Opinion: Property mania hurts our ability to build businesses and wealth, says Gareth Morgan. Do you agree?

Opinion: Property mania hurts our ability to build businesses and wealth, says Gareth Morgan. Do you agree?

By Gareth Morgan*

It is no coincidence that around the world attention has turned to how an economic recovery can be garnered against a backdrop of housing markets still on their knees.

In the US house prices are down 30 per cent from their 2007 peak and 40 per cent of owners have negative equity.

In Spain, Europe's largest sick dog, house prices are down 20 per cent and the local experts say 20 per cent more is needed.

The populist discussion is that housing in these economies has to be resuscitated before they can enter a prolonged recovery.

Such a view is myopic in the extreme. It is over-investment in housing and the lending largesse that underpinned the orgy of excess that led to the sub-prime crisis and widespread recession in the developed world.

The lending excesses that now show as bad loans have in several countries shown up on government balance sheets and in turn undermined market confidence in those governments' bonds.

And meanwhile for the ordinary citizen in these economies the cost of housing remains at the highest it's been relative to income.

Housing remains beyond the reach of many.

Seldom before have we seen a market get so distorted by lending and tax largesse that it has plunged whole economies into despair.

This is the outcome from 30 years of financial deregulation and it is yet to be understood by policymakers seeking a quick fix to the economic malaise.

In short they remain convinced the disease is better than the cure and would do anything to get a housing-led recovery going again.

New Zealand has its own version of this cancer. The price of housing remains at historical highs relative to household income, despite the housing doldrums of the last 5 years.

The over-investment in housing that we've sponsored has come at a high price: diversion of capital away from deployment in industry and income and employment and instead into an asset class where the predominant objective of investment has been capital gain.

Of course capital gain is not guaranteed but if there exist sufficient incentives for people to invest here rather than elsewhere, then it will materialise, in time.

The reasons have historically been twofold:

- A directive to banks from our Reserve Bank to favour lending on mortgage to other forms of lending - this is effected by the lower risk weightings it deems residential mortgages deserve compared to other lending types.

- A tax break on housing to the extent that capital gains ensue and are not taxed.

Of course these two conspire to comprise a self-fulfilling outcome of capital gains.

The lending distortion sponsored by the Reserve Bank ensures there's more credit available for this form of investment than others, so people can get into this activity more easily than, say, funding a business.

And the tax break increases the effective return so of course compared to other investments this will make housing a more attractive alternative.

So lubricated with the credit availability we all pile into the asset in unison and drive up its price. Hardly rocket science.

The point is of course though that this is not a demand that's driven in any way by economic fundamentals such as the demand for shelter - it's purely speculative and totally contrived by the regulatory and taxation framework.

It would be fine if there weren't an opportunity cost - a decided lack of investment in businesses that generate most income and employment.

This is the legacy of the last 30 years. And it has become so entrenched in our psyche that our ability to build businesses and create wealth and employment has been numbed.

A bit like growing your own veges or preserving the summer harvest, it's a lost craft. The cost to incomes is high, the consequence being our GDP per capita continues to slip down the OECD charts.

As we contemplate economic recovery some thought at least should be given to the quality of the recovery we'd prefer - do we want it to be a housing-led one again where we all seek riches through a speculative race for property; do we want it to be a business-led type where jobs and incomes take priority; or do we really not care? Is it all too much to think about?

The sense one gets is that politicians at least couldn't care less, just bring recovery on, any recovery.

If they did they would be championing the removal of those regulatory and taxation interventions that have fostered the housing-intensive recoveries of the last 30 years that lie at the heart of the waste of investment capital and ensure our ongoing slide down the OECD rankings.

But there is no talk of that, at least not from the incumbent government.

In other countries it's even worse. Those where the housing debacle has underpinned the boom and bust cycles that in the end delivered destruction of the government's balance sheet, the mood is to sponsor a housing-led recovery because without it any recovery will be too anaemic to rekindle jobs and incomes fast enough. Spain and the US are in this situation.

New Zealand, courtesy of the China-propelled support of commodity prices has been in a sweet spot, without doubt.

Our housing boom and subsequent loss of affordability has been as bad as elsewhere but the correction has been more muted, more orderly.

The boom in incomes from our commodity sales has been an absolute saviour.

But the disease remains the same; we have discriminated against productive investment in favour of property speculation. That intensified the morbid dependency on commodity sales to sustain our incomes. If those hadn't risen we would be another Spain already.

Why would you continue to gamble on being a one-trick pony? We have an opportunity as the economy picks itself up this time, to remove the policies that discriminate in favour of housing speculation. Why wouldn't we do that and bring affordability within reach of many more families, like it used to be?

Or should I go out and buy another three houses now and just wait for the rest of you to bid the prices up?

----------------------------------------------

Gareth Morgan is a Director of Gareth Morgan Investments.
This article was first published in the NZ Herald.

Any opinions expressed are personal views and are not made on behalf of Gareth Morgan Investments.These opinions are general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

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It's hardly property mania.
 
What the vast majority don't understand is that price rises in for instance Central Auckland on average have had more to do with the huge amount of money spent on renovating or rebuilding the house than just merely capital gains.
 
Take Grey Lynn.  Many houses now sell for about $2m.  But if you look at those house they are essentially brand new mini mansions built within the shell of a villa.  In many cases $1m has been recently spent on the rebuilds.
 
This is why these suburbs look so disproportionately expensive.  The same is true in Mt Eden, Epsom and Remuera.
 
The fact is the unrenovated ones are dragged up more than normal but on average the price rises are within reason.
 
Property on the outer parts of Auckland (not actually that far out in some cases, like on the North Shore around Beach Haven and Glenfield and in the west around Avondale, New Lynn and Glen Eden) houses are very affordable and often priced only in the $300s for quite reasonable homes on full sections.
 
How much cheaper does property need to be to not be a barrier to ownership?  Cheap homes in Manukau are under $200,000 which is as little as $250pw with a small deposit.
 
