst the apartment/townhouse can quickly and easily be erected – this will enormously reduce demand for family homes.
January 15th, 2010 at 4:38 pm
Jimmy, disagree Re: rents. They are slowly but constantly rising. Don’t forget, during 2008/2009 recession house prices dropped almost 10%, finance companies all collapsed, car sales plummeted…yet rents stayed steady!
January 15th, 2010 at 4:44 pm
alen,
if the demand is so great I would be expecting them to go through the roof, not “slowly constantly rising”.
January 15th, 2010 at 5:21 pm
jimmy (the other one) – if 1 in 100 is common then your right.
Both my parents and the inlaws have brought bigger homes to accommodate their grand kids.
January 15th, 2010 at 6:09 pm
“Both my parents and the inlaws have brought bigger homes to accommodate their grand kids.”
are you all moving in?
January 15th, 2010 at 6:50 pm
Macca
I used Stats NZ population clock which I’m guessing uses their best estimates of current population growth.
One “net” extra person every 8 minutes and 10 seconds or about 64,000 per year. Since the population reached 4 million late April 2003, we’ve gained 350,000 people in 6 years and eight months. Just do a linear calculation and that’s 52,500 extra per year. Do the calculation properly (assuming a constant growth rate) and that’s 55,300 extra expected in the coming 12 months, but take into account that net migration since March 2009 has been running double the average from when we reached 4 million until last March (2,005 per month versus 997 per month) then Stats NZ numbers on the population clock start looking a little conservative by maybe a couple of thousand.
But all that argument is a bit academic really because my numbers in my previous comments tell us that we actually need something more like 45,000 built per year RIGHT NOW if we take all things into consideration.
The fatal mistake for the NZ economy will be to raise interest rates in order to constrain house prices – this will only constrain construction as we saw in 2008. There is a massive demand issue which was overlooked throughout the 80s and even the 90s since there was net migration loss.
I don’t think most of the bears out there realise that in the 26 years from mid 1975 until mid 2001, NZ had a net migration loss of 152,000.
In the 8 and a half years since mid 2001 we’ve had a net migration gain of nearly 157,000.
Throw in smaller households from changing demographics and the first of the “shadow boomers” moving out of home and you will see that there is was a real demand issue behind the post 911 boom.
(Note: “shadow boomers” are the children of the first baby boomers (children born from 1975 onwards would have started buying first homes and renting their own homes from about 2000 onwards – not just a coincidence that this coincided with the post 911 housing boom).
The demand hasn’t gone anywhere. It’s just slightly of the boil due to the recession.
Jimmy (too), who says rents aren’t under pressure. We are seeing strong demand for good properties in good locations. We just let a 2 bedroom flat in a converted house in NW inner suburban ChCh (on a busy road and only in tidy order) for $280pw amid having 60+ inquiries that compares to letting the flat at $100pw when we bought it 10 years ago. We let all our university flats back in August last year for 2010 at prices around 50% up on 4 years ago, median house prices are only up about 10% over that time.
Prime properties in prime locations continue to see huge rental demand and higher prices as always there probably is a surplus of suburban homes in less desirable locations purchased by unsophisticated investors – any upward pressure in rents for those types of properties will be a signal of significant demand pressure.
Also Jimmy, the way properties are rented in NZ means that price pressure often takes a long time to show through, as more demand means landlords will rent properties more quickly and it won’t be until they let there next property (which may be 12 months done the track as most landlords are single property DIYers) that they will test the price.
January 15th, 2010 at 7:14 pm
Chris_J
“Jimmy (too), who says rents aren’t under pressure”
The official stats – From the articales I have read NZ median rents barely budged last year.
“The fatal mistake for the NZ economy will be to raise interest rates in order to constrain house prices – this will only constrain construction as we saw in 2008.”
So why did is contruction not booming now rates are at historic lows in ???????
“not just a coincidence that this coincided with the post 911 housing boom” … and of course its a complete cnoincidence that this conincided with the biggest credit expansion in our history.
”
“The demand hasn’t gone anywhere. It’s just slightly of the boil due to the recession.
”
The need to live in a home is pretty much the same recession or no recession. Its the desire to speculate that changes during a recession (unless like our one where we have ludicrously low rates).
As for changing demographics. The pig is emerging from the python – NZ has an enormous number of spare rooms in homes occupied by retiring boomers. These will son be flooded by new familes with kids, and the boomers will be moving in to easily built townhouses and apartments and lifestyle areas. The tax changes are going to further encourage a “use it or lose it” mentality, ie it will cost you to own a large house, so if you dont need it more incentive to downsize and stick your money elsewhere.
…. and most importantly, current prices are so out of whack as to require 15 years of inflation adjusted rental growth to bring them in line with long term averages.
January 15th, 2010 at 7:36 pm
Jimmy – interesting observation about possible tax changes and house size. Are you assuming there a land tax, which would be based on property value? If I follow your logic some empty nester boomers may say – “Why live in a more expensive 5 bedroom house when we could live in a 2 or 3 bed townhouse and pay significantly lower land tax?”
I know little about what a land tax might look like – would it be based only on land value, or full property value? (including house)
What chance you think a land tax? Key is still talking up personal tax cuts, they must get extra from somewhere else, land tax or GSt hikes? or both?
January 15th, 2010 at 7:42 pm
Matt,
land tax would be one option. But a CGT would also be another disincentive to rely on gains as opposed to income (assuming it applies to the family home). Negative gearing changes would probably not directly affect this scenario as most boomers have their house paid off and dont treat it as an investment. But anyything that creates downward pressure on prices would have a bigger impact on empty nesters selling decisions as they do not NEED the big house (others do).
January 15th, 2010 at 8:07 pm
But CGT sounds unlikely, right? land tax is more likely?
Would the land tax be an annual tax (basically like rates but a payment to central government) or a one off payment?
January 15th, 2010 at 9:22 pm
Neither will happen – get over it! There’s an election 17 months away from the June budget. National will not committ hari-kari – they want a second term and will not get it of CGT, Land Tax etc are passed into law.
January 15th, 2010 at 9:30 pm
This report on a speech by John Key http://www.johnkey.co.nz/index.php?/archives/751-Speech-to-business-breakfast-hosted-by-Cullen-Law.html says “medium-term goal of a 30 percent top personal tax rate.”
also elsewhere:
“Our medium-term goal is to deliver a three-tier personal tax system with the highest rate of no more than 33% on income above $50,000. This is what we will work towards as future economic conditions allow.”
January 15th, 2010 at 9:32 pm
GUYON Okay and one of the big elements that people talk about there is tax, now I know you’ve got a review underway, so that you’re not going to want to give exact details, but let’s keep this broad. Generally you’re looking at trying to lower personal and company tax, and fund that potentially by raising consumption taxes like GST, or possibly some sort of property or investment tax.
JOHN Well the mix to the tax regime is possible, I wouldn’t rule it out, but nor do I necessarily rule it in. Let’s say a mix is possible, let’s go away and wait and see what actually happens, there’s a lot of different factors out there and I think the Finance Minister was on last week talking about some of those options around the edges of property investments and the like.
GUYON Yeah he said that we would seriously consider changes to the treatment of investment properties. Are you committing to some change there?
JOHN Well what we do know from the tax working group, is round about 200 billion dollars worth of investment in that area, and basically the Crown’s lost money on that investment.
GUYON Well they pay no tax.
JOHN That’s right.
GUYON And in fact they pull down 150 million dollars, is that fair?
JOHN No, probably on balance.
GUYON Okay, so you’re going to do something about it aren’t you?
JOHN Well we need to go and look at all that, I’m not going to pre-empt that on the last show of 2009.
GUYON You’ve said that it has to be fair and equitable this tax review, you’ve just told me it isn’t fair, that they pay no tax because they can organise their affairs correctly, are you going to do something about it?
JOHN That’s a basic principle of the tax system.
GUYON So they can expect change in some form?
JOHN Well it’s also about an issue that both IRD and other have identified the Treasury, and that is the robustness of the tax system over time. One of the concerns about New Zealand is that we tax labour and we tax capital, and they are by far the most mobile. Now on the other side of the coin we also want to put the right incentives in the economy, and we also very importantly don’t want to increase the tax burden, I mean we are running a deficit we understand that, but actually the last thing you want to do is put a big sea anchor on the New Zealand economy, and the more you tax people the more effectively you do that.
GUYON It sounds like there may be some change coming for property investors, what about GST, will you raise GST?
JOHN That’s an argument that the Tax Working Group’s put up.
GUYON Cos you’ve previously ruled that out.
JOHN No, what we’ve said is we’d need to be convinced of a good case.
GUYON But you have to fund these personal tax cuts don’t you, somehow?
JOHN Yeah, well again it’s about a potential change in the mix, that’s a possibility, but I wouldn’t put it any higher than that. We need to go and have a look. There’s a number of different factors in there, and what is true about New Zealand is, if you take our top personal rate it’s lower than Australia’s but it kicks in a lot lower, we kick in at $70,000 they kick in at $180,000.
GUYON In fact until you earn $200,000 you pay less tax than in Australia, and they’ve got a review over there you’re gonna have to move aren’t you. Are you going to move that top rate down?
JOHN Well one in four New Zealanders who are tertiary qualified now live overseas. We are rapidly &.
GUYON Are you going to bring that top rate down?
JOHN Well we’ve said we have an ambition to do that, and to get that down to a 33% rate to align that with the company rate.
GUYON Do you think that’ll happen next year?
JOHN Let’s wait and see.
January 15th, 2010 at 9:33 pm
Matt
John key has said that he doesn’t like capital gains taxes so it will be 30-30-30 plus gst to 15% and some form of land tax.
January 15th, 2010 at 9:41 pm
GST to 15% ?!! and that’ll make houses cheaper, right ?!!
January 15th, 2010 at 9:50 pm
Bank Manager
average NZ house would now cost $2,000 per m2 plus GST ie for a 120m2 house $270,000 plus a section at say $150,000 = $420,000 ie more than the national median house price. (Or say in Auckland $750,000 total in an area like Stonefields)
$2000 a sqm, yeah right, maybe in Auckland, I got a quote the other day for $1050 sqm for building in one of the larger provincial towns.
January 15th, 2010 at 9:54 pm
No, not house prices, just income tax. Thats the whole point of the tax changes. Lower the tax burden on those paying most of the tax now, putting more on those getting away without paying their fair share. Changing house prices is just a possible side effect.
January 15th, 2010 at 9:55 pm
GST of 15% won’t make houses cheaper but if a high income earner like me is only taxed at 30% then I’ve got a lot more money in my pocket to be able to afford property if I don’t throw my money at needless consumerables, grow more veggies, barter, buy on Trade Me etc
square metre rates – depends on whether you are building single or double storey (rate goes up for double storey), quality of materials etc. but I’d say $2000 is about an average for Auckland
January 15th, 2010 at 10:28 pm
Andy M did that incl GST – what materials and quality? Are you sure that wasn’t for a farm implement shed or such like.
January 15th, 2010 at 10:29 pm
Not likely to go as low as 30% – JOHN Well we’ve said we have an ambition to do that, and to get that down to a 33% rate to align that with the company rate.
January 15th, 2010 at 10:30 pm
try this for building costs
http://www.dbh.govt.nz/quick-calculator
January 15th, 2010 at 11:51 pm
Jimmy2
“So why is construction not booming now rates are at historic lows???????”
…because higher than necessary interest rates in 2008 lowered house prices. Lower house prices make construction less viable, we may have prices back at 2007 levels but we’ve had 2 years of construction cost and levy increases which have cut margins despite lower land costs. There is no simple solution to this problem, except cutting local body levies which could shave 10% off the cost of a new home.
Murray
Everyone loves complaining about recent house price growth versus previous booms. Yet they forget that ALL components of new houses are GST inclusive. So even though residential property is GST exempt, over time the GST component has been absorbed into the price of all houses. So comparing a price to income ratio from the 1970s to today isn’t correct. A ratio of 4 in 1975 is actually equivalent to 4.5 today.
So, my point is that raising GST will actually push house prices higher, so it MUST be compensated with lower income tax rates.
Now the debate about construction costs is a little pointless because there are so many variables, but I’ll weigh in anyway.
Obviously a heatpump, carpets, tiles and drapes might be 10% of the build cost so whether these are included makes a big difference. Then permits and service connections could be 5%. Drives, fences and landscaping could be 5 to 10% or much more. Development levies may add 20% in some places. Extra engineering works could add 10 to 30% or more to a build cost.
But you should be able to build a basic (but good standard) 150m2 house on a flat site with no engineering work on an existing titled section ready to move into with basic landscaping for around $195,000 (about $1300/m2). A similar 240m2 house should be able to be built at around $250,000 (about $1050/m2). I am talking a fairly standard spec with no real extras.
If you want to keep it very basic and do some finishing yourself you can probably put together a 100m2 house for something just over $100,000 but that would be a challenge for most people!
So excluding intrepid DIYers and apartments, the cheapest new home you could get near a major centre would be $300,000 but realistically it’ll be closer to $500,000 ($250k build, $200k land, $50k contingency for engineering, margin, higher spec etc).
So if an average new home costs $500,000 and the median existing home is $350,000 and in five years we could be 100,000 plus houses short of growth demands (at current building rates), what are house prices going to do?
As I’ve said before the only way house prices will go down is if there is a mass exodus of kiwis. Where are they going? Not to pay AUD$530,000 (NZ$660,000) to buy a median house in Darwin, that’s certain.
January 16th, 2010 at 9:09 am
Chris_J – cheers, that was a tongue-in-cheek comment re: houses getting cheaper! I’m fully aware of the implications of raising GST. It’s amusing though how many folks here see raising GST and higher inflation as reasons houses will get cheaper!
Timber prices are sky-rocketing, as are many other raw materials. The labour content of a new house is also unlikely to get any cheaper……
January 16th, 2010 at 9:35 am
Chris J / Murrary – all the arguments you guys trot out were trotted out in most countries. That didn’t stop bubbles in those countries eventually bursting.
I’m not suggesting we are like for like with those countries, and there is some merit in your arguments. In particular, we don’t have the same economies of scale in terms of building here that most larger countries have.
One thing I think you guys are not seeing is that, logically, there comes a point where its bloody hard for the income / house price mulitiplier to grow much further. the gap can only widen so far, before people simply cannot afford the higher prices, despite the laws of supply and demand. We’ve seen this, over the last 20 years, in almost every developed country of the world (Japan, Germany, USA, UK etc etc). I don’t think NZ is THAT different for the same laws to apply here.
I DO feel that at some point we are going to get another correction as significant as we had in 07/08.
Yes raw marterial prices are rising, but who is to say China’s construciotn industry is going to keep rrocketing along at the same pace? The bubble-like nature of their property sector has recently been well documented….
January 16th, 2010 at 9:48 am
Chris J – I think the more important reason construction has not been booming despite low interest rates is the massive dry up in funding available for developers.
You say development costs have gone up a bit over the last couple of years – correct. you also say house prices dropped – correct. But you didn’t mention that land prices went down significantly, and that labour costs for building also went down a bit (builders really needed work). The net result is that it SHOULD have been just as profitable to build in 2008 as in previous years.
January 16th, 2010 at 10:33 am
Matt in Auck,
Why woudl funding dry up if there were guaranteed profits to be made as the property bulls maintain???? Clearly developers and banks see large risk??
As for the laws of supply and demand, remember it is more than just households needing a house versus the number of houses in existence. Economics books tend to refer to demand as “a want or need backed by an ability/desire to pay” – I agree we are close to our limits, and if you factor in rising interest rates, tax changes, and longer term changes in credit tolerance (I think this will occur over the next 10 years) then it would be a confident person who could argue hosueholds will continue to increase their relative debt loadings over the next 10-20 years. I’ve said before, housig needs all the planets in alignment just to maintain sky high prices. It would not take much to turn it around (eg high int rates, unemploment, credit downgrade, light bulbs going on in people’s heads etc etc).
January 16th, 2010 at 10:35 am
… and never underestimate the impact of speculative demand. As I have argued above, it can add aggregate demand in 1-2 years that would equal 4 decades of popluation growth
January 16th, 2010 at 11:19 am
Matt – yes, I agree the income/price ratio can’t be stretched indefinitely, however it’s possible it could get stretched further yet. When people reach breaking point though, it not only puts downward pressure on prices but also upwards pressure on incomes – there tends to be a lot more pay strikes etc…..
“That didn’t stop bubbles in those countries eventually bursting” – if you compare apples with apples (i.e. a 200m2 house on a 800m2 section within 20 minutes of a major city) you’ll find that most of “those countries” are still more expensive than here.
“I DO feel that at some point we are going to get another correction as significant as we had in 07/08″ – of course we will, probably after the next boom……..
January 16th, 2010 at 11:20 am
“We expect housing construction will recover to a degree over 2010 and provide a solid boost to GDP growth”
Still thinking historically…….70 years of good times…so here comes another 70 years…yeah right…
regards
January 16th, 2010 at 11:23 am
P.S. congrats to Bernard for winning the “dicky crystal ball award” at the NZ Herald.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10617444&pnum=0
January 16th, 2010 at 11:42 am
@Matt in A: “Why live in a more expensive 5 bedroom house when we could live in a 2 or 3 bed townhouse and pay significantly lower land tax?”
Thats going to happen I believe and big time.
We pay land tax now, its known as Council rates…and look at how fast that rises per year…Baby Boomers will I believe down size…as a “jones’s” / end of BBs we (as in my wife and I) will have to I believe…we cant hope to pay for the rates, power/heating etc for the house we now own once we retire…cant be done…even assuming “pensions” kept on paying out as they did historically and I dont think they can.
Land taxes are great for a Govn, (its attached to a solid object) you cannot dodge it. Given I suspect that taxes will rise significantly over the next 20 years and cost of living….and there will be a considerable attempt to dodge tax….
The only way to do (legally) will be to downsize…lots of selling into a buyers market…BBS selling up….Bernard mentioned this last year.
The intersting thing is as you say, asset rich cash poor….
Q is how are these daily bills going to be paid…assets should deflate hugely leaving th debt of their purcahse….the consumer economy could seriously collapse….big changes.
regards
January 16th, 2010 at 12:08 pm
@Murray: and your opinion is?
Is/was Bernard wrong? or have we been lucky? (so far)…The established ratio of 3:1 ~ 3.5:1 where we are 6:1 right now suggests a 30~40% drop is not un-realistic.
That drop however can happen in different ways, we could have done a 40% drop like the USA, we didnt, which was surprising IMHO…or we could stagnate for 20 years and let inflation do it that way….Right now I think its simply greed….ppl are too greedy to be fearful….or maybe its their fear of not making a “killing” in property speculation is bigger than their fear of making a large loss…….
If you look at the 1930s depression there was a double dip….we are staring at that double dip over 2010…all Govns are cashed out from trying to prevent the first freefall, can they stop a second? bet not…….what is our un-employment going to? 7% is nothing globally….
regards
January 16th, 2010 at 12:09 pm
Murray,
if you compare cities with similar populations I very much doubt their houses are more expensive than ours. US comparisons of 1-2 million cities make our houses appear very expensive.
January 16th, 2010 at 12:15 pm
@Jimmy: Agree
regards
January 16th, 2010 at 2:22 pm
Jimmy
One of the closest USA cities to Auckland in terms of population is Portland.
they have a metro population around 2 million, Auckland has about 1.4 million
According to the 2008 Demographia survey, the median house price to median income ratio of Portland was 4.9, Auckland’s was 6.4
Conclusion – Auckland housing is significantly less affordable than Portland’s
and its not like Portland is a dump either. I’ve been there, I would say it is comparable to Auckland in terms of lifestyle
January 16th, 2010 at 2:44 pm
Murray – do you honestly think there will be another boom over the next 5 years as there was during 02-07?
I would say very unlikely
January 16th, 2010 at 3:21 pm
@bank manager
hahahaha. Not sure the wife would let us live in a farm implement shed.
It was from one of the big house builders. Normal quality fittings. single level.
We’ll get a 220sqm house built for around 400k incl. land.
Current selling price for existing similar houses in the area c500k.
January 16th, 2010 at 3:23 pm
There can be no doubt savers should shift their capital to Aus. The more who do so, the greater the pressure on the property bubble as Banks are forced to raise rates to get deposits. Savers who stay are hurting themselves. You will also benefit from the fall in the value of the kiwi, which must take place.
January 16th, 2010 at 3:23 pm
oh yeah, incl. gst too
January 16th, 2010 at 3:27 pm
Well after recent visit to Auks have to report very few real Kiwis live there….Guess that is why the Auckland Blues fail…..again and again…………..Flew otta that city with relief back to real Kiwi country…..Purchased first rental properties late 1960s sold majority 2006/2007, sitting on fence at the moment not convinced all is rosy…
January 16th, 2010 at 9:04 pm
Its obvious the property ‘bulls’ know the only thing keeping prices up is the hype/fear/ false beliefs of people who think property is going up again. Prices include a large portion of extra value that assumes large future price rises. Once people realise this is not going to happen (cant because of credit restrictions), the rises will slow, prices may even fall but won’t start rising much above current values for another 5 years or so. Its the property cycle at work.
That is why TBM, Chris, RE agents etc feel the need to argue rising prices. If you have ever brought spec stocks you’ll know what they’re doing is called ramping. Talking up the future prices to get more buyers than sellers so the price goes up while they sell knowing fundamentals dont agree.
If you’re so confident in your housing shortage leading to price rises then why bother trying to convince people prices are on the rise? (wouldnt it be smarter to keep it to yourself so you can snap up properties before the prices take off?) Why do RE companies always sugar coat things to make it appear prices are always on the up?
We all know speculation plays a major part, and once people eventually start to understand big price rises are not to be seen for another 5+ years then we will see prices actually fall to where they are justified on pure fundamentals after striping this ‘fake’ value which has been pumped into them over last decade from speculation.
January 17th, 2010 at 8:39 am
If you’re so confident in your housing oversuppy leading to price falls then why bother trying to convince people prices are going to fall? (wouldnt it be smarter to keep it to yourself so you can sell up properties before the prices fall?) Why do the bears always look on the dark side of things to make it appear prices are always about to crash?
We all know speculation plays a minor part, and once people eventually start to understand big price falls are not to be seen ever again then we will see prices actually rise to where they are justified on pure fundamentals after striping this ‘fake’ value which has been pumped out of them over last decade from curmudgeons.
January 17th, 2010 at 8:53 am
Mr Sam,
Completely agree. Speculation can add a lot more to aggregate demand than decades of population/income growth. In NZ/Aus this is definately the case, the poor rental yeilds are proof. Rents are the most accurate indicator of real demand becasue people dont specuate on rents. All the bullish arguments on ppty shoudl be built into rents. Rents = supply v demand. Prices = supply v demand PLUS OR MINUS speculation / greed / fear.
January 17th, 2010 at 9:06 am
I could see you Pete…it was you in the Simpson’s episode wasn’t it…you know the one where all those ‘honest’ real estate agents were teaching Marge the “real truth” about selling property! You looked good in the red jacket Pete.
January 17th, 2010 at 9:43 am
Good analysis Jimmy. I agree speculation is a signficiant factor. But we must remember that if the supply of housing was more readily provided for (via more liberal planning, less exorbitant development fees etc) then there would be less speculative interest, because the chances of large price increases would be reduced.
Although Speculation vs Supply / demand is clearly bi-directional in its relationship
January 17th, 2010 at 10:18 am
Matt,
good points. i think we can say that often speculation exagerates a demand that exists. The existence of the demand enable spruikers to trumpet and justify price rises way in excess of what the demand factors justify. I think the growth of the last 9 years is about 30% reality, 70% hype. if you factored in income and rental growth that would probably be about right given incomes have risen about 30% over the last 8 years whereas propery has nearly doubled. As i repeat to Murray and Chis _J time and time again, the most important factor of all is the price you are paying now. If 30-40% of price is bubble speculation, you have already priced in a huge amount of future growth/demand and you need 10 years of real underlying growth to come back into alignment. ….. that said, real supply/demand factor can be the catalyst to start the realignment process. And i agree, if real demand is tight, ppty is more likely to stay out of alignment for longer. But eventually something will happen (eg credit restriction reduces demand, we build enough houses, boomers sell on mass, unemplyment reduces demand, interest rates rises reduce demand, renter decide its cheaper and better to rent etc etc). Once the itipping point is reached, then a tidal wave of speculative demand can leave the market as quickly as it arrived (but often quicker).
When and how? Who knows. All you can say with certainty is that given ppty is for most a long term investment, you are going to get a hit somewhere along the line. Better to have your money in asets that dont have 10-15 years of future growth already factored in.
January 17th, 2010 at 10:21 am
why can i never edit my comments?
January 17th, 2010 at 10:22 am
Well spotted Wally.
January 17th, 2010 at 10:23 am
@Jimmy,
Beautiful quote:
“Better to have your money in assets that don’t have 10-15 years of future growth already factored in.”
Just got to remember it now.
January 17th, 2010 at 10:23 am
Pete, they are nervous. Wally and alike speculators sold their properties at the peak, but missed out bottom.
January 17th, 2010 at 10:53 am
Matt/Jimmy – come on guys, I said “apples with apples” which doesn’t mean just comparing populations! London has over 12 million, Luxembourg has 0.5 million, yet they’re not 10 x dearer and 3 x cheaper respectively.
Auckland is NZs largest city, where the majority of immigrants arrive. The most expensive cities tend to be near oceans and beaches – Auckland is one of the few cities in the world that is between 2 oceans, 2 beautiful harbours, is surrounded by beaches and islands and has a temperate climate. It’s not surprising then that it ranked the 4th most livable city out of 215 cities in the “2009 Mercer Quality of Living Survey” – Portland comes in at 42nd. Portland is the 29th largest city in the US, is inland and on a river – perhaps more comparable with Hamilton.
I’m not sure where Demographia get their household income data from, but Wikipedia has Portlands median household income at $40,000 not $57,000 which would put their ratio close on 7. They also have 13% of the population below the poverty line.
I would suggest Auckland is more comparable with cities like Sydney & San Francisco with their beaches and harbours, and according to Demographia they have price/income multiples of 8.3 & 8 respectively.
January 17th, 2010 at 10:54 am
Steven – “@Murray: and your opinion is? Is/was Bernard wrong? or have we been lucky? (so far)…The established ratio of 3:1 ~ 3.5:1 where we are 6:1 right now suggests a 30~40% drop is not un-realistic”
Yes, Bernard was wrong. He predicted a 30% drop in the REINZ median house price from November 2007 to November 2009, and that didn’t happen – it was actually up very slightly. Since when has NZ had an “established ratio” of 3.1? Even back in the 60s it was over 4, which as Chris pointed out would currently equal 4.5 after GST was introduced. And that was for a 90m2 house, so why should you now be able to buy a 200m2 house for the same price/income ratio?
Your scenario of 20 years stagnation while inflation chips away is an outside possibility, though that would be a drop in “real” prices (inflation adjusted) rather than “nominal” prices which is what Bernard was talking about – there’s a big difference. You’re mortgage is in “nominal” dollars not “real” dollars!
January 17th, 2010 at 10:57 am
Matt – “Murray – do you honestly think there will be another boom over the next 5 years as there was during 02-07? I would say very unlikely”
Yes, I would also say unlikely over the next 5 years. More likely a “mini-boom” like Infometrics were talking of (24%) before flattening out again. However, it could be a different story if inflation picks up and materials, labour, council fees etc all surge in cost, GST gets raised, building levels stay low and immigration continues strongly……
If history is anything to go by, the next boom will be 2012 – 2017 and the next bust 2017 -2022, though the percentages involved is really anyone’s guess….
January 17th, 2010 at 10:59 am
Mr Sam – “after striping this ‘fake’ value which has been pumped into them over last decade from speculation” – so how are you going to build 200m2 on a 800m2 section for $250k???
The thing many of you miss is that houses are valued mainly by replacement cost. If you can buy existing for half the cost of building, you would buy existing, and vice versa if you could build for half the cost of buying existing then you would build.
There are times of oversupply when you CAN buy existing cheaper than building, and times of undersupply where you can build cheaper than buying existing, but neither situation exists for any great length of time…..
January 17th, 2010 at 11:08 am
jimmy – “Better to have your money in asets that dont have 10-15 years of future growth already factored in.” – that’s a fair call at this point in time. However, I’m still of the opinion that you guys won’t get your nominal price drops due to replacement costs. I’m also of the opinion that wage & rent growth has fallen well behind in the last 2 decades rather than house prices accelerating, and faster growth in those areas would also bring things more into alignment.
“But eventually something will happen” – perhaps your rents & incomes might grow at a much greater rate than house prices over the next decade or two?!…..
January 17th, 2010 at 12:43 pm
Murray,
If wages and rents spike, so does inflation, and so do interest rates. High interest rates are a disaster for those with loads of debt, and there has never been a time in our history where we have been so loaded up on debt. High inflation cant bail out the market this time.
January 17th, 2010 at 12:57 pm
Satyajit Das ( RadioLive with Andrew Patterson , this morning ) pointed out that 2 decades of QE in Japan , have caused no inflation to date . Why is global QE gonna produce a different result to this , if GDP growth is minimal ? And if that growth is a result of central bank intervention (QE) .
What is gonna push up wages in NZ , to meet the over-valuation of houses ? At Fairfax we’ve had no pay rise in 2 years ………I sense a third year coming on . Who out there feels the warm glow of increasing renumeration from an appreciative employer ???
Bernard was correct that houses are over-valued by 30 % in NZ , give or take . His mistake was to predict a fall . And to put a date , 12 months on that . Market timing is a game for liars / fools / or the bleeding lucky . ( Sorry Bernie , you are none of those ! )
January 17th, 2010 at 1:15 pm
Pete-
Did i ever say oversupply was the problem??
I said speculation was the problem. People so scared they’re going to miss big cap gains and NEVER afford a house because they didn’t get in early enough. This is the most common theme thrown around by first home buyers, they have been scared by the past decade.
I argue for rational views on the value of property to try to stop the speculation and prevent the last people onto the ponzi from getting burnt. The only reason people like you Pete are here is to pump up the speculation bubble, while people like me try to deflate it- both of us acting on the truth/fact that speculation is a significant factor.
January 17th, 2010 at 1:21 pm
Jimmy-”Rents = supply v demand. Prices = supply v demand PLUS OR MINUS speculation / greed / fear.”
Very well summarized.
January 17th, 2010 at 1:36 pm
@Murray-”I’m also of the opinion that wage & rent growth has fallen well behind in the last 2 decades rather than house prices accelerating, and faster growth in those areas would also bring things more into alignment”
How can rents and wages ‘fall behind’???????
What is the artificial factor impacting their values?
There are none. They are based purely on fundamentals. Where as housing value deviates massively due to speculation. If rent/wages are out of wack with house prices, its the house prices that are out. The correction will be of the form of negative REAL house price growth for several years, yes the nominal values may remain static, but in real terms they will come down as wages and rents continue growing along with fundamentals.
January 17th, 2010 at 2:15 pm
Mr Sam,
Speculation is a problem. Property in NZ may not follow fundamentals. Its affordability may not be associated to income earned in NZ. If the assessment is based on local income, then the property in NZ is very expensive based on the salary level here. However, the prices of property seems pushed up by money from overseas to so extent. This could price-out many aspiring local potential buyers who are earning NZ salary level. This would form the core problem if unattended. It would continue to mean that with current local salary level, house prices would be more and more overvalued so long as overseas money is coming in to compete in buying up local properties if NZ’s salary level is unable to catch up with overseas. So long as there is no restriction to overseas investors, this appears to continue as a problem. Do you agree?
January 17th, 2010 at 6:35 pm
Murray – you have a point in terms of city comparisons, it is not just about size as you say, but its not foolproof.
Yes Auckland has the harbour,beaches etc. like Sydney but it has nowhere near Sydney’s business pull, nowhere near Sydney’s wealth or sphere of influence.
Auckland is a middling sized city, with a fairly sleepy cultural life, and very limited business power and influence. Sure nice city, but very different to the larger global cities you mention
I think Infometric’s prediction is optimistic. “at best” I would see a 10-15% rise over the next 2 years, with more stagnation or more smallish dips.
“However, it could be a different story if inflation picks up and materials, labour, council fees etc all surge in cost, GST gets raised, building levels stay low and immigration continues strongly……”
I think quite a few things will change that limit these factors. GST may rise, but the degree of increase won’t be substantial, and it’s likely to be accompanied by a significant cut to income tax which will lessen the relative attractiveness of property investment. Not to mention possibility of land tax. I also hear through the grapevine that Rodney Hide and co. will look to seriously limit increases in Council fees, they may even try some reform to reduce these costs. In terms of building levels, if there really is pent up demand then building will respond to that. Lack of finance has contributed to building not surging over the last 12 months, but financing will free up over time. Immigration is likely to drop away as Aussie’s labour market strengthens significantly more than ours in the next 12-18 months. More kiwis will start leaving again, and less immigrants will come here.
And China’s property bubble is ominous, its got Japan written all over it. It may not smash, but even a moderate decrease in activity there would markedly reduce demand for building materials which would limit potential for large increases in building materials
January 17th, 2010 at 8:58 pm
Matt in Auck
“I think Infometric’s prediction is optimistic. “at best” I would see a 10-15% rise over the next 2 years, with more stagnation or more smallish dips.”
Sounds like you seen the light and coming over to the bright side
Question-previously you’ve said you have 100K saved up, this will get you currently into a $500K home (20% deposit). If prices did fall say 20% would you then go for a 600-700K home?
January 17th, 2010 at 9:07 pm
Jimmy, can you back up your statement re: enormous debt?
January 17th, 2010 at 10:02 pm
Alen,
i dont have exact fiigures (cant be bothered looking them up). But from recollection I think debt in NZ has gone from arounf 20% of GDP to round 100%.
January 18th, 2010 at 8:01 am
Everything is starting to depend on China!. Maybe we should all buy more Chinese made stuff…to keep their manufacturing engine going flat stick…to keep their economy on a charge…so they can buy more of our commodities and aussie dirt too…so we can earn lotsa dollars…so we can feed the govt….so they can dish out the benefits and pork to buy the next election…so we can buy the made in China bloody socks and other stuff with the WFF payments.
January 18th, 2010 at 10:23 am
Alen, try this:
http://www.rbnz.govt.nz/keygraphs/Fig5.html
Household debt as % of desposable income.
If this had remained constant then you could say house price increases were based on fundamentals, i.e an increasing wealth, increasing wages from a growing economy. But no they were based on banks increased willingness to lend to more and more people.
What is shows is house price increases are based on borrowed money. I’ve always looked at value of housing stock graph and this household debt graph and scratched my head as they look very similar.
The only way prices will continue upward is for this debt to grow further. This will only happen by banks further loosening lending criteria (low interest rates thanks to OCR has helped but this is temporary). The fact is the exact opposite is happening (look at baselIII)
The banks/government are now in the hard position of having to tighten lending again without collapsing the housing market. Best way is to get new money into the market to take houses off those who have overcapitalised.
January 18th, 2010 at 10:25 am
28_yr_old – thats what I see as best case, but I wouldn’t be surprised to see flatness or small declines either:)
500-520K is my limit, with either the staus quo, a drop or a rise in prices
I am keepimng my eyes open for a small section to build on, they are certainly not flooding the market, there’s a few out there but none yet “quite right”
I’m looking for a section circa 300 square metres and circa 300K in a good Auckland suburb, then building a well designed 3 bed smaller house for about 200-220K
Its realistic, it just depends on the right site coming up. I’m in no rush
I am also keen to see if a land tax eventuates – apparently land is likely to experience a one off drop so it might be good to wait for that
January 18th, 2010 at 10:41 am
Mr Sam – “How can rents and wages ‘fall behind’???????”
According to RBNZ & Census data, for the 30 years since records began in 1962 to 1992 incomes grew on average 10.15% per annum and rents grew at 11.1% per annum.
However, in the 17 years from 1992 – 2009 incomes only grew on average 3.08% per annum and rents only around 3.5% per annum.
That is what I mean by rents & wages falling behind. It is generally accepted that we need to lift our income levels to be able to retain our most skilled and talented…..
January 18th, 2010 at 10:48 am
Murray…check to see if the data is about ‘real incomes’….during the periods you mention the value of the dollar went to the floor.
January 18th, 2010 at 10:49 am
Matt – I think the biggest drops in land prices already happened, there were mortgagee lots selling at the end of 08 for nearly half their 07 prices, since then they’ve picked up a bit. A land tax might make another small dent, but I doubt they will ever get back to some of the prices on offer just over 12 months ago….
January 18th, 2010 at 10:57 am
Wally – no it says “Average Annual Salary” in “Nominal $ per Year”.
You can get the same info from the RBNZs inflation calculator:
http://www.rbnz.govt.nz/statistics/0135595.html
which will quote you the nominal cost in any given year. Note that the calculator presumes that “if a date prior to July 1967 is selected then the denomination is pounds; if a date after that is selected the denomination is presumed to be dollars. At decimalisation, £1 = $2.”
Quite a nifty tool from the RBNZ!
January 18th, 2010 at 11:21 am
@Murray – all that you’re saying is that inflation in everything was higher back then.
General inflation has slowed down. House price inflation hasn’t. So you’re saying that we need to push inflation up in everything else to bring it back in line with house prices. Were you around when general inflation was up at 25%? Heck, I can tell you that was no fun AT ALL.
January 18th, 2010 at 11:45 am
Too early in the day to get a hold of that Murray…I’m betting the numbers do NOT reflect the real value of the dollar. Those were the days when a chocolate fish went from 5 cents to 50cents a piece and then they shrank the fish. I remember the day when 3p bought me a boomer icecream. Those were the days.
January 18th, 2010 at 11:47 am
Murray – wages don’t just catch up due to some law of economics —-> you need economic growth and productivity.
We are sadly lacking, for many reasons including a lack of investment in the productive sector … partly caused by speculation on (existing) housing.
January 18th, 2010 at 1:18 pm
Gail – the CPI has been tinkered with so much it is a fairly unreliable measure. Petrol & food make up a large part of living costs, and these costs have also increased much faster than incomes in the last decade. There are a lot of costs which have doubled or tripled in the last decade.
What I was saying was for the last 2 decades house prices have averaged around 6.5% per annum whilst rents & incomes have grown around 3 to 3.5% per annum. If these figures were reversed for the next 2 decades, income/price ratios and yields etc would return to more historic norms….
P.S. yes I remember getting 25% on term deposits, though I didn’t realise at the time my money was devaluing just as fast!
January 18th, 2010 at 1:19 pm
IanC – I agree, and the sooner the country as a whole stops focusing on how to hammer property and starts focusing on how to encourage “economic growth and productivity” the better it will be for all of us…..
January 18th, 2010 at 1:43 pm
I fear one cannot happen without the other, in particular while tax treatment for most savers/investors (at least those able to save an amount which is meaningful in the context of NZ) effectively steers investment into property (at least for now)…
January 18th, 2010 at 3:08 pm
The problem with hammering property to try and steer people to other investments is that property makes up a large part of the economy in most countries. Despite many claiming it is “unproductive”, it actually employs a hell of a lot of people – builders, plumbers, painters, electricians etc – accountants, lawyers, valuers, surveyors etc – RE agents, housing companies etc – product manufacturers, building material suppliers etc…..
force it into a slump and the whole economy goes into a slump, which is why I say it’s better to focus on encouraging & helping businesses succeed rather than focus on penalising anyone involved in property……
January 18th, 2010 at 3:26 pm
IanC – here’s an example of how wages can and often do increase without actually increasing productivity!
“Strong support for big rise in minimum wage”
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10620765
January 18th, 2010 at 8:23 pm
@Murray
Raising the minimum wage will increase productivty as employers substitute capital for the more expensive labour. You only need to look at australia to see this.
“Despite many claiming it is “unproductive”, it actually employs a hell of a lot of people – builders, plumbers, painters, electricians etc – accountants, lawyers, valuers, surveyors etc – RE agents, housing companies etc – product manufacturers, building material suppliers etc…..”
These people could be employed more productively elsewhere. Do you not see the crowding out effect that property has? It does not earn us a living in the world like productive enterprise does.
January 18th, 2010 at 9:28 pm
There’s nothing wrong with building new houses from a productivity and GDP growth perspective. The issue is bidding up the price of existing land and dwellings (financing it through further borrowing – again, tax effective – is also not great).