PM says Arthur Grimes' call to build 150,000 new houses in Auckland to produce a 'supply shock' that drives prices down 40% is a 'crazy idea'; says home owners don't want equity values to fall; says it would hurt banks

PM says Arthur Grimes' call to build 150,000 new houses in Auckland to produce a 'supply shock' that drives prices down 40% is a 'crazy idea'; says home owners don't want equity values to fall; says it would hurt banks
Prime Minister John Key talking to Corin Dann on TVNZ's Q+A on July 26

By Bernard Hickey

Prime Minister John Key has dismissed comments from a former Reserve Bank chairman that Auckland needs a 'supply shock' of tens of thousands of new houses to push house prices sharply lower.

Key said Auckland home owners did not want equity values to fall and the Government preferred to slow the rise in house values, rather than cause them to fall. He also suggested it could hurt banks, although Reserve Bank stress tests show they would have sufficient capital to deal with a 55% fall in Auckland house prices.

"Nah, I think it's crazy," Key told his Post-Cabinet news conference when asked about Arthur Grimes' view that the Auckland needed to be flooded with an extra 150,000 houses to cause a 40% fall in house prices.

"Go and ask the average Aucklander who has got a mortgage with the bank whether they want see 40% of their equity disappear on a sort of notion from an economist that you're gonna crash the market," he said.

"What Auckland needs, and what the rest of New Zealand needs where it's in high growth, is a sustainable supply of housing to meet the demand. Obviously making sure that prices don't go up too rapidly is an important part of what we're trying to achieve here. But actually destroying people's equity is not what this Government's all about."

Key was then asked if such a price fall would simply take prices down to where they were in mid 2012.

"Oh yeah. But it would also leave an enormous number of people who have just entered into the market with huge losses," he said.

"I suspect it would put enormous pressure on developers, that could put pressure on some of the banks. I don't see why that would be a good idea."

Key said Grimes' comments about building 150,000 homes were unrealistic, given consents were currently running at just over 9,000 a year and the Government aimed to get it up to over 13,000 a year.

"Where you'd get a 150,000 homes from overnight, I don't know," Key said.

25,000 new homes needed per year

Grimes, who is one of New Zealand's most senior and experienced economists, has chaired the Reserve Bank and was a member of the Government's 2009/10 Tax Working Group. He argued this week that a 30% increase in dwellings in Auckland over a six year period (25,000 houses a year) would lead to a 40% fall in house prices in Auckland.

Grimes is now a senior fellow at independent research group Motu, said it had published research that found that a 1% increase in the number of dwellings relative to the population would lead to a reduction in house prices of around 2.2%, given current interest rate and income levels.

"Thus a 40% fall in house prices means that the number of dwellings in Auckland would have to expand by around 18% relative to the current dwelling stock. On top of that, the stock has to increase to reflect population growth. So with, 2% population growth per annum, the stock of dwellings in Auckland would have to increase by roughly 30% if prices were to fall by 40% over the next 6 years," Grimes said.

He said the scale of the building required would mean Auckland would have to go both out and up. He proposed using the Public Works Act to allow Auckland Council to buy rural-zoned land on the fringes at a 50% premium over current rural land prices and then using the development profits to pay for infrastructure and services for the enlarged community.

'Why not build like the Gold Coast'

Grimes also proposed allowing high rise apartment blocks along Tamaki Drive and along the ridges on the Eastern Suburbs

"For instance, Tamaki Drive is ready made for high-rise apartments where tens of thousands of people would no doubt wish to purchase apartments. Of course climate change may make development on Tamaki Drive a risk, but a few blocks back from the sea – on the ridges overlooking the harbour – would work just as well," Grimes said.

"Lift the restrictions on the heights of new developments, and I expect that we would see an utter transformation in the intensity of housing from Orakei through to Glendowie."

Grimes also contested the idea that a big fall in house prices would hurt New Zealand's banks.

He pointed to stress tests done by the Reserve Bank which had found a 55% fall in Auckland house prices, along with a 13% unemployment rate and a 6% fall in GDP, would result in lower bank profits and a slight reduction in capital ratios, although not enough to breach minimum capital levels.

Here is the Reserve Bank stress test done in late 2015 that was reported in the May Financial Stability Report.

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20
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Wether Govt like or not, bubble will burst. Can delay by manipulation but cannot stop and why would govt will want the price to correct as it will effect their interest and of their foreign friends.

They are arguing and taking entire NZ to defend non resident buyer so why would they want the price to correct.

When the bubble bursts, not only will the recent buyers go into negative equity but the NZ resident ones will have blown a good chunk of their Kiwisaver on it as well.

18
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So what do we infer from this? John Key wants increased supply at the same prices that increase at a slower rate into the future.

That should give you an idea of why the global economy is in such a state with people promising a Neverending series of money trees.

40
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Go ask the average young Aucklander if they want to see half their life disappear due to extortionate housing costs and a sh*t prime minister more interested in servicing his Chinese donors.

There is a huge moral hazard lurking here. We are only talking about a drop to 2014 levels.

Yeah, Nah. Why ask when you know the answer?

In 2005, when 5000 apartments in Akl were simultaneously finished guess what happened? The price of apartments crashed. It will work - but who will fund the 150K of new dwellings - not this govt.

Go ask the average Aucklander if they want to see half their life savings disappear by the housing market deliberately being allowed to crash, leaving many in negative equity.

31
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Well we know where Key stands then. It's not with young people and other people starting out. And it's OK for those who are in, to have a lifetime of mortgage poverty.

22
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The sooner he goes the better. He will go down, in time, as the worst NZ Prime Minister we have ever had to endure. Even Muldoon for his flaws (alcoholism, homophobia...) had some vision even if it was flawed. JK's vision is that it doesn't extend beyond doing whatever it takes to stay in the driving seat, that will prove to be ultimately more damaging to the country than anything else to date.

10
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Well we know where Key stands then. It's not with young people and other people starting out. And it's OK for those who are in, to have a lifetime of mortgage poverty.

And we dont want to hurt the BANK'ers

And we dont want to hurt the BANK'ers

22
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So an average house price of one million bucks in Auckland is clearly the definition of sanity then. No one of sound mind would think the current situation is good for society or the future, NZ really need to figure out what kind of country we want for our kids.

26
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"Too big too....let.... fail"

Thus, its over folks. Our Fiat Currency and Monetary system is so needing propping up of government manipulation that they must now dis-infranchise every generation to come to protect the massive debt ridden lot that snookered themselves into this global pyramid scheme.

simple from my calculations from lease hold houses on trade me introduce a 1.5 to 2% capital tax on all land and watch prices crash then implement a Steve Keen reserve bank cash hand out to be used for debt reduction if debt is owed.

You either have less debt or more money everyone wins then we can start the ponzi again

.

16
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It exposes JK as have accepted that the reason that they are not taking any action is for that they do not want the house price to correct or even stabilise but want it to keep going up.

Now everthing is clear that even supply that they have been crying at the cost of demand is not to make house more affordable but to help their friend to make more money.

Few days back he talked about getting Chinese builder and today saw the headline in NZ. So he knew it and was preparing base for their foreign friends to avoid any criticism.

15
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Look like Mr Key wants to follow the Vancouver housing model and hopes that there is an infinite number of Millionaire Investors out there that will keep the housing money flowing in to NZ to keep the illusion of our economy growing (Pitty it flows out again too).

Sadly that's not a business model that considers your average Kiwi, who doesn't really feature in that plan.
Interesting to see the similarities though.
http://www.visualcapitalist.com/vancouver-real-estate-mania/

26
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What is actually crazy is that one of the biggest property bubbles on earth has been encouraged and allowed to develop in Auckland.

11
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The problem as im sure you are all aware is that on the downhill slide, the economy that is based on the back of these increased values and associated borrowing also takes a dump. I wouldnt want to own a restaurant/cafe/coffee machine when it does.
The whole economy is based on increasing debt

Finally truth is out and when the price correct it will harm more to speculators than home owners and in the name of Aucklanders trying to protect speculators.

Correction is need of the hour but for our hon PM a million dollar house is cheap and in few years 1.5 millions will be reasonable and who cares about first home buyer and young generation.

Do not hide behind bank. The only reason wants the housing crisis to be controlled asap is to avoid disastor as more the delay more the calamities and wether one like ir not will happen.

Can national gurantee that with all their effort bubble will not burst and if it burst will they take the blame and leave politics for life.

26
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this is the same JK that called the greens crazy for suggesting QE in 2009, said countries that did that would end up with hyper inflation.
guess he was wrong then
same jk that stopped paying into the superfund at a time of the best market growth and lowest interest rates in history
same jk that sold power stations to fund new assets, where are this assets and do they cover the lost revenue
when it comes to finance he only knows how to borrow(use other peoples money) and spend, strange coming from a traders back round. then again maybe not

14
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Now will oppo§ition, media and all experts take stand and condenm JK statement that it is in the interest of the nation that housing prices keep going up - what more proof does we need that who is interested in this housing bubble.

23
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Honestly, I would like to see a bit of Ukrainian biffo in our parliament for once. All the opposition parties really need to translate in the house the anger that is building. They act like children anyways, so up the anti. A little 'shock and awe' to make world headlines and bring about some attention to the fact we have a totally corrupt government selling out our future generation of born and bred citizens.
Too drastic ? Maybe, but we really have to start hitting home what is at stake now for all to see

32
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So Key is admitting that he does not believe in the free market and he is prepared to underwrite property speculation and a bubble. There is something wrong with the banking system if it cannot withstand a property bubble unwinding. What ever the banks and home owners stand to loose is unearned wealth from a property bubble. If it collapses then the money that they loose was never earned in the first place, so they can hardly claim that they have any moral entitlement to it. In Key's world, prices can only ratchet up, he will make sure of this and underwrite behaviour that is very damaging to the long term health of the economy. Hardly a free and competitive market economy.
Lets unpick this a bit further. In Christchurch the Government admits that an average three bedroom home can be built for $350,000. And that is with our hopelessly monopolistic building material suppliers. If a government really wanted to roll up it's sleeves and promote some real efficiency and competition, I would not be surprised if this could be lowered by at least another $100,000. The difference between this and the sort of rubbish that you are paying close a million dollars for in Auckland, is a clear measure of how much this market is being distorted. If this isn't corrupt and criminal it dam well should be.

JK is absolutely right. What about all those hard working families who have saved and bought a house, just to see its value slide? Not just that with that kind of drop in values the entire economy will be in deep trouble and sure to go into a recession. It is easy for an ex RBI chairman to make silly statements like that when he is not in office. Auckland is the commercial hub of NZ and the fact is every successful city in the world will have similar trending in property values. There is only so much land available on this planet. Only way is to have different kinds of residential options catering to different budgets made available.

13
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Yeah, like park benches, cars and shop doorways. Thanks Jk.

A www, come on that's not what I am saying. But In reality a 40% drop in prices will mean more people living in cars as nobody will want to build new houses making a loss, nobody will have money to invest in new rental properties, and people will be quickly losing their jobs.

BS scaremongering. The Reserve Bank is responsible for financial stability. They have done stress tests studies on the banks and say they can handle a 40% drop in property prices. So house price falls in themselves do not lead to economic recessions. Given Arthur Grimes plan calls for a massive increase in house building -then this would be a huge economic stimulus. It would be much better to build our way with affordable housing out of our housing crisis rather than doing nothing and waiting for the eventual crash.

So you believe no-one was building houses 3-4 years ago when house prices were 40% lower? Of course there'd be short term pain, but high house prices are a cost on the economy, so there would be long term gain.

is that not quite right Kenroe - only around 1% of New Zealand's land area is urbanised. We have vast amounts of land available - albeit lacking zoning. Admittedly we need a significant increase in the provision of inner-city apartments but most of that is to provide for a different demographic of the young and the old who don't want lawn to mow.

"JK is absolutely right. What about all those hard working families who have saved and bought a house, just to see its value slide?"

That statement sounds like sarcasm, but it is hard to tell. Are you referring to all those hard working families who saved and made a ridiculous decision to buy a house when the market is in bubble territory? Or the ones who leveraged hard and spun the wheel gambling on exponential growth? (impossible in the real world by the way).
It is excellent to see the real face of our "elected representatives" and their priorities stated so clearly, whether or not Grimes' idea is the best way forward. Where are some real politicians...

"Go and ask the average Aucklander who has got a mortgage with the bank whether they want see 40% of their equity disappear"

Um, the Aucklander he's referring to here must not have a mortgage, or their equity would be falling by rather more than the 40% drop in house prices!?

6 couples I know all have 3 kids. 20 years later, these kids also have 3 kids each... What say a house in auckland when the population is 4 million. How about 8 million?
Unless there is some end of days event, guess what? Prices going up!

This time its different. Gee where have we heard that before ? 1929,1987, 2008... All the way back to the 1700s and the tulips.

You are in denial. Auckland pop will reach 8 million one day. Inevitable.

Im not arguing population with you, although looking at migration historically we have had negative and even, its not always 60000 a year.
Most young people I know have Zero kids, and have no chance of having any and owning a house. I dont think your logic is very logical. As the population ages, places like Tauranga - Newly wed and nearly dead - will increase... all data points to this - ageing population, not an increase in breeding stock.

we need a Prime Minister that will not "sell us out".
Its about deal making, making the best deals.
http://www.telegraph.co.uk/news/2016/07/04/andrea-leadsom-brexit-tory-le...
Banks also need more houses to lend on.
Developers use their own cash sparingly, and often never at all. Nothing wrong with their risk mgt.
Effective dealmaking in demand across the globe.
Dealmaking that places electorate first.

So Farage and Boris are out.
Voters in the UK never had chance.
A choice for any alternative to the mainstream political parties is written off as lunacy

13
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We can all debate the technical side of how to produce affordable housing. It is good websites such as this have a robust conversation about such an important topic.

But why we have a conversation really comes down to a moral judgement.

It is the value judgement of who wins and who loses in our society. Who gets protected by the government and who doesn't.

The PM is in a situation where if house prices fall significantly by 40% he is reassured by the Reserve Bank this will not cause a wider financial crisis.

But the PM thinks having a conversation about how to do this is crazy. The PM's value judgement is to protect property owners, the modern landed gentry and not to protect the propertyless, the homeless, the generation rent and the future mortgage slaves.

I think he is wrong and that this isn't the kiwi way.

I think the time is coming when we will be asked to make a moral judgement on which side we stand for and what sort of country we want New Zealand to become.

10
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Only solution #jkexit.

Sooner the better.

11
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JK should say " speculators don't want equity values to fall "
AKL average house price has gone up from 566k in Apr 2013 to 820k in Apr 2016, that is 44.8% in three years since Nats won last election.
I think it's crazy as well, go and ask the average Aucklander that is NOT speculator whether they want see 40% house price increase to ruin our future generation and put our economy in dangers level.

10
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This is just ivory tower theoretical extrapolation madness.........better to chop immigration back and disincentivise foreigners buying our residential property, at zero cost to Kiwis, and in fact a benefit to us as major infrastructure build-out won't then be necessary. There is no resource to build 150k houses.......and certainly no money to build mass public transport.

Hard to beat common sense, something Key doesn't seem to have much of in this space. Pretty disappointing really given that it's our future he is actively ensuring is diminished.

Key is being very sensible. Very few people are going to vote for a party that promises to slash the equity in their homes. Imagine it, vote for me and I will make your home worth less than it was worth before prices went up!

15
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You're correct, no one will vote for it.... But their ignorance of economic realities and fundamentals will give it to them regardless at some point. So the choice is simple. A controlled descent or....a stomach churning hurtling crash to earth

No, houses will always be expensive in the main cities of modern Western countries, especially English speaking ones. They are extremely valuable and desirable possessions. People are literally dying to come and live in these places. People are terrified of being excluded from these places.

10
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I think you are talking (and breathing) through your arse Zach. Dublin, saw a catastrophic drop several years ago, plus LA and parts of San Francisco. Many major centers in Europe are cheap by your ridiculous metric at the moment such as Berlin, Geneva etc. The simple fact of the matter is that NZ property is grossly over valued internationally and you may face financial ruin by assuming otherwise.

http://www.telegraph.co.uk/finance/personalfinance/investing/12079841/Pl...

I don't have any time for people who don't understand how valuable our lifestyle is.

Quite right, put your facts and figures away and rely on the vague, ephemeral notion of 'lifestyle' to make everything alright. Ignore the fact that you can get the same or better lifestyle even in the same country for half the price.

BS Maccader, I live in Geneva, it's VERY EXPENSIVE

Yvil, yes you are correct, my error.
http://www2.deloitte.com/content/dam/Deloitte/lu/Documents/realestate/re...
In general, most cities in Germany, Spain, Netherlands, Belgium are relatively affordable compared to inner London and now Auckland. I suspect strong pro-tenancy arrangements (in much of Europe), are part of the explanation.

Zach says "People are terrified of being excluded from these places." Explain then Zach why the net internal migration in New Zealand is out, repeat out, of Auckland.
My pick is that even if they want to live there they can't make living in Auckland work for themselves. Which outcome is a disgusting failure of government policy.
What's your pick for the reason ? Do you think it satisfactory. ?

Be careful what you wish for. With houseprices going the way they are the average Aucklander will very soon not be a homeowner and will be very happy to vote for a party that promises to crash house prices!

Dp

..I'm complexity happy with my value to drop - so long as everybody's else's does at the same level. Outcome will be young people can buy again, less going to the banks and more money to real business. Key is a fool.

Yeah and it makes upgrading cheaper

Hmmm Am I the only one who is thinking: Nice idea in a theoretical world, but how on earth are going to build 150,000 house in six years ? Not to mention all the infrastructure needed ( this is the more difficult part, this means more roads, schools, hospitals, sewage, parks, shops, supermarkets etc )

Remember we are talking about building an extra 30% of Auckland in six years, plus the central rail link over the same time!

Haven't even started on how we would find enough builders / planners and other construction sector workers to make this happen ( plus you need to house these workers somewhere )

The Auckland housing crisis is such an emotional issue but we need to stay focused on what we can actually do in reality. Ideas such as let built 150,000 new home in six years need to really just be ignored unless the author can come up with a credible plan for how this can be achieved.

@jamin - Nope - you are not the only one. The way I interpret this is: 150K houses wont happen any time soon = Prices in AKL will keep rising for foreseeable future.

What a stupid idea !
Firstly we do not have the resources to build 150'000 houses and required infrastructure
Secondly if you could magically reduce house values by 40-50% many owners would be upside down, meaning Banks would force mortgagee sales aplenty.
For those of you thinking "great I can then buy a cheap house" you won't be able to because you won't have a job anymore and banks won't lend you.

Auckland is still cheap when compared to other major cities in the world. Sorry guys but you just gotta work a bit smarter to get ahead, certainly listening to each other's I hate JK advice in this microcosm will see you further plunge into poverty.

What is plunging people into poverty is houses requiring more and more years' incomes to buy them. The whole situation is idiotic and it is spreading to other regions. Foreign money, to my mind, is the principal driver of it, can't be anything else, even "investors" (who should never be allowed in the existing house market, but that is another story). If house prices relied on local money only, the sky would have been the limit long ago.

Low wages, poor lifestyle choices and generally being hopeless is keeping a lot of people in poverty.
On the other end of the spectrum are highly capable and highly paid couples with no or few children working right up until retirement with a lot of cash to invest.
On top of that are hard working, do whatever it takes, immigrants who noticed that houses are good investments.

Low wages, period! And as for immigrants and houses as investments, well that is one reason why I believe existing houses should be out of bounds for investors, immigrant or not. If you want an investment house, build one!

I find there is a lot of Grey in life, not so much black and white. Generalisations about poverty and how it is achieved are pointless.
I do believe there are a lot of people who feel hopeless as far as the current situation is concerned. Feeling hopeless and being hopeless are far removed.

Sorry Keywest, but where is the benefit to New Zealanders who will have to slave a lifetime to pay for a very ordinary house, and all that time will have no cash in their pocket for anything else. With much of the population having no disposable cash for their whole working lifetime, how can New Zealand business thrive.

Keep up the negative spin by using words like slave to describe someone having a mortgage...take control of your life and choices, because it doesn't matter what Bernard and David say, the longer you wait the harder it's gonna be, I left the Auckland market 4 years ago and am buying up in the provinces, highly suggest those renting on Auckland do the same

"Auckland is still cheap when compared to other major cities in the world" is BS smoke! What is the purchasing power of the locals in those cities? What we are concerned with is Kiwis being able to afford to live in our largest city. the comparability with other cities across the world is a BS obfuscation. This is about us, not affordability for foreigners, but affordability for Kiwis which it is NOT! JK has done nothing but tinker on the edges which in many cases has actually made the situation worse, not better. Labour have no ideas - the fundamentals behind Trump and Brexit are all there to be seen here in NZ. A credible party in the next election that offers real solutions to these issues could see both major parties relegated to the sidelines.

Most young people I have spoken to are against Brexit and like to ridicule Trump. NZ's out of control multi-culturalism has destroyed any prospect of a Trump or Brexit for NZ. Most young Kiwis are not Kiwis at all but global citizens thoroughly indoctrinated and enthusiastic about the current globalist agenda. Most probably support no borders. We need to urgently build our economic walls and keep these zombies suppressed!

You see Murray, that's the thing, a lot of wealthy people are moving to Auckland like I might do one day once I finish up overseas, please remember most people in big cities live in shoebox apartments, the facts are you can still buy affordable townhouse in Auckland no matter what Bernard and David say just check trade me.

11
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Clearly JK is happy for risk to be socialised, but profits privatised. His level of denial is remarkable considering his background.

Having a house but seeing young and friends struggling to find a house is disapointing and it is not that they are not working hard and have no money but it is the price rise in multiple on a daily basis which is also not good for the ecenomy. Anythi g that goes up fast has a potential to fall as fast which will be disastor.

Besides supply this market is fuelled by overseas money and in a way adding to holmless as most houses purchased are lying vacant as the return by rent is not much, now and the non residence specially are buying for speculative gain, only.

How come one may not feel about the families sleeping in cars is beyond me. Atleast now kiwi knows what our pm stands for

Geneva may be expensive but are their people sleeping on road and car. The house price govt may take as high as they and their overseas friends want but should be supported by wages and social welfare.

Be upfront and not double face is all one expect from their govt. Now atleast people of newzealand knows what our pm stands for.

I like him today for being truthful though shamed that our govt is not concerned about common newzwalanders and their priority is for elite few and overseas friends.

Every major city has it's homeless people, including Geneva ,if you think other wise you are dreaming

Having a house but seeing young and friends struggling to find a house is disapointing and it is not that they are not working hard and have no money but it is the price rise in multiple on a daily basis which is also not good for the ecenomy. Anythi g that goes up fast has a potential to fall as fast which will be disastor.

Besides supply this market is fuelled by overseas money and in a way adding to holmless as most houses purchased are lying vacant as the return by rent is not much, now and the non residence specially are buying for speculative gain, only.

How come one may not feel about the families sleeping in cars is beyond me. Atleast now kiwi knows what our pm stands for

Geneva may be expensive but are their people sleeping on road and car. The house price govt may take as high as they and their overseas friends want but should be supported by wages and social welfare.

Be upfront and not double face is all one expect from their govt. Now atleast people of newzealand knows what our pm stands for.

I like him today for being truthful though shamed that our govt is not concerned about common newzwalanders and their priority is for elite few and overseas friends.

JK is correct. you don't manage a business, or economy for that matter by doing about turns. Incremental changes. Slow and steady. Creating a massive shock to the housing market on the scale proposed would be madness.

And allowing it to get to the state it is in now is what, precisely?

Whilst I agree both ways if JK had been in business he would have been moved on by now for not moving forward enough to keep ahead of the competition. In fact he reacts to situations fa to late and far too little, he is not bold

No, when you define a critical issue you jump on it asap before it becomes a overall threat to the economy or business. Otherwise, the problem hamstrings any further progress. Doing nothing/ not enough for too long gave us the 2008 GFC which STILL has yet to really play out in full. This is a symptom of that

Fork in the Road

Slow and steady doesnt always do it

On discovering you chose the wrong turn when reaching that fork in the road, and travel slowly and steadily for so long you find you have made a mistake far too late, the return journey to get back on the right track takes so much longer, you have exhausred your holiday fund, assuming you you still have enough time of your holiday to make the effort

Key's warped logic: it's a supply issue but I don't want to really do anything that will effect the market or supply.

Is this not the perfect response definition of a completely useless politician ? He claims to see a problem but ties his own hands in nonsense so as to do f all

Yes, I agree JK. God forbid the neo gentry ever realise any of that risk associated with fuelling asset inflation.
Imagine that; reward coming with risk? That makes even less sense than that silly Grimmes fellow.

Their problem now is that they are in far too deep.
Watching him with Corrin Dan the other night at the National Party farce was pathetic. Hypocracy, deceit and arrogance at its most depraved best.

11
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What we are seeing now are both sides of this issue moving away from each other as the pressures continue to build. Those with the gains (that just fell from the sky, which incidentally includes me) are getting increasingly nervous, defensive and threatened. Those who missed out are getting increasingly direct and angry as they realise their situation for housing ownership is completely out of reach and will 'never' open up again.

And those reporting the market realities are being painted by the threatened to be a threat themselves for just reporting what is going on. Today's Property Council press statement highlights just how threatened some property owners feel about their "fall-from-the-sky-gains".

These types of pressures corrode social cohesiveness. We are now in a zero-sum game where the 'losers' want a rebalance, and the 'winners' resist aggressively.

It can only end with a damaging brawl now.

On this path, that is all it was ever going to lead to. The only difference between now and a few years ago, is that more people can see it.

...angry as they realise their situation for housing ownership is completely out of reach..

Why do you buy into that nonsense?. My niece, on an average wage, just bought a nice unit in Hamilton. She is single but it will be cheaper than rent. If she gets a flatmate it will be super cheap for her.
Our argument is that those people you call "losers" want to buy in areas they cannot afford and are throwing their rattles out of the cot, refusing to consider any alternatives or workarounds. Many of these "losers" have made astonishingly poor lifestyle choices throughout their lives and continue to do so.

I completely agree, I made well below the average wage when I bought my first Auckland property 5 years ago (on a single income I might add). It can be done with prudent fiscal management. I've outlined a path to ownership for many of my younger associates ( late teens/ early twenties ) most of them understand it, but are unwilling to put in the effort required.

So sadr let suppose you were born 5 years later than what you were. Could you still afford to buy the same house in 2016 on the same single income?

Lucky market timing I say - absolutely nothing to do with 'prudent fiscal management'.

This stinks of smugness.

Things change, suburbs gentrify, whole cities may gentrify. You have to think about workarounds and different locations. Opportunities abound like never before. One year ago there were huge opportunities to buy in Hamilton and Tauranga.

18 months ago the discussions on this site lead me to conclude that Hamilton and Tauranga prices would be rising shortly due to the reserve bank bringing in new rules. Those properties have increased in value by almost 50% ! I wouldn't buy those same properties at today's prices but there are other areas where I will buy houses at today's prices.

Not the same house but one in an equivalent market position as that house was then. The area was less desirable 5 years ago than it is now. And If I were born 5 years later I'd be 20... Most of the people complaining on here seem to believe that being born in the 90s is what excludes people from home ownership.

Thats right, and a colleague who was renting in tiny 2 bedroom unit in Epsom has recently bought a beautiful 4 bedroom house in Papakura, gets on the train into work and is loving it. He has plans every weekedend for things he wants to do at home ( currently landscaping is the thing). So the point is he accepted he couldn't buy a house in Epsom, resisted but bought in Papakura, is paying less than what he was paying as rent and is a happy chappie. Just like any other major city in the world it comes down to access to good public transport if you have to buy further off.

Thats right, and a colleague who was renting in tiny 2 bedroom unit in Epsom has recently bought a beautiful 4 bedroom house in Papakura, gets on the train into work and is loving it. He has plans every weekedend for things he wants to do at home ( currently landscaping is the thing). So the point is he accepted he couldn't buy a house in Epsom, resisted but bought in Papakura, is paying less than what he was paying as rent and is a happy chappie. Just like any other major city in the world it comes down to access to good public transport if you have to buy further off.

oh well, can't be helped now I suppose. No choice left but to bring in the armed drones to take care of the mobs....

social cohesiveness corroded

Predictable - and it has been foretold many times right here on interest.co.nz

Bit late now - it has happened - and can never be repaired - NZ society as we once knew it is destroyed

Good comment and observation David. I find it interesting that those in positions of influence and responsibility, as well as those with skin in the game, are generally in denial to the reality of the situation we find ourselves in.

'Not a housing crisis'. 'Prices are sustainable'. 'There is no bubble'. 'Auckland has just become far more valuable than it ever has been, and people have only realised this in the last 5 years'. 'It's a sign of how successful we've become'. 'Prices will never drop by 40%'. 'We don't have a foreign buyer problem'. 'Investors aren't the problem'.

When I hear these things, the BS meter in my mind goes off-scale high.

But I also think back to all of the market booms/bubbles and think that no government or reserve (as far as I can recall) has ever called or attempted to take full responsibility for an asset class that departed controlled flight (anyone please correct me if I'm wrong). It would be political suicide. Perhaps the closest would be Alan Greenspan with his irrational exuberance call, and yet that is just an observation without taking responsibility. But this alone may have been enough to shift market sentiment. So why would anyone expect the National government to take responsibility for this one?

If you are National and you call a spade a spade (property bubble), you'll probably have to start digging with it.

Keep it up Independent_Observer, we always need people who like to rent.

Just like society always needs quality characters like yourself to be landlords........YEAH RIGHT!

You could do worse. One of my tenants told me I was a great Landlord when she left. I always respond quickly and repair things when required. I stay out of their way and let them keep a dog and hang pictures. I fight with the agent to stop them pushing the rent up while they are there. I encourage them to buy their own houses...
I'm sure they would prefer me to you who has no house to rent to them.

.

Zachary if you are the sort of landlord who has a rental dividend business model. I would agree with you. But the majority of landlords are not. Especially in Auckland. The rental rental is pathetic. Landlords would get a bigger return by putting their capital in the bank. The reality is landlords collectively expect capital gains and this speculative expectation is one of the drivers of housing prices increasing faster than household incomes. To get affordable housing this landlord capital gain business model and the expectations it creates has to be somehow smashed.

Do you agree Zachary?

So the very opinionated Zachary cannot answer a simple question about his landlord business model. Your silence tells the story though -your arguments are hollow.......

David, at the end of the day with or without intervention, the merits of any argument will not matter. The market will correct it'self automatically. Was it on Interest .co recently that I read a that study of 40 odd bubbles over history revealed that every single one fell to the long term average, which in New Zealand's case is price earnings multiple of 3.5. I.e. a fall in Auckland prices of 65%.
In classical economic theory supply and demand are matched through price signals stimulating or depressing both supply and demand. In Auckland particularly we have a market that is so rigged that this cannot happen and so we we have runaway house price inflation that is now reaching totally crazy proportions. It has now departed so far from a stable market equilibrium that anything meaningful that the government may do to address the situation will crash it. The best that they can hope for is to try to slow it, but at that stage it will be no where near the stable equilibrium that a free market gives us. They are trying to ride a raging tiger and it is just not going to work for them. The longer that they leave addressing the problem meaningfully, the bigger the mess will be and the greater the number of people that will be hurt.

I think JK's strategy is to vacate to Hawaii just before the point that the market corrects and this all turns to custard - then he can say, 'but at the end of the day everything was going really well under my government'. Look what labour has done to the country after they took over in 2017....

Bit like Bush invading countries and allowing the sub-prime in the US, then getting Obama to clean up the mess left behind.

The intrinsic value of a house lies in it's utility as an abode, and its' worth should be in the vicinity of the cost to build it. The fact that people borrow from banks at interest to buy houses underlies the ever increasing price for real estate. At 7.2% interest the valuation needs to double every 10 years for the home owner to break even, by the rule of 72, and this is the main driver pushing prices up. The rest is speculative spin, and we know who the biggest speculators are; don't we?
The lions' share of a banks' assets are mortgages secured by property values, and banks' assets are matched by their liabilities with only shareholders' capital providing the buffer against bankruptcy. This margin is so thin these days that banks actually 'sweep' leftover cash daily before closing and lend it in the 'overnight' market to other banks who were technically bankrupt at closing, because by law they must close their books in the red. We know who own the banks; don't we?
The government has a vested interest in this cash stream, their collective finger in the pie so to speak, by several means, and they continually endeavor at diversifying these means. We know what those means are; don't we?
The one thing we apparently are not aware of, is who affords this sham, who are the tributaries? And I say apparently because although every one agrees we have a problem, every one expects the government, or the "banksters", or somebody else to fix it, when in reality it is us, the tributaries, who can fix the problem.
It's us who really have a vested interest in affordable housing for the benefit of our society in general, but we are too focused on the short term and our individual success, and hence we 'miss the forest for the trees'. Expecting the government or the central bank to clean this mess is akin to putting the fox in charge of the hen house, and expecting our hens not be eaten!

Yes but good luck convincing the voting majority who own houses, that the prices of these assets are significantly overvalued and need to take at least a 40% hit for the good of the future of the country!!

When buying in Auckland you are primarily buying the location. If the intrinsic value of a house to you is just as a place of abode then build one in the Southland...

whether our PM wants or does not want, bubble will burst and when it will burst blame game will start and who better than the current government.
Now he is talking about bank when it suits him otherwise was always maintaining that it is up to RBNZ.

Politics of convenience, Politics of Denial, Politic of lie................wait till election, to defend the obvious how much more will they be exposed.

Key is completely out of touch and irresponsible when it comes to Governing house affordability. Theirs no consequence, in fact hes rewarded with his mansions skyrocketing in value - ahhhhh to be an elite :)

This is a baby boomer government; all policies are designed to maintain and enhance the value of this generation's assets. Free education, free national super, beneficiaries of land appreciation. Watch things change when this cohort cease to be the dominant voting bloc. I hope they have genuinely saved for their retirement.

What I find disheartening is that the PM thinks it is "crazy" to have policies that reduce the dwelling prices by 40% but is "comfortable" with policies that push up dwelling prices by 40%. The free-market has been distorted by very deliberate government (local and central) policies to allow for these massive gains in housing. If the market were to operate as it should dwelling prices would drop rather quickly.

He probably rents Brendon.

Get rid of JK and National they are screwing NZ locals in favour of foreigners + foreign money + developer buddies through inflated demand brought about though immigration policies

You want to drop housing, focus on availability of credit for everyone (debt to income across the board) foreign money flowing into NZ, immigration policies that are bringing in twice the number of people than we are building houses for and increase development - Of course that would drop prices that have risen by 30-40% in a few short years

The first three are easy and relatively cheap to implement, and the fourth is already happening but has a lad between planning and construction

The fact we are in theis predicament in the first place shows a failure of National to look after the interests of young NZer's in favour of businesses and foreign capital - I will be voting against him next election

Problem is you also voted against him in the last election :P

Something that cannot continue forever must eventually stop.

If NZ manages a "soft landing" it will be the first country to do so. It's a nice thought.