Investment in housing needs to be encouraged to improve the standard of housing in NZ.  If property becomes too cheap (like in Invercargill) whole suburbs become derelict (like Appleby) and there is no investment in maintenance and repairs - this almost happened in Grey Lynn and Ponsonby but began to turn around in the late 70s.  Now there needs to be more investment and renovation in Central Auckland as many wealthy buyers want upmarket homes but few are available and prices are driven up.  Encourage investment in homes and people will spend more on them, and because there are more better quality homes ironically prices rises will be more muted.
 
Constant modest price rises reflecting the increased cost of construction and the increased standard of housing required are entirely acceptable - trying to scare everyone off property investment would only lower the standard and supply of housing which would perversely lead to bigger price rises than if investment was encouraged.
 
 

Says someone that has gambled on the ponzi continuing. Vested interested eh.
 
"Investment in housing needs to be encouraged to improve the standard of housing in NZ" That is pure self interest talking and pure tripe.
 
Wonder if Gareth has an interest in the opposite direction.

mist42nz
I totally agree and the run down in asset quality in general to affect a return is cause for concern beyond the property sector. Read more.

A quarter of a mil to own a house in the cruddiest area of town, modest? I dont think so. It is still relative to earnings and its not rocket science to figure out that the average incomes in these areas are probably below the far more reliable than "average" yardstick, median income

For people who actually work fulltime even in modest employment saving a $25,000 deposit and paying a $225,000 mortgage is likely to be easily achieved.
 
If a couple on modest full time wages take home $1250 a week between them (under $40k PA each) then if they save $200pw for just 2 and a half years they will have the deposit, and assuming they were paying $300pw in interest, then they could be mortgage free in about 16 years assuming no increase in their own income which would reduce the time taken.
 

You're joking right? $225 000 for a house! Where?  You have just no idea do you?

Here:
http://www.realestate.co.nz/1725964
The daily commute to Auckland, makes it bit of a challenge though :-)

indeed... it looks a cutie though...

indeed... it looks a cutie though...

maybe the couple could put an offer in for this one...
http://www.trademe.co.nz/property/residential/for-sale/auction-465952383...
 
am sure the vendor will knock off 49k for the right buyer!
hmmm.... hope I did the sums right on this one GBH?

Your expectations are too high!  Obviously you think that you should be able to buy a property well below replacement cost in the most sought after parts of Auckland!
 
Check out South and West Auckland, starter homes in average working class neighbourhoods (not slums) can be found in the mid $200s through the $300s.  Even good non leaky starter North Shore properties are available in the $300s on full freehold sections (Glenfield, Beach Haven etc).
 
Why should you be able to buy in a leafy or desirable area for the less than the cost of renting?

$ 250 000 , in fact , not $ 225 000 ....
 
... you take the $ 25 000 deposit , and add it to the $ 225 000 mortgage in ChrisJ's example :  and you get $ 250 000 for the house  ......
 
...... it's a sad day around here when the Gummster " gets it " , but you don't .....
 
Tsk tsk !

you're so right GBH... am slowing down... that 25k makes all the difference... maybe I should retarct my comment?

...... no need to retarct your comment ..... the extra $ 25 000 gets you an inside loo ......
 
Money well spent , rather than bummy scent on the well !

too true mate... but still won't include running water!

$250,000 can buy a very nice house if you bother to get of your lazy backside and not want life handed to you on a platter!
 
No NOT in Central Auckland of course but a modest starter home in the suburbs less than 15 mins from Auckland CBD off-peak is possible (West Auckland):
http://www.realestate.co.nz/1754229
 
In Dunedin it can buy a very nice home for $250k or even under $200k or a starter do-up under $100k:
http://www.realestate.co.nz/1774873
http://www.realestate.co.nz/1720319
http://www.realestate.co.nz/1768298
 
In Christchurch you can pick up a freehold villa with little damage for $179k in an inner suburb:
http://www.realestate.co.nz/1629333
There are litterly dozens of good character central area properties under $250k and a fair few damaged as is properties for under $200k or even under $100k.
 

Chris_J and SK are the king and queen of this column when it comes to Auckland property boom especially in the central west area, where residents can buy drugs down the road and entertained by prostitutes in the middle of the night within 5-10 mins walk in Grey Lynn, Ponsonby and Freemans Bay.  If you think this is much better than the so called 'beige', 'retirement village', 'blue rinse' and 'boredom' in the central east, then go ahead and spend big on the houses.  By the way it only takes less than 5 mins to drive from Remuera to the CBD...go figure.

ctnz, I lived in Auckland 10 years ago for a few years  (in the Ponsonby/Herne Bay area) and although at 9am there was literally no delays in driving down College Hill to Queen St.  Leaving at 5pm was a totally different story, so I never left work in the car at 5pm (opted to do extra work or do something in town for maybe an hour).  Actually why Freeman's Bay, St Mary's Bay, Herne Bay and Ponsonby are so popular is that you can easily walk to town, which I did about half the town.
 
Because I was looking at property in the outer areas at the time, I tested several of the commutes, going out to the suburbs before work and driving back in.  I forget the exact time taken but they were all less than I thought they would have been.
 
Those cheap properties in Ranui are only about 15 or 16km from the Nelson St exit to the CBD with very few lights or intersections before the motorway.  Last night I checked it out seeing I was out that side of town.  About 7.30pm it took perhaps 12 minutes.
 
If you used the motorway at 5pm it would only take perhaps 5-8mins longer to get from town to the Lincoln Rd off ramp then it would to get to the St Lukes Rd off ramp from town.

Try living in Ranui and not being stabbed.
 
Friend of mine awoke a few months back to a bloke entering through his kitchen window and got shanked for his efforts to evict this young thug from his house.
 
No thanks.

Quite a few people in Ranui manage to avoid it.

Exactly Bob.  I recall a murder of a tv celebrity in St Mary's Bay only a few years ago too (the interior designer from My House My Castle).
 
Nowhere is particularly safe.  Epsom is often targeted by thugs from the South too.

With regards to travel time from town to Ranui/Lincoln Rd or vice versa in peak traffic (3 - 6pm, 7-9am), you have absolutely no idea what you're talking about.

I meant from Waterview to Lincoln Rd (rather than from St Lukes Rd sorry).
 
That's about 6km so an average 40km/h should be achievable (assuming the waiting time to get off at Lincoln Rd is about the same as that to get off at Waterview), I was on the Southern today around 4 and it was moving freely at about 60km/h through Gillies Ave to Spaghetti Junction.
 
I'm talking about the marginal time taken to travel the extra distance not the total time from town. 

If you don't want to commute 45-60mins 2 x a day then: catch the train, work near where you live or pay an extra $500K to live centrally.  The days of buying big villas on big sections 5 mins from Queen St on 3x the average wage are long gone.

.

If you accept that average wages are higher in Auckland than anywhere else in the country , then it's not such a problem if $ 250 000 houses are rare ....
 
.... " decent " is a subjective term ; some immigrants from third world countries believe that all houses in NZ are luxury villas , that none are " indecent " .....
 
[ ... OK then , this reply to comment below ! .. Ha ..]

Indeed.

chris j...My goodness you are arrogant and rude! But I guess it's easy to be when you can hide behind your computer. You know nothing about me, absolutely nothing, while I know quite a bit about you. Get off your fat and greedy arse and go and look at those houses. 250k can't buy a decent house anywhere in Auckland. So wind your neck in and stop being such a know -it-all, it shows off your real world ignorance!

I think you are the rude one mandalay - to have insisted $250,000 houses were impossible to find!!!!!
 
Indeed in every part of NZ except central Auckland and central Wellington houses in that range are easily acheivable.
 
I get very annoyed when people say it's all too hard to buy property.  They are just lazy or stupid.
 
It's not hard it's just about being sensible.  You can actually buy a freehold freestanding house in Auckland for under $180,000.  Yes they're in the worst suburbs but if you actually get out there and look you can find houses in reasonable streets in outer areas in the $300k range.
 
It is an insult for people to insist they should be able to buy in areas like Mt Albert Grammar zone or Ellerslie for a similar price what would be significantly below the actual replacement cost even if the land value was reduced by 75%!
 
Houses are out there, just don't expect them on a platter.

People who can't afford to buy a home "...are just lazy or stupid!"  Says Chris J...
Also if  you have the money but decide you don't want to buy a house at such insane prices you "...are just lazy or stupid!"  Says Chris J
Also if you own a home and think things are tough for young/old Kiwis you "...are just lazy or stupid!"  Says Chris J.
You are rude and arrogant Chris J and your comments daily prove this, you abuse and insult people regularly if they disagree with you. You are a bully who hides behind the anonymity of this website... But the reality is you have no real idea what it's like to live in the real world.
Again I say to you Chris J, you have no idea who I am or what I do, or what I own or how hard I work...
Learn some manners Chris J... and try not to shoot the messenger!

When people moan it's too hard and everyone else can manage ok, they are just lazy.
 
Auckland is by far the most expensive place to buy in NZ (Queenstown is not actually that expensive because the standard of housing is very high).
 
In Auckland you can go across still purchase exceptionally good homes (what were top end houses in top end areas in the 80s) in the $600s and $700s in places like Birkenhead and Chatswood only a few minutes from the Harbour Bridge.  It's the same in many other areas - and to be perfectly honest those houses are only maginally more expensive on a like for like basis than Christchurch or even some small towns!
 
Many good properties in good locations in Auckland are selling around 6% gross returns.  For example a massive very tidy 2 level 5 bedroom villa in Epsom (right by Newmarket) sold for $815k that could potentially rent for $1000pw (walk to uni, med school, double grammar zone if needed) that could be 6.4% gross.  5% returns seem very easy to achieve.
 
What do you actually want to be able to buy?  A freestanding 3 bed house in a reasonable street in Mt Eden for $300k??  Well people are prepared to pay $750pw to rent a very basic property like that (and virtually all private renters!) . So the average rental yield SHOULD be 13% while interest rates are 5.75% or less ACCORDING TO WHAT YOU are arguing?????
 
Prices are roughly where they should be and there is more potential for upside than downside.
 
If you are so fragile that you don't like being told the truth about prices, then don't make such ridiculous comments such as no houses are available for $250,000 - which even within 30 minutes of Auckland CBD isn't true.

Chris_J is an out and out bully.  He thinks he is the king and queen of Auckland Real Estate but in fact people are just laughing at him with his non-sense posts here in this column.  He abuses other people here and often hides behind his little world in the cheap western side of the Auckland CBD.
 
According to him,"...in Seaview Road - a grotty part of Remuera between Arney Road and Parnell..." OMG he is so wrong as Seaview Rd is top 3 in Remmers and people actually would kill to live in that street and have that address.  Go have a look at the council website for the CV's in Seaview Rd Chris_J and you will jump off the cliff and never be seen again, ever.

Gosh DoubleGZ, you don't understand sarcasm??
 
Though you must admit the bottom of Seaview Rd is a gully filled with rundown state houses!  How else would a freehold 530m2 section with a liveable house sell at auction this week for just $640k.  (Sold with Barfoots on Wednesday with very little interest).
 
Clearly you don't have to kill to live in the street - you couldn't get a section in the inner west at that price!
 
You do know I'm winding you up a little, but it is clear that the inner east is not as sought after as the west right now.  The big dated houses in Remuera aren't fetching any more than they did 5 years ago and in many cases they are getting significantly less.
 
Take this listing in Arney Cres (formerly Auckland most exclusive street?), which has evident leaky issues:
http://www.realestate.co.nz/1726799
Asking $1.95m, has been on the market for a long while.  The vendor paid about $2.2m about 2005ish.  Realistically they are going to have to discount a lot more to sell (anyone interested at 25% less - probably not many!).
 
I would show you what a similar size renovated character villa in Herne Bay is like for about $5m but they all sell too quick for the listings to languish on the net.
 
Here's yet another Remmers leaker:
http://www.realestate.co.nz/1767146
 
Personally I have nothing against Remuera, but you have to be realistic, it's not the centre of the Auckland real estate universe anymore.

Here is your cheapie in the grotty state-house part of Remuera:
http://www.trademe.co.nz/Browse/Listing.aspx?id=470421888

It's a shame they have to live on the same street as people who can only afford $640k (about the cheapest freehold land you'll find anywhere in Central Auckland).  BTW it was 117 Seaview that sold this week for the $640k!
 
You miss my point though, that any snippet of land with something habitable in the fashionable west goes for close to a million to undergo a major reno or rebuild, whereas round Remuera it sells to an investor looking just to sit and rent to mongrels until the area improves! (exclamation marks mean I'm winding you up a little!).
 
You have driven down the bottom of Seaview and Arney, haven't you?  Or do you just keep your eyes closed!
 
This afternoon a do-up villa in 2 flats in Sherwood Ave Grey Lynn on 450m2 ish sold for $1,115,000, I think that is getting close to a new record for a do-up that far out.

CV of that Sherwood Ave was $870,000. That property would not even have cracked $800,000 2 years ago so very impressive to see a $1,115,000 result
You are actually onto something Chris J - Parnell through to St Heliers not really in vogue at present and full of leaking crap that the agents usually do not state in the adverts actually are leaking.
Auctions in Meadowbank and Remuera not going so well but in Inner West very strong prices.
Western Bays especially Ponsonby, Westmere, Grey Lynn very sought after along with Mt Eden, Sandringham and Mt Eden.
Went through an open home of an auction house in Pt Chevalier yesterday and even there there must have been 50 people in the place!

with respect Chris, that Ranui property is a poor crappy little box, in a very undesirable suburb. I had an acquaintance who lived in Ranui for two years, he was broken into four times, and witnessed some ugly domestic violence next door. Schooling is poor too.
The point is, middle income earners shouldn't have to live in these environments. The middle class in the 1970s could live in respectable middle class suburbs with good schooling. If the middle class of today have to live in places like this then something is seriously wrong. 
I'm far from saying that middle income households should expect to live in Remeura or Ponsonby. But I don't think its too much to ask that middle income earners should be able to buy in a good middle class suburb, like Ellerslie, or Mt Albert. But many can't.
If the planning system was overhauled, as it should be, then we could see affordable townhouse options in suburbs like Ellerslie, or good new homes in new suburbs on the edge of the city, selling for circa $400-$450K, which a middle income household earning 80-90K can afford. It's is far from rocket science, however we have a totally inept government   

Nicely put Matt.

MIA, with respect Mt Albert and Ellerslie are no longer locations where the beautiful large homes can be bought by someone on an average income.  These are now desirable areas sought after by young professionals and higher income earners.
 
At auction yesterday a large character family home in Mt Albert (which was recently renovated and commanded good views) sold for $1.215m with a reserve below $1.075m with some seriously heavy bidding.  This would have previously just been a typical family bungalow of the 1920s - but now it's hugely desirable (more so than the eastern suburbs).
 
I know Ranui isn't exactly a des res, but in a not unreasonable part of Glen Eden (typical middle class kiwi suburbia here's a 3bd starter for $272k:
http://www.realestate.co.nz/1722926
Or in Glenfield (North Shore) a 3bd Lockwood on 822m2 for $395k:
http://www.realestate.co.nz/1748146
Look hard enough and you can get a good house in Auckland.

Its not just the size of the loan it is paying off that gets me. We have a couple of comments
above:
400-450k on household earnings of 80-90k and 800k easy on combined household earnings of 150K.
Both those family combined earnings are not high. How are these families to pay the size of  loans required given the cost of living, have a life and work to become financial independent..
It's not going to happen.
I was working in Auckland in mid 90's in my twenties on an income around 200K.
I remember taking on a 430K loan...  I found it extremely hard to serve, pay down the loan and have a life. Was lucky I was able to get out of it and move on with a modest gain. hmmm
Today it is easier to get in however not any easier to get out by repaying early. Incomes are not materially higher in Auckland in the mid-range of industry/professional/mid-career.
Only at the top end you have more scope and then relativity to those around you matters. If you earn 500K doesn't matter if everyone else is medical specalist around you earning 1.2 million etc. 
Most sit there pretty as they bought at a different time, then never had to pay the value of the property in real earned cashflow.
 

I don't believe you could have possibly struggled with a 430k loan on a 200k income in the mid 90s.  Even if you are talking about 97 when rates were briefly 11%, you wouldn't have paid more than $60k PA (if floating - it would have been significantly less if fixed) either way leaving a substantial amount to live on.  (Interest rates were as low as 7% for most of the 90s except the runup to the Asian crisis and 90/91).
 
Of course if you were paying as much as $60k in mortgage, you would have been saving yourself $30k or so in rent for an equivalent property at the time.  So it shouldn't have been any real struggle unless you are just a poor manager of money.
 
I would like to add that $200k for someone in their 20s in the mid 90s seems an excessively high income.  Only persons in high position management or financial services or medical would have acheived that level of salaried income at the time.
 
I worked in financial services in 2001 and my initial starting wage at a high profile firm as a graduate recruit (23 years old) was $40k.  Directors at the firm were only earning about $150k at the time and they were in their 40s and older.  I know medical professionals would not be sufficiently qualified by their 20s to earn that level in the 90s.  So my assumption is that you would have to have held a top tier management or top tier financial services job, in which case I am very surprised you are moaning about your ability to afford things - unless of course you are making things up?  - Wasn't it you who had said on an earlier comment about the ChCh EQ that you had some information that had secretly been presented to an engineering society or similar and Hugh P and myself asked you to offer more info which you never did???

I thought  you were too bright to assume that much. Yes is was a good income in the 90s, although CEOs at the time working for private companies in Auckland earning around 200k  was typical. My mate who was a partner in a mid-tier accounting firm was on 230k plus equity however never mind...
Because you were not in that position at that time, or exposed to it ,does not prove anything.
Suggest you work out how much was disposable income after tax for starters at the time and note I was talking about actually paying it off, as your first home is essentially not an investment, it is consumption. In addition, living to some degree and investing for your future including comprehensive financial planning i.e insurance etc  i.e   working towards financial independence on a risk managed basis.
Naturally if I had retained the property  I would be sitting  on  greater capital gains myself, but that is not the point I was making. And ceratinly to a degree that would have been luck.
I'm amused at your comments... by your attempted dig at my creditibility near christmas, BH was away, Hugh P comments were pathetic so why do him a favour, I don't have to actually do and prove anything,  it achieved it purpose as stated in the post at the time, even more amusing as I recall the authorities fessing up on same matters a few weeks later in the media. hmmm
If you actually go back to what was said you will be feeling a little silly about your comments.
You appear like your friend Hugh P where you need to comment on everything and no tolerence for a different point of view... speaks volumes for the person you are.
You have been blessed with a golden period for investing in property with silly capital gains as have I. Suspect you have your  National party connections and think your clever that most of what you have you never paid for as it is capital gain, or paid by someone else. Actually same here.... however for people who may not be blessed with a similar golden era to invest in and actually have to do the hard slog to pay off a mortgage plus  try to establish themselves as financially independent by other means...I can see the problem. Go back to my orginal post and actually read it.
 
I would suggest you try to avoid showing yourself up again like when you felt you may lose out on your property in Christchurch and your continued belief all that matters was an investment property portfolio. You clearly showed no  exposure to the real sector of the economy.
Property is  where its at when it comes your comments although they are generally good.  

 
cheers
 
 
 

Speckles, so did you actually earn that kind of salary in your 20s, because that would have been most impressive - what was the actual role?
 
If the comment you made some time back about ChCh was only referring to the increased probabilities then I think it was more than slightly embellished in your posting.

Not salary however income as earlier stated, actually from three different sources. 
If you highlight the comments and postings where you feel I embellished I will respond. I clearly believe not the case.
 

Res 6a and Res 5 zone need to be altered to 300m2 lot sizes - that would allow thousands of central Auckland sites to be created.

Not a good idea, lots of cheap infill will wreck some suburbs.
 
Plenty of undeveloped state housing areas on the periphery of the good areas need the govt to move on out and renovators and developers to move in.
 
The Govt could realise perhaps $2.5 to $4billion dollars selling 5 to 6,000 houses in the Central surburbs which would allow them to replace with the same number of brand new houses on the fringes for half the money!
 
If the govt could free up $2b which was earning nothing, plus provide better standard of accommodation, plus boost construction spending, then why the hell hasn't it been done??
 
The govt could sell with a condition that a certain amount is spent either renovating or rebuilding on each property, which would stimulate even more spending and guarantee that areas become desirable and don't remain rentals.
 
The ring of cheap rough state houses surrounding Auckland are stifling supply of homes to renovate and driving up prices within these areas.
 
As the majority of people living in these cheap Housing NZ rentals don't actually work in the CBD there is no real reason for them to need the proximity to the city.  (Obviously there's no need to boot people out too harshly, just phase them out slowly).
 
 

What's wrong with infill?  Who said it needed to be cheap?
There's no reason why bulking rules couldn't stay exactly as they are and density increased - you can't even tell how many 'household units' are living in a house other than by the number of letter boxes.  There used to be 5 households legally living on 2 sites in Grey Lynn in my street 10 years ago.  Now there's 2 on the same 2 sites and, other than new paint, the houses look identical - similar number of cars too.
The requirement for 2 parks and reverse maneouvring per unit that can make infill feel out of place, not the fact that there's a different make up of household units inside.  An 8 bedroom 6 park mansion is considered as having the same effects as a 1 bed, 1 park flat by Council.  This is stupid.
 
 

" If property becomes too cheap (like in Invercargill) whole suburbs become derelict (like Appleby) and there is no investment in maintenance and repairs"
That assumes that nobody has an interest in actually living in the houses. If that is really true then why should we care that the quality isn't high? If nobody is living in them then it doesn't impact anybody's quality of life. 
And if people are living in them, then of course they have incentives to improve their houses. They get a better house out of it!

Appleby and South Invercargill in general had a bit of a unique problem in NZ that there was an obvious surplus of homes (however relatively few are unoccuppied).  This has meant fewer persons per household in general.
 
10 years ago when an average villa on a quarter acre sold for around $10-20,000 it was virtually impossible to justify spending any money in the area on improvements.  Now that prices have recovered to the $60-80,000 level at least maintenance is a worthwhile undertaking.
 
In general it has made little difference to rents with the increasing prices, because as 10 years ago a house may have let for $125pw (20-50% gross returns possible) now rents are around $195pw say (about inline with inflation) giving a (10-15% return).
 
The higher values mean a better standard is kept up in the area.

Unless you are building a new house, you're not doing anything about housing supply, merely speculating on an existing asset. - Anyone can do that, you're not some social saviour.
Also just because you spend x doing a renovation, doesn't mean the property value increases by x. Infact that is part of the problem, people have that mentality and overcapitalise.

No, Robby had it right in his comment.
 

Without the method of equity release, no-one could afford to build a house in the first place (it would be like owning a boat... just pouring the money down an endless big hole)
Huh?
Why wouldn't the first person just build a house with their own equity rather than go through a middleman?

Mini mansion, built within the shell of a villa. That'd be worth $800,000.
$600k for a villa and nice surroundings. 
$200k for nice kitchen & bathroom.
Apart from that.. it's still just a villa. $2 million -- you're deluded.

Thomas W, you're dreaming. 
 
Where in central Auckland can you buy even a derelict villa for $600k?  (Within Grey Lynn/Kingsland/Mt Eden/Epsom/Remuera/Parnell absolutely no nicely positioned villa on a reasonable site (more than 250m2) would sell for anything like that - unless it was right on the motorway or in some other impossibly undesirable location!)
 
Obviously you live in squalor if you think $200k will renovate a villa!  Some 100m2 cottages have $1m plus renovations done on them in the Freemans/St Marys/Ponsonby area - adding basements, second floors, swimming pools etc etc.
 
Check out Anglesa St (probably early mid $2s - million that is):
http://www.realestate.co.nz/1779724
That was previously a little 80m2 cottage.
 
Get with it!!
 
The inner west cottages and villas aren't cottages and villas anymore, every day more and more are being rebuilt (check out Hakanoa St for the number of renovations underway - about 5 or so right now - it's all action in the inner west!).

Where's the extra value? I see only bubble. Five or ten years ago, $600k what was a villa was worth. Rest is just froth. The Economist has been picking NZ's housing market as overvalued, since the late 90's.
 
(They were the best source of info, predicting the financial crash -- as much as 16 months out.)
 
Good luck paying $10 for your coffee. Mine only costs $3.50 or $4. But my concern is, all that froth is killing the productive economy.
 
F&P, technology exporters, leading edge NZ companies.. they've all been struggling & going backwards. Or overseas. If I wanted something to keep me warm & rich in my old age, it'd be a productive business not an overpriced yuppie coop.
 
And at 80sq m, 'coop' is all it will ever be.
 
NZ dollar too high: jobs, crime, unemployment

Thomas W, you don't understand!
 
The houses in the inner west are often essentially new builds.  The Anglesea one was 80m2 now its 350m2.  The build cost would have been around a million.
 
The inner city villa are never going to be at the $600s again (by the way in the late 90s when the Economist said prices were overvalued an average Ponsonby villa could be bought in the $200s now it's 4 or 5 times that if you're lucky).
 
It's simple really, look at a new subdivision, before the houses are built the average price of a property might be $200k, after they're built $800k - it's much the same in the inner west except everythings to a much higher spec and the land value was the original house price.
 
Of course this means as more and more are renovated the prices only go up and up.  It's all more to do with the renovation and rebuilding than just straight out inflation.
 
If you were going to buy a villa in Central Auckland at $600s a few years ago and instead bought out in the suburbs (particularly in plasterclad house) you made a very poor financial decision.
 
$900k spent on a plasterclad leaker in the Eastern Suburbs in 2005 is probably worth $750k today at best.  $600k spent on a villa in the Inner Suburbs in 2005 is probably worth $1.1m today.

Sorry dude, I do understand. That's why I pay $390 pw rent & leave the lemmings to chase the property market. My money, I make elsewhere.

 

NZ dollar too high: jobs, crime, unemployment

 
 
 

COME ON BABY
 
According to the "Who wants To Be A Millionaire" article: Nine suburbs within Auckland have houses with an average $1 million price estimate:
1. Herne Bay ($1,855,611)
2. St Mary's Bay ($1,477,278)
3. Parnell ($1,339,000)
4. Epsom ($1,134,389)
5. Stanley Point ($1,090,222)
6. Remuera ($1,085,944)
7. Takapuna ($1,080,333)
8. Mission Bay ($1,046,667)
9. Devonport ($1,001,833)
10.Ponsonby at $964,333, just fails to make the grade.

The first area outside Auckland to reach for these heights is Wellington's Lowry Bay-it hit Number 14 on the list at $933,444.
 
Note that Grey Lynn hasn't made the top 20 at all, coming in at around 22 (around 815k average). Westmere, Freemans Bay and Mt Eden couldn’t make the top 10 while Pt Chev stumbles out of the top 30.
 
Old character villas and bungalows are definitely in high demand.  Names like Fairholm (1898), Glenholm (1860's), Woodcroft (1870's), Elmstone (1902), Cotter House (1840's) etc are now worth over 4 million and more.
 
One of the best kept secrets in real estate at the moment is the better value buyers get in the eastern suburbs (especially Orakei and Remuera) compared to the likes of Grey Lynn, Pt Chev, Westmere, Freemans Bay and Ponsonby where houses are already over-priced and through the roofs!
 
How can you put a value on heritage and living in areas full of such rich history and graciousness like Parnell, Epsom and Remuera?  Not to mention the double grammar zone factor...oops, I have to throw that out :)

This phenomenon of the central west catching up and taking over the central east in popularity and in some cases prices has been discussed here before.
It really is an interesting change in Auckland demographics - whereby the aspirational suburbs of the younger are no longer the Remueras and are now the Grey Lynns.
If you are 35 with a million to drop on a house - why would you spend it in the beige retirement villages of Remmers and St Heliers?
You want to be able to stagger home from gypsy tearooms and then go and buy a 300$ t shirt at Black box the next day.
Result of this is that those eastern suburbs are really looking like good value lately....if you can stand the boredom and blue rinses.

The averages in the Inner West are skyrocketing.
 
Today a prime 450m2 section (with an 80s building) in Grey Lynn was sold as section value for $1m exactly.
 
$1.4m in St Mary's Bay or Freeman's Bay barely buys anything detached with freehold land.  Nor does $1.8m in Herne Bay.  Those values are sure to rise in the next recalculation of values with many sales in the area 30% above the 2011 GV.

I doubt Grey Lynn will make the top 15 even with the figures you are referring to.  It is an area with high crime and it is still very much a mixed-bag with lots of run-down villas and bungalows where residents take no pride of e.g. all the rental's and state houses.  They show no interest in looking after the properties they live in.
 
I certainly do not get the feeling I get in Central West compared to Central East which is leafy, clean, wide streets, welcoming and more importantly most residents actually take good care of their properties.

The top 10/15 list is not relevant - Grey Lynn is a large suburb with a big mix of housing and people.
People are voting with their wallets.
With regard to  'hookers and drugs' - you sound a little like John Banks with his 'darkies are going to come through our window' nonsense.
ps: AGS is a rubbish school anyway.
 

Nothng is wrong with John Banks.  I like him, respect him, trust him, admire him, voted for him, enjoy being his neighbour. 
 
I don't want to sound just a little like him, I want to be HIM!!  You guys are just jealous!!
 
P.S....and before you ask, NO, I am not Kim Dotcom!!!

Calm down double gz, you've got to remember the grotty state houses scattered throughout the northern slopes of Remuera too!  And take a look at the leaky apartments around Newmarket, the shady commercial areas "off" Broadway etc.
 
Most of Grey Lynn is actually hugely desirable now, and yes a 3 bedroom cottage just off Ponsonby Rd IS worth substantially more than a leaky home in Arney Cres.

NO NO and NO.  I disagree 101% with everything you say and I insist that Grey Lynn is STILL a cheap side of Auckland infested by low-socio people and gangs.

Have you seen "The Castle":
All I can add is your're dreaming!
 
Herne Bay is UNDENIABLY the most expensive suburb in NZ.
 
I was at an auction yesterday where a double grammar zone ex state house (in Seaview Road - a grotty part of Remuera between Arney Road and Parnell!!!!!) sold for $640,000.  At the same auction a property was bought as a section (a single unit 450m2 site)  in Grey Lynn for $1m!
 
Remuera is filled with rundown leaky homes ready to be torn down.  Check out the 2011 GVs many are down 10%!
 
Very few low socio-economic people live in Grey Lynn nowadays - if they do and own their own home they are likely all to be millionaires!!!!!!
 
It's a shame you live on the undesirable side of town!!!

NO No and NO again!!! You are WRONG WRONG WRONG, and have a FILTHY MOUTH with polluted mind.  You have NO IDEA what people are thinking and all you know is your little world wrapped around in the little western side of the CBD which is cheap, nasty, filled with filthy run-down cheap houses and infested by mongrels.
 
Don't you come to the eastern suburbs as a retard like you will never be welcome at all time!!! Go away!!!

Don't worry I've been checking out the Remuera cheapees too, they'll make great rentals for a few mongrels!

Which site? the mixed use one on Gt. Nth?

A residential 1 site on Rose Rd.

GM is advercating removing property speculation by making it a taxable activity, as I understand it? I for one have no beef with this concept, for too long now property values have been driven up by speculators who are out for the quick tax free buck, ok, so bite them with a capital gains tax. Problem... What 3 year term government is going to have the balls to bring in such hard to sell legislation? If you do find a party that can sell this concept get them also to slap a tax on the movement of cash at the same time. Now that would really catch the bloated fat cat banksters....Good luck....

Yes.........
regards

Maybe the anti-house lobby is just ..... ...... old-fashioned Jealousy?  
Any fool can despise what they cannot achieve ..... due to lack of long-term planning, wise stewardship, humility to live in a "lower-income" suburb.   
Oh no,   we all 'deserve' to live in Remuera.    And if we can't afford it -    then it's someone else's fault.
Maybe the under 35's don't actually have the guts to sign a mortgage document?  
 

I'm not sure if you're trolling or simply being unintentionally offensive. Maybe the under 35's are smart enough not to lock themselves into a high-risk contract? At some stage in the future house prices will revert back to something approximating affordable levels. I don't know when or whether it will happen quickly or slowly. All it would take is a recession, an increase in unemployment, or a drop in consumer confidence. It's happened in the US and Europe, we have been lucky that commodity prices have been high due to Chinese demand. Did some just say that dairy prices have dropped by a third?

There will always be jealousy of the Rich, just as sure as there will always be the Rich, but surely how they achieve that and at who's expense is a worthly question.
 
"For every action, there is an equal and opposite reaction". It is only a matter of when the pendulem reaches the top of its swing before a generation of young will work it out and fight back.

Excellent point Scarfie. Bashing "the rich" is lazy as it fails to differentiate between those who have earned their wealth by producing things valued by others (a Steve Jobs or a Henry Ford, for instance), and those who owe their "wealth" to political favours by the state.  I would put property speculators in the second category.
 
Those crowing about how their property prices have gone up by a zillion percent over the past 10/20/30 years need to get down on their knees and thank the government, which has allowed local councils to impose urban limits that run roughshod over property rights and have caused land prices to increase dramatically relative to incomes in recent years. 
 
For those who bought in the late 70s and early 80s there was also the benefit of rapid inflation (reducing the real value of their mortgage while increasing their wages), as well as falling interest rates from the late 80s onward.  Sure, life might have been tough for a while but with property prices at three times incomes rather than six, there was more of a buffer for adverse events. 
 
My advice to the people who have benefited from these policies is to think about the people who are suffering as a result of them.  Because unlike the market, where people mutually benefit from exchange (Henry Ford gets your money, you get a car etc), government policies always create winners and losers. 
 
If some future government does an about-face and decides to adopt the policies Hugh Pavletich and others have advocated, you might find the value of your 'investment' takes a hit as land prices become affordable again.  Then you might realise that when you get in bed with the state, at some point you're going to get screwed.

LOL, so if the rise in prices is all to do with lending and nothing to do with urban limits, why is it that land just inside Auckland's urban boundary is 10 times as expensive as land literally across the road (but outside the boundary)?  Try explaining that one for me.

It's not about "having the guts", it's about doing something that's prudent. I'd love to own my on home in Auckland, it's what I'm aiming towards. Initially in 2005 I was waiting to get a deposit together, then in 2007 I was waiting for the insanity to finish. In 2012 I'm still waiting for that insanity to finish. Meanwhile I've got a pile of cash together, that's growing rapidly by the day.
 
I'm not buying because I can't, I'm buying because it doesn't make sense at the current ridiculous prices given the complete lack of choice on the market.
And while my pile of cash grows, in another 5 years, when the required correction finally DOES come, maybe I won't need a mortgage at all, I might be able to pay for my first home with folding cash.... which would be nice.

It seems you intuitively know something isn't right, it isn't and your intuition is working well. Come and talk to me one day about what really makes a home, keep away from the overpriced Auckland trash, or in fact any of the trash we build today. We don't build homes, we build houses and their is large gap between the two. I can givey you the basics, and you can make it a home. Try the work of Christopher Alexander for starters, "A Timeless Way of Building".

I read it.
 
Mr Alexander even has a construction chapter which explains how to build with no bracing, no insulation, no DPM, little in the way of waterproofing and of course no consent etc. etc. because anyone can build if they follow his patterns.
 
It's got lots of ideas (patterns) for bits of buildings/cities based on what he feels is appropriate.  Some good.  Interesting how it's contributed to computing more than building.  

Assuming with Dr Bollard's livings will policy that you dont lose it all...I assume its in a deposit account or similar with a bank....
I'd suggest at least 2 seperate banks and Internet capable accounts in each....
My picks would be kiwibank and TSB.
regards
 

The main reason you'd go for Kiwibank is that they are likely ranked #1 for a govt. bailout.

and the bank most likely to tank in a recession based on their size, loan book, and how they raise capital. 

Not so sure on that...do you have a breakdown of Kiwibank's loan book v say TSB and say ANZ/Nat?
I had a brief google didnt find much...
regards

I would suggest you odnt let political blinkers cloud your judgement (if that is indeed happening).  Im not sure its any better as a standalone than the big 4, but it has no call on it externally from its "mother" in the home land imploding, and has an implicit Govn backed guarantee... but paradoxically it might actually be considered small enough to be allowed to fail by the Govn of the day.
Hence why I said at least 2 banks, maybe even 3.
regards

My pick ASB rated 8th best Bank in the world voted well ahead of parent CBA . The 3rd largest taxpayer in OZ employs 52000 people incl NZ and I understand now a Domestic Division of CBA so no mucking around ... Loud and Proud an Aussie bank.

These 'voting' things are meaningless at best and contrary indicators at worst.

Keep waiting for the Housing crash.
Annoying when the Landlord tells you he's moving in/selling?
Meanwhile your cash is debased, devalued every day .....
Buying a house needs too much courage   -  it's not like buying an iPhone or flat screen TV on your GE card.

I will keep waiting, thanks.
It would be annoying if the landlord told me he's moving in/selling but that's an annoyance I'm happy to live with. It's never happened yet, so I wouldn't know.
And my cash does okay thanks, it's not doing much, but it's not getting smaller.
 
It's not a matter of courage, I just hate debt. The only thing I've ever borrowed money to buy was my education, and even then I paid that debt back in 2 years. If I'm going to get into debt for a house, then I just want to make sure that debt is as small as possible.
You cannot argue that the NZ housing market is not overVALUED at the moment, at BEST prices are going to stay static from here on out while inflation waits for everything else to catch up.
Either way, it's not a great time to buy, unless you've got no cash, and you're able to make use of the banks tripping over themselves to throw money at you.... in which case, this may be the last chance you have to buy a house until you can actually save up 20%+ to buy, as it'll be in future.

As admirable as saving & debt freedom is, you can't progress much without leverage. With prudent debt leverage you can advance financially in a way that simple saving will never achieve. Shares, property or starting a small business generally all involve risk-taking and use of debt.
Conditions are never ideal - late 1980s were pretty depressing times for property yet $5000 deposit on a home then is likely to equate to several 100,000s now through leverage. Of course we were bad people to do that...

and then they had to lick the road clean before walking a further 80 clicks to school.... And anyone who doesn't buy a house NOW is a fool! And by golly it was so tough in the 60's and 70's... no MCDonalds that all you foolish gen xers and yers waste your money on.. and don't get me started on your iphones and flat screen tvs...!!! Did I mention we had to walk 120kms on our knees backwards, while being beaten with sharp sticks???

Yes, & we had to send a letter to the bank manager each month verifying our good character, thanking him for the privilege of our loan. We biked to work (greenies would be proud), packed brown bread sandwiches, always opted for overtime, ate from veggie garden, spent every weekend on home improvements, cheered the Queen, were polite to the motherinlaw, paid all the bills by chq on the 20th .....
Tough times .... sharemkt crash, Ruthanasia, Asian crash, bird flu, dotcom crash, housing mkt flattimes, 9/11 .... the disasters never stopped ..... no slouching.

You can be sincere and still be stupid.  ~Charles F. Kettering
 
Everybody is ignorant, only on different subjects.  ~Will Rogers
 
To succeed in life, you need two things: ignorance and confidence.
Mark Twain
 

No, old-fashioned aversion to stupidity....Im over 35 and I wouldnt sign a mortgage document today at today's prices....you would have to be nuts. Then again I know ppl who are under 35 and are doing so....."desperate to nest" and even after gentle suggestions to wait a bit, are not.........ho hum.....it will implode and its going to be sad to watch......but they are adults.
regards

so true......

you speaketh the truth gareth.
i think brian gaynor also agrees with you.
it won't be until the children and grandchildren of todays house investors cannot afford to buy a house  themselves that the chickens will come home to roost.
i am not talking about property investors but the PROPERTY SPECULATORS.

Gareth recently purchased a four storey home on Marine Parade in Tauranga for $6,000,000
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10719842
I wonder if it is a monolithic plaster clad potential leaker? The developer was behind the biggest leaky building scandal in the Bay of Plenty, the luxury 40-apartment Cutters Cove resort.
 

Well he would wouldn't he? 
Surely it's a matter of do what I say not what I do?
Until the dynamics of this catch up with you.

Sorry Garteth , not gonna happen - until unemployment rises (revolts) there is no change in
policies or politics. Small stabilisation for most is better than unknown future.....shorttermism....everywhere.......

Mist42NZ makes some good points.
For the record, I believe houses in NZ are expensive. But there are a couple of points I would like to make:
1) - Expensive housing is due to lack of supply. If we want to fix this issue we need to incentivise developers and streamline the consent process in order to get more houses built. Just taxing property investment more heavily will do nothing for housing affordability.
2) - Gