Net migration outflows 'could reach 20,000 by the end of this year', Kiwibank economists say

Business / news

Kiwibank economists say exit of people from NZ could be similar to the Aussie mining-fuelled outflow back in 2011

28th Mar 22, 12:45pm by David Hargreaves

This country may see a net migration outflow of 20,000 by the end of this year as the borders re-open, according to Kiwibank economists.

In their weekly First View publication, Kiwibank chief economists Jarrod Kerr, senior economist Jeremy Couchman and economist Mary Jo Vergara, say that as the country re-opens to the rest of the world post-Covid, the net outflow of migrants "is expected to deepen further before eventually recovering".

They note that NZ citizens can already enter the country without the need to self-isolate. From April 12 "our Aussie mates can do the same" - in addition to people on temporary work and student visas. From May, visa-waiver countries will follow Australia. And by October, the border will fully open to all visa categories. At present, arrivals are still subject to pre-departure covid tests, and the requirement for RATs within the first week of arrival.

"The roadmap is certainly welcomed by tourist operators and education providers. The Government's roadmap is subject to change of course. The planned opening of the border to Australians has already been brought forward for instance," the economists say.

However, they note that the phased timing of border reopening is expected to "throw the net migration figures around" over the next 12-18 months.

"Long-term departures are forecast to increasingly exceed arrivals over 2022," they say.

"The assurance that Kiwis moving overseas can return home without the need for MIQ is expected to rekindle the desire for the big OE.

"Annual net migration outflows could reach 20,000 by the end of the year. That's similar to the last period of major outflow seen back in 2011, when an Aussie mining boom attracted Kiwi across the ditch for prospect of a six-figure salary."

Other economists have been offering similar views about Kiwis likely leaving the nest in considerable numbers with the opening of the borders. ANZ economist Finn Robinson and senior economist Miles Workman said in a recent report that "there’s a real risk that the staggered reopening of the border sees a large net outflow of Kiwis over 2022. This is especially the case given that the outlook for the Australian labour market has improved significantly".

Kiwibank's Kerr, Couchman and Vergara say that in contrast to those people choosing to depart the country, the economists say, long-term arrivals "will be held back" by the gradual reopening of the border.

"Prior to Covid, the top three sources of non-NZ arrivals were China, India, and South Africa. And all three are non-visa waiver countries," they say.

"In fact, applying current visa-waiver settings to non-NZ migrant arrivals data shows that most arrivals pre-Covid came from non-waiver countries (see chart below). The border will reopen to these countries from the December quarter. In the meantime, arrival numbers will be held back. From the December quarter we are picking long-term arrivals will start to meaningfully lift, and eventually lead net migration to return to an average of around 30,000 people per annum.

"That's higher than the long-term average, but well down from pre-covid highs."

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121 Comments

by Toye | 28th Mar 22, 12:51pm 1648425062

Another nail in the housing ponzi coffin.

by rastus1 | 28th Mar 22, 1:09pm 1648426179

...no...they will take their houses with them and create a bigger shortage, pushing up prices even more.

It's just like landlords bailing out which also creates a housing shortage.

Same thing.

TTP

by company of heroes | 28th Mar 22, 1:19pm 1648426749

Haha, good one, rastus.

by fortunr | 28th Mar 22, 1:46pm 1648428399

Brilliant

by sadr001 | 28th Mar 22, 2:37pm 1648431468

Or leave it unoccupied as it costs too much to comply with healthy homes standards. Anecdotal stories of people moving to Aus needing to replace designer 3.2kw heat pumps that have a power ratio of something like 5, with 10+ kw units (where power ratios are more like 2) for the house to be able to have tenants. Especially if they are environmentally conscious, they will have to factor in the cost of switching back to the smaller more efficient units when they get back.

Add in the risk of damage to the property and lack of ability to deduct mortgage interest and the value of renting out your home whilst you are away for a year or 2 rapidly approaches negative territory.

One mate said the risk and likely hood of damage to the spa and or the pool meant he would rather leave the house empty than have tenants.

by Beanie | 28th Mar 22, 2:20pm 1648430407

Off the subject, but why would a bigger heat pump have less efficiency?

by sadr001 | 28th Mar 22, 2:30pm 1648431023

The amount of energy you need to use to extract energy from the air goes up as you try to extract a greater % of the temperature difference. Think of it as a unit of air has 10 units of energy if you are trying to take 3.2 of those it is easy (imaging trying to get a little water out of a soaked dish cloth). If you need to take 9 of those it will be akin to trying to wring the last few drops of water out of a wet dishcloth (it can be done but more effort required is required).

by Beanie | 28th Mar 22, 3:06pm 1648433209

Thanks for explaining but that is assuming you are using the same smaller size evaporater unit outside your house. A proper sized matched unit will return to optimum efficiency.

by sadr001 | 28th Mar 22, 4:44pm 1648439086

page 30 of this product catalogue from Mitsubishi has a list of the units with specs in a table and you can see the energy efficiency drop from 6 to 3 as sizes get larger within the range (caps out at 7kw).

https://www.mitsubishi-electric.co.nz/materials/aircon/brochures/@HeatP…

perhaps that is a limitation on the size of the external unit that consumers will tolerate? The squared vs cubed law might apply.

by Beanie | 28th Mar 22, 6:21pm 1648444881

Thanks sadr...I have learnt something today.

by morepork | 28th Mar 22, 3:19pm 1648433980

If you set the inside temperature to the same level they will be much the same. Efficiency is usually related to the temperature differential.

I guess on a cold day the small one may only be able to heat your house to 18 degrees, where the larger one can keep it at 22, using more energy as it's heating more, but also due to lower efficiency at a higher temperature differential.

by sadr001 | 28th Mar 22, 4:46pm 1648439199

I have done a quick google search. What I find most telling is if you look at a single model line from a single brand the smaller units have higher COP. I checked Mitsubishi’s Avanti and Brontë lines as well as Panasonic’s Z line. Additionally most of the more efficient lines do not do units over 10kw.

page 30 of this catalogue from Mitsubishi electric has a table that shows the efficiency dropping from 6 to 3 across its range (caps out at 7kw).

https://www.mitsubishi-electric.co.nz/materials/aircon/brochures/@HeatP…

by Kinga | 28th Mar 22, 4:38pm 1648438731

Wouldn't the smart thing to do be put a second 3.2kW heat pump in rather than bin the old one

by sadr001 | 28th Mar 22, 4:50pm 1648439431

Not permitted by law. Ie. Healthy homes regulations prevent this if you plan to rent the house out.

it looks like the government did not allow for technologies such as hyper core that enable units to perform with close to optimum efficiency even in freezing conditions and as such have used the size of the unit to offset deemed performance drops.

by grum | 28th Mar 22, 5:29pm 1648441788

Pretty close. The house I live in as tenant had one heat pump, which was generally adequate except for 6pm-9:30pm on a humid night, where it spends most of it's time in defrost mode. Healthy homes deemed it to be too small for the space it is heating, and no-one was interested in taking input from a mere tenant, so we now have TWO heat pumps, both of which stop doing anything useful between 6-9:30pm on a humid night. Which is most nights in a CHC winter.

So we turn on the old 2kw convector to stay warm for the evening, until the heat pumps wake up just before bedtime. Madness.

by xingmowang | 28th Mar 22, 1:08pm 1648426112

open the door for rich or young or skilled people from Asia. problem sovled.

by 2022 | 28th Mar 22, 1:12pm 1648426370

So they can come to a housing Crash with very high interest rates.

by mfd | 28th Mar 22, 1:29pm 1648427353

Liberal use of 'or' there, I'd hope any migrants tick at least two of those boxes. One is not sufficient.

by EdwardD | 28th Mar 22, 1:41pm 1648428101

Agreed - they need to be both young and skilled. We need new arrivals to have worked and paid tax in NZ before being eligible for Super, so the cut-off age should be 45.

by fortunr | 28th Mar 22, 1:49pm 1648428551

We need as many young and skilled people as we can, from Asia or anywhere else. In any case, I found from my own personal experience that many young and skilled people from Asia have a very good work ethos

by GV 27 | 28th Mar 22, 1:50pm 1648428642

We could always pay the skilled kiwis we train here at great expense enough to make ends meet so they stick around.

It's a wild idea, I know, but we've got try something bold and new.

by Jesse1 | 28th Mar 22, 2:00pm 1648429241

Or have house prices at a level that is in line with incomes so it makes sense to stay here. We are unlikely to compete on income anytime soon so the equation should be the housing should be least affordable here.

by Beanie | 28th Mar 22, 2:24pm 1648430640

Well if we don't replace those leaving with immigration, house prices will come down and wages will go up. We also won't have to spend so much on additional infrastructure. What's not to like about that.

by RickStrauss | 28th Mar 22, 4:29pm 1648438170

But then folk who banked on investing in property will not feel as wealthy. Can't be allowed.

by refactornz | 28th Mar 22, 2:38pm 1648431508

Many young skilled kiwis will leave regardless of the pay and opportunities in NZ. OE is a part of kiwi culture that's been with us for years.

by GV 27 | 28th Mar 22, 2:56pm 1648432613

That's not an excuse to actively suppress wages for the people who don't leave though, is it?

by Kinga | 28th Mar 22, 4:13pm 1648437181

Noted the OE demographic is difficult to keep. Experienced teachers and nurses are what is the greater risk for the country and real wage growth would help significantly to keep then in NZ

by Yvil | 28th Mar 22, 3:47pm 1648435677

GV a very sensible idea of course. Here's a more practical story: we regularly provide accommodation to fruit pickers from various islands (Vanuatu, Samoa, New Caledonia etc…) we currently have 22 of them for 7 weeks. I once asked the person in charge of these men "why don't you employ Kiwis? Are you paying these seasonal workers less than minimum wage? He said "heck no, we can't do that" and showed an employment contract, "it's just that Kiwis don't want to do this kind of work, they rather have the dole"...

by wewillsee | 28th Mar 22, 3:57pm 1648436222

Surely the statement should be "kiwi's don't want to do this kind of work for this level of pay" Frankly seasonal work basically means contracting which comes at a certain premium to offset the lack of job security.

by sadr001 | 28th Mar 22, 7:14pm 1648448045

It is more to do with the premium over the dole that employment offers. If picking fruit paid $39 an hour someone on the dole looking to pick up a few hours would lose 50% in dole abatements, 30% in tax, 1.4% in acc levies & 3% in kiwisaver, resulting in an effective marginal tax rate of 84.4% and take home pay of about $6 per hour ( if you have working for families, student loans, accommodation supplements or attachment orders, your marginal tax rate could be even higher ). Say it costs $5 for the bus each way, and $10 for lunch out, you would have $28 net at the end of an 8 hour day ($3.5 per hour). The problem is that effective marginal tax rates are too high.

by RickStrauss | 28th Mar 22, 4:31pm 1648438267

When a relative of mine did it decades ago he was paid the equivalent of $28 per hour and given free accommodation in the dorm house. It was understood that expecting folk to rent nearby wouldn't be economic.

by Spiceeh | 29th Mar 22, 1:10am 1648469422

'decades ago' doing heavy lifting here.

by RickStrauss | 29th Mar 22, 2:47pm 1648518458

It was a different time, yeah. There was some use of backpacking and migrant labour, but not dependency and a refusal to acknowledge the reality of what locals might need (e.g. not to have to pay exorbitant rent to pick fruit for a season). Maybe we're just more dependent on cheap, exploitable labour for the profits wanted?

by blobbles | 28th Mar 22, 4:45pm 1648439122

Having worked on a casual basis around fruit picking when I was younger, it's no surprise. Not that kiwis don't want to do the sort of work, there were some professional work units of kiwis going around and doing the work, but it was always short term contracts. Those work gangs were good, but never in stable employment for years on end, which made it impossible for them to live normal lives. So they were generally young and fit and not interested in families etc or older/post divorce and OK with the random places to work and hours.

It's a bit different if you are coming over here from the pacific, your employer often will house you (often for a nominal fee taken off your wages) and pay for your flights and quite often feed you cheaply too. You fly in, do the work, fly back and don't have to think about things like rent, cost of living, transport, your random hours and how it fits in with schooling for your kids etc as all of that is taken care of by your relatives back in your home country. It's a lot different for kiwis living in the area long term who would need to think about all these things. For the PI worker, the wage in NZ doesn't matter, it's what that money converts to back in there home country that matters, which is often a windfall. Ag employers in NZ know this so find ways to make the pay as small as possible (charging rent etc). Essentially we import labour and externalise the cost on society, but it's a way of doing aid in the pacific, so maybe not so bad.

by jboss | 31st Mar 22, 9:34am 1648672464

Thanks for your thoughtful and insightful response.

by Hamish | 28th Mar 22, 6:00pm 1648443615

I reckon aligning the tertiary academic year with the seasonal working calendar could be worth looking at?

Can't change when the fruit needs picking, but the academic calendar could be more flexible to offer up a win-win there.

by Miguel | 28th Mar 22, 6:30pm 1648445411

What a load of crap. Here is the truth, fruit picking offers no career path, no stability or year round income. If I were to take a short term IT contract in an inconvenient location, with no career advancement I'd expect to be pay well above my annual salary. That is standard. Yet employers of fruit pickers think they can offer short term work at rates slightly above the minimum wage.

When they say "we pay well above minimum wage" it ignores the fact they generally do this by paying for 40 hours, but expect more than 40 hours work. They then use tricks like claiming a salary notably above minimum wage but then deduct excessive "accommodation" costs.

by Yvil | 28th Mar 22, 7:18pm 1648448287

Thanks for all the passionate replies. Yes if the pay was $50/hour instead of $22.60 more Kiwis would be wanting to do the work, but ARE YOU ALL WILLING TO PAY TWICE AS MUCH FOR YOUR FRUIT & VEGES at the supermarket?

by Brock Landers | 28th Mar 22, 8:20pm 1648452000

The picking cost for fruits and vegetables is almost negligible.

by Sluggy | 28th Mar 22, 5:34pm 1648442095

Its notable that the travel industry has struggled to pull staff back from their new found employ post covid. Mostly due to the very low wages paid in travel pre covid, rates are up around 20k to try and attract skilled workers.

by Baywatch | 28th Mar 22, 3:02pm 1648432944

Especially if your position is linked to their visa application. They don't seem to mind deducting rent, power, and not having holiday pay?

by Eschaton | 29th Mar 22, 9:34am 1648499651

Why would they come here when they are ignored at best, exploited at worst.

by Small Kev | 28th Mar 22, 2:03pm 1648429434

“open the door for rich or young or skilled people from Asia. problem solved.”

This is exactly what they will do, just a matter of time.

by Sam B | 29th Mar 22, 9:57am 1648501058

Why would they want to come here? One look at the kind of shitholes they'll have to live in, and how much they'll pay for them, and any NZ salary will start looking pathetic.

by HouseMouse | 28th Mar 22, 1:15pm 1648426531

A deflationary effect, among several, to potentially partly mitigate inflationary effects.

Along with all the supply coming on line, will act as a headwind for rental prices.

by blobbles | 28th Mar 22, 1:52pm 1648428753

Lots of rental prices dropping now in Wellington, obviously some landlords finding extortion more and more difficult...

by Zack Brando | 28th Mar 22, 1:56pm 1648429017

I'm in ChCh, but I'm interested to hear more about this.. please expand on your comments if you're so inclined.

by blobbles | 28th Mar 22, 2:24pm 1648430673

Was tracking two in my neighbourhood which were sitting empty for a couple of months, have been rented now but prices dropped from 750 and 620 per week respectively (former by $50pw, latter by $30pw). And have just heard from another 2 renters today in the office about their attached dwellings being empty and the landlord dropping the price on them (different places, one in Johnsonville, the other Mt Vic).

by Yvil | 28th Mar 22, 2:54pm 1648432460

I think Zach was referring to your claims of "extortion"

by Zack Brando | 28th Mar 22, 4:11pm 1648437110

I've never lived in Wellington but went to a rental viewing some years back. The property was old, 2 bedrooms, up a hill on the outskirts. The layout was akin to a 2 bedroom hotel suite.

Before viewing the property I thought it was excessively expensive, but it seemed sunny and I had it in my head Wellington would be a great place to live, also there was an uncommonly offered coding course I wanted to take.

Not being from Wellington, I naively rocked up in the most respectable casual wear I had with me. The pictures on TradeMe were good so I reasoned to myself, "If I like it, I'll rent it", "It's a bit small for the price, but I can always offer less".

WELL, I get there.. ..lol.. ok, start again.. WELL, I get there lol:

- The bathroom vanity and fixtures aren't in the bathroom, no, no - they're in the entrance!

- The property manager seems totally uninterested in me

- I look around, expecting to see people my age jockeying for the tenancy, no, no - bureaucrats everywhere, Hugo Boss clad Suits.

It dawned on me, Wellington is ******, great place to visit (was anyway) but not so much a place to live.

Was a case of 'Goodbye Yellow Brick Road' I'm going back to my Christchurch.

by Spiceeh | 29th Mar 22, 1:17am 1648469846

typo...they meant exploitation.

by Hardly | 28th Mar 22, 2:17pm 1648430276

Place down the road from me is admittedly shitty (in a gullly), has had a sign up for months seeking $750 a week.

by redcows1 | 28th Mar 22, 1:24pm 1648427074

Was positive reading until the last two sentences.

Strangely, considering some of the commentary I've heard about heading overseas for decent wages, my youngest kids (30s,just) have both picked up jobs with 30% increases and very favorable hours work from home etc. Even more strange they both went back to previous employer. Both own houses and have kids and earn enough to afford them on a single salary. Note they Obviously they did it themselves cause these useless parents don't own a house.

by singautim | 28th Mar 22, 1:49pm 1648428563

A good story. Happy for your family. Probably highly unusual.

by singautim | 28th Mar 22, 1:59pm 1648429180

Agreed about the last two sentences. Usual rate has been 45k residency visas per year + plus many more work visas. To match the typical pro-immigration OECD country per capita that should be about 15k. Then there are successful countries with tough stances on immigration: Japan, Norway, Denmark.

by JustAnOpinion | 28th Mar 22, 2:47pm 1648432028

You need to re-read your ponzi-playbook friend! You can't keep the worlds most blatant set of monopoly and oligopoly businesses making world beating net revenue if you don't massively over-subscribe your infrastructure and social services.

This is ponzi 101 stuff come on, how can you get away with it if the masses are not distracted by the prices heading to the moon and "shortages" appearing everywhere driven by over-subscription? You cannot let them think, there must be a crisis.

by teeitup | 28th Mar 22, 1:23pm 1648426988

As a young professional in my mid-20s about to leave NZ, I can tell you the risk is very real. No exaggeration, approx 75% of my immediate and wider circle are all expecting to leave NZ in the next 12 months. I've done well for myself here and I'm earning good money, but house prices are just so ridiculous and the opportunities overseas too big to ignore.

There is a backlog of people who would have left over the last 2 years all leaving now that is causing huge amounts of FOMO for those who were planning to stay here, that those people are now leaving as well. The feedback loop is feeding itself and it's really not one to ignore.

by Zen20 | 28th Mar 22, 1:44pm 1648428289

but y'all will come back when WW3 begins eh?

by agnostium | 28th Mar 22, 2:00pm 1648429224

If WW3 kicks off why would you think NZ would be safe?

by Carlos67 | 28th Mar 22, 2:46pm 1648432003

That's hilarious, where are you going to be, sitting on the Moon ?

by agnostium | 28th Mar 22, 5:14pm 1648440842

It will not matter where I am, I'll be dying a slow, painful death like almost everyone else alive today. https://allianceforscience.cornell.edu/blog/2022/03/what-the-science-sa…

Although on the plus side your Tauranga home will still probably be up 5-10% year on year because as we all know the NZ housing market is too resilient to fall.

by JustAnOpinion | 28th Mar 22, 5:30pm 1648441823

5-10%!! That really is a nuclear winter... But RE Agents will survive without question.

by Pa1nter | 28th Mar 22, 2:55pm 1648432532

Same reason it's always been, it's not a valuable enough target relative to the effort to invade and occupy it.

When I was a kid NZs biggest perceived issue was it's distance from the rest of the world; higher prices, less consumer choice, less opportunity, lower pay.

Those issues still exist, but in the meantime much of the rest of the world's become a far less desirable place to be. Still fun to go check it out though.

by teeitup | 28th Mar 22, 2:05pm 1648429523

If it did, yeah probably I would.

But by now there is so much fatigue in this population waiting for the perfect moment in time. People are over it and don't want to wait anymore despite the risks.

by blobbles | 28th Mar 22, 2:14pm 1648430052

Banking on WWIII to save a housing bubble...

If there is an outbreak of hot war, going overseas won't really be a thing anyone will do anymore, unless it's on a troop transport ship.

by company of heroes | 28th Mar 22, 2:53pm 1648432393

No one is completely safe when WW3 begins...

Solomon Islands-China security deal is 'gravely concerning', Prime Minister Jacinda Ardern says | Stuff.co.nz

by Spiceeh | 29th Mar 22, 1:25am 1648470312

I'm actually looking forward to the new multipolar world. Any unipolar hegemony becomes tyrannical to remain on top no matter how frequently they scream democracy.

by KiwiinSpain | 28th Mar 22, 8:18pm 1648451892

Good luck.

"We" (whatever "we" means culturally in 2021!) have always be fond of the big OE however it's fair to say are witnessing systemic changes in the reasons for moving abroad. Just prior to exiting Aotearoa (isn't that the official name now, not sure if anyone missed that memo!) we had conversations with several local property investors listing properties for $1,000 - $1,200.00 per week and being quite upset no-one was applying. Wellington based, mainly old, damp and poorly built (but not all, i'm sure) but then this town is supported by the ever generous govt spending machine. Sort the housing ponzi - easier said than done - and more would stay, settle, have kids, etc.

Also makes it super tough to employ young folks; with rent and cost of living so high, SME's need to offer good coin. Whole economy suffers.

I see Simplicity Investments are developing some amazing non-term rentals in AKL, thanks to KiwiSaver. At first glance, WOW, hope is kindled.

by jstockman2 | 28th Mar 22, 1:46pm 1648428362

Where is the NZ population policy?....

No wonder the govt or other parties haven't come up with one, as they will ramp up immigration to save the housing market. Cant have more supply than demand can we?

by singautim | 28th Mar 22, 1:52pm 1648428779

It helps if the immigrant is well paid not Uber drivers, cleaners or checkout operators. Otherwise it is more pressure on the low-end rentals. Please make immigrants pay for the facilities they find in NZ. They do if they pay above average income tax.

by Zack Brando | 28th Mar 22, 1:53pm 1648428793

It's government policy and what homeowners 'expect' don't you know :)

by Brock Landers | 28th Mar 22, 1:58pm 1648429089

The "net" figure will hide the true horror of the situation.

Kiwi kids to be replaced by cheap imports.

by Jesse1 | 28th Mar 22, 2:06pm 1648429584

Lots of people want NZ to continue to have high house prices. This is the cost.

by Beanie | 28th Mar 22, 2:28pm 1648430932

Lots of landlords want NZ to continue to have high house prices. This is the cost.

Fixed it for ya.

by JustAnOpinion | 28th Mar 22, 2:53pm 1648432426

This is a common mis-understanding. Landlords (and I am one) don't give one in regards to the price of housing, you buy and sell in the same market and as long as the economics (which are starting to look very dodgy) stack it's all good. A landlord who has been in market a while is very unlikely to go under from an equity position perspective.

No one wants high prices, they are inefficient for everyone and as has been discussed many times leads to a lack of diversification (the all-in nature of a "secure" asset) and certainly to a lack of investment in more base-production businesses.

by Yvil | 28th Mar 22, 2:58pm 1648432692

That's a brave comment, don't you know landlord = bad, very, very ,very bad, the root of all evil actually, probably the cause of the war in Ukraine

by JustAnOpinion | 28th Mar 22, 4:00pm 1648436417

:) No doubt about it, all successful systems of commerce breed specialisation which allows price differential and disproportionate earnings on capital. Those who are earning those "excessive" returns are always the villains

However I think the real villains are the incompetent village idiots in charge of protecting the young and new starters. The total lack of taxation or credit control has without doubt created a legacy of unnecessary debt and generational wealth gap.

by the Joneses | 28th Mar 22, 3:10pm 1648433443

Doesn't increasing prices make it easy for landlords to leverage their equity to buy more and more properties? I was in the understanding that is how the big landlords get to be so big. Higher risk but higher rewards.

Also unless you are giving the rentals to your kids, you want the value of the houses to be high when you eventually sell up. Makes for a nicer retirement I would have thought?

If you have more houses than you need, you benefit. It is everyone else who is getting shafted by ever increasing house prices.

by JustAnOpinion | 28th Mar 22, 3:52pm 1648435963

Leveraging the equity is certainly an unfair advantage there is no disputing that. However it is still proportional. If house prices went up slower the leveraging equity model would work exactly the same due to the "buy and sell/mortgage in the same market" rule.

So while it is true it does not hurt the landlord it does not make it easier to build the portfolio.

Incidentally leveraging equity has been used to buy additional assets since capitalisim was invented by the Dutch in the 16th century. It is a flaw in the system that can be reduced by taxes, the best ones are death tax, capital gains tax and stamp duty, none of which we have.

by Beanie | 28th Mar 22, 4:28pm 1648438084

It certainly does make it easier to "build the portfolio". Run the maths.

It also makes it easier to raise the rent therefore providing a greater return on your original investment.

by JustAnOpinion | 28th Mar 22, 4:56pm 1648439790

No it doesn't read what I wrote or have someone read it to you.

No it doesn't, rents are set by Property Managers and set by the current rent rates plus inflation.

Not sure you could know less about what you are commenting on.

by mfd | 28th Mar 22, 6:09pm 1648444164

I think you are incorrect here. Lets do round numbers to illustrate the point - I have a 1 million dollar rental with 80% LVR, so 200k equity. Move forward 1 year.

If house prices haven't increased, I have maybe 220k in equity, depending on what I've repaid. I need to keep 200k in the first property. Looks like I can't afford another house.

Imagine house prices have doubled - I now have 1.2 million in equity. I need 400k deposit to buy another similar home (now 2 million dollars) and need to keep 400k equity in the first house to maintain 80% LVR. I can buy two new houses already!

Extreme examples obviously, but this is why rising prices allow the investor to snowball a portfolio. Some decent DTI restrictions would essentially put a stop to it.

by refactornz | 28th Mar 22, 6:48pm 1648446507

JustAnOpinion, I've read your post and I agree with Beanie, the higher the price increases, the easier it is for investors to leverage into more property.

Example:

10 properties at average $1M each.

If prices increase 4% per year:

- equity gains would be $400K

- almost enough equity to buy 1 additional property after 1 year with 40% deposit

If prices increase 20% per year:

- equity gains of $2M

- enough to buy 4 additional properties after 1 year with 40% deposit

by JustAnOpinion | 29th Mar 22, 8:52am 1648497150

You are both missing the rising market effect. The cost of new properties rises with rises in equity. DTI is already in effect as it relates to mortgage serviceability.

The equity effect is real I have said that. Rising prices do not increase this effect in my opinion.

by mfd | 29th Mar 22, 9:06am 1648497981

No, I did not ignore that. Leverage means that equity grows disproportionally. In my example above, house prices have grown by 100% while equity has grown by 500% - the power of leverage.

If rental properties can cover there costs (which I admit is rarely the case these days), the only limit is how much equity you have and therefore how much more debt you can acquire - in a rising market your equity grows disproportionally and can be used to leverage up into a much bigger portfolio.

DTI is not the same as mortgage serviceability. A rental property might be serviceable with a 6% yield to cover costs, but that implies a DTI of over 16 which is at the 'insane' end of any DTI regulation. Other income would need to be brought in to bring the DTI down to 6-7, and there's only so many properties a salary can be spread over while maintaining this ratio.

by Kinga | 28th Mar 22, 4:36pm 1648438565

Lots of politicians want house prices to go up. More immigration high unemployment low interest rates $$$$

by Pa1nter | 28th Mar 22, 2:58pm 1648432717

Just from experience someone keen to be in NZ is a far better employee than a perpetual moaner.

Imagine thinking being born here made you of inherently better quality.

by Brock Landers | 28th Mar 22, 4:30pm 1648438227

It's a bit like the man that can't attract a kiwi girl, so gets in a mail order one that "knows her place".

by JustAnOpinion | 28th Mar 22, 5:00pm 1648440002

Some men don't want kiwi girls, that is not the package that attracts them. Your use of "knows her place" says unkind things about you I think versus them, you cannot think that of them without knowing them.

by Brutus Iscariot | 28th Mar 22, 3:23pm 1648434229

The Population Ponzi has been in force for a decade now.

OUT = Pakeha and Maori working class and middle class, to Australia and Europe.

IN = South and East Asian immigrants.

Rinse and repeat.

The latter will take lower wages and do "lower status" jobs. They also won't kick up as much of a fuss if mistreated. The Kiwi businessman's dream...

by Dgm | 28th Mar 22, 2:16pm 1648430180

The news keep getting better for the spruikers..

Anyone taking bets as to when it will stop

by Neil21 | 28th Mar 22, 2:18pm 1648430299

Add this to the rapidly declining birth rate, higher interest rates, inflation etc, and the shortage for most developed nations in the foreseeable future is people.

And people will go where the best standard of living is - and it's probably not here.

It won't be long before we open up the borders to anyone that will come here. The need for skills will be irrelevant - just so long as they can work.

Scary to think that our population may have peaked.

by PocketAces | 28th Mar 22, 3:46pm 1648435594

"Scary to think our population may have peaked".

Nope and hopefully as women gain more rights elsewhere other countries will follow. This planet needs fewer of us, the kindest way for that to happen is the birth rate dropping below replacement.

by agnostium | 28th Mar 22, 5:18pm 1648441120

The sad thing is it absolutely does not need to be this way. I am convinced we could have the best standard of living in the world if we got our policy settings right.

by KiwiinSpain | 29th Mar 22, 5:55am 1648486525

Completely agree

by KH | 28th Mar 22, 5:30pm 1648441859

Population down is a welcome change.

by JustAnOpinion | 28th Mar 22, 5:34pm 1648442078

The world population may peak in 2064 at 9.7 billion and then decline to around 8.8 billion by 2100, the University of Washington researchers wrote in The Lancet.

https://www.weforum.org/agenda/2021/12/world-population-growth-decline-…;

We have a way to run.

by PocketAces | 28th Mar 22, 7:13pm 1648447985

Nope it's vast overestimation of what is sustainable and none of those number are

by Gummy Bear Hero | 28th Mar 22, 2:33pm 1648431211

I heard Ashley Church on the radio , yesterday afternoon ... he poo pooed the banks forecast of house price falls ... said they'd been wrong in the past , and will be proved wrong again.... Ashley says property has small swoons , and may have another , but that in 5 years time house prices across NZ will be considerably higher than they currently are ...

.... there you go .... keep buying .... buy buy buy !

by Carlos67 | 28th Mar 22, 2:52pm 1648432326

Basically its true isn't it ? My only question is as follows, if the market doesn't crash now within the next few months, will all the DGM's finally give up ? Its a serious question you can only keep on banging on for so long and you have to make a decision to just move on.

by JustAnOpinion | 28th Mar 22, 3:01pm 1648432900

Yep, if housing does not come down by 10% or more this year it is time to break the last thread of a previous mental model where labour was the base-case for capital.

This model has existed before, in a past where we were all serfs to an invisible and never seen royalty.

by RickStrauss | 29th Mar 22, 2:52pm 1648518753

It will effectively mean the value of their labour has been debased to such an extent by asset market manipulation that their only recourse is either revolution or radically active capture of democracy.

by JustAnOpinion | 29th Mar 22, 4:50pm 1648525808

I think this might have started, albeit unconsciously - https://www.stuff.co.nz/national/politics/127766970/covid19-parents-exp…

by Baywatch | 28th Mar 22, 3:13pm 1648433621

Its crashing now Carlos.."if the market doesn't crash now within the next few months"

You cannot have it both ways and you need to make sense please?

by lucenera | 28th Mar 22, 5:25pm 1648441519

Doom and gloom is hoping even more expensive houses, cheering for govt interventions in defending the main tools of unhappiness, menthal health, insecurity, injustice.

You are a DGM

by Zaphod The Flatulant | 28th Mar 22, 2:53pm 1648432425

Yeah that was amusing - he keeps on going on that we've had drops before and it always comes good - GFC etc.

What he misses is that during those times, we had higher interest rates and lower inflation, so could afford to stimulate the market by dropping interest rates.

We've already in a period of low interest and high inflation, as is most of the world, so there's little chance the RBNZ can afford to risk stimulating one market at the risk of hyper inflation across the rest of the economy.

by Jesse1 | 28th Mar 22, 3:33pm 1648434835

Yes what you say is why this time is structurally different than 2008 and 2020 when the RBNZ saved the market. Most people don't understand this very important difference because all they know is "Property doubles every 10 years" and they don't think there is any need for further analysis.

by David Murray1 | 28th Mar 22, 2:53pm 1648432424

This will also affect house prices as there will be fewer people looking to buy an increased supply of houses.

by JustAnOpinion | 28th Mar 22, 5:36pm 1648442186

Net inward migration will still be positive and overtly so. So more people buying an increased supply of houses.

by ACB | 28th Mar 22, 3:22pm 1648434164

I don't get it. The border has been only closed for those wanting to come here, not leave. Why would the opening of the arrival gate cause more people to leave than arrive?

by Nifty1 | 28th Mar 22, 4:39pm 1648438780

Even though you're leaving you might want to come back and visit friends & family...or they might want to visit you. Alternatively if your plans don't work out it's nice to know you can return to your country freely. More certainty on open borders encourages those to go.

by ACB | 28th Mar 22, 3:30pm 1648434612

Yeah, I've heard that one too but when I moved to Oz, I wasn't anticipating returning anytime soon e.g. within a year. Anyway, different mindsets I guess.

by Te Kooti | 28th Mar 22, 3:32pm 1648434748

If you actually read the article there is virtually no substance to it. There is the hypothesis that Kiwi's will leave now because they know they can get back in without quarantine and also technical factors suppressing arrivals this year that will flip dramatically next year.

by agnostium | 28th Mar 22, 5:29pm 1648441792

Because, before if you left there was no guarantee you could get back in easily to visit family and friends or if things didn't work out for you abroad. Oz has indicated they are looking to take in immigrants. Their wages are higher, the career progression prospects are stronger, their housing is cheaper, their economy appears to be in better shape and more resilient, their cities are bigger and more vibrant. I love NZ and all it offers but the appeal of nipping over to OZ for a couple of years, save some money, progress your career and then come back to NZ when house prices have calmed down is very appealing for young professionals, especially in the medical, IT and engineering sectors. Whether they then decide to come back after a couple of years is another matter.

by PocketAces | 28th Mar 22, 3:43pm 1648435404

So can we stop chopping up more and more farmland and stop building all these ticky tacky houses so close together they can't have old style eaves any more, where there's no room for trees and no place for birdlife, and no place to grow much more than your own parsley.

Said it at the beginning of all these people racing back, they were just heading back here to shelter from covid, using our hard work to keep it out for as long as we did, they would bugger off again as soon as the coast was clear (enough).

There will also be a build up of those wanting to do their OE and why shouldn't they?

by blobbles | 28th Mar 22, 4:03pm 1648436603

Those ticky tacky houses are all that the market can afford due to restrictive planning, underinvestment in infrastructure for the past few decades and nobody wanting to create lower building costs. Which has benefitted existing land holders enormously. If you don't like those houses and own a large section in inner city suburbs, you can look in the mirror to see who is responsible for the situation.

by PocketAces | 28th Mar 22, 4:13pm 1648437191

I suspect if you reread my comment, you will see I was referring to the cutting up of farmland. In the city farmland has long been sacrificed to the sacred god of population growth, it makes sense to maximize use of land there, although green spaces and trees are still important there.

I don't live in a city centre

by TommyYank-old | 28th Mar 22, 8:49pm 1648453768

If farmland was not cut up around Auckland in the 50's to the 90's (Botony, et al) imagine how expensive Auckland houses would be.

The real problem in Auckland causing Houses to go from 3x's income to 9'x's income is the city blocked exurbia growth. If all of the Lifestyle Block land north of Albany and from Helensville to Orewa had been converted to Residential land as was done in Manakau 60 years ago there would be room for 400,000 more houses closer to the CBD than Pukekohe, and the loss to NZ "farmland" would not amount to a hill of beans, but instead tens of thousands 30 to 40 year old middle class families would have houses they could afford because 400,000 new sections would be cheaper than starving the region for development land. To build affordable and develop new suburbs as was done in the 60's it has to be done in huge volumes of adjoining land masses. That's available up north if it has been rezoned from farmland (lifestyleblocks) to residential subdivisions. Go to Queensland--still done today and housing is cheap by comparison.

Maybe that is still to come with rail heading north from the CBD--but its 2 generations too late for most Auckland working class families who have suffered from restrictive land policies imposed on the post" baby boomers"generation.

by PocketAces | 29th Mar 22, 9:16am 1648498592

If we hadn't been so hell bent on an exploding population much of it would not have had to happen. Truth is, this land is some of the very best in NZ, and concreting over it is completely, utterly and sadly, irreversibly, mad

by Eschaton | 29th Mar 22, 9:39am 1648499983

Move the Capital to Palm North and build it so people want to move/live there.

by RickStrauss | 29th Mar 22, 2:54pm 1648518882

Fair enough. If they did that and also relaxed inner zoning, how much more land would be freed up? Masses...

Of course, fewer folk would be able to congratulate themselves on having bought for beans only to be enriched by government, council and reserve bank policy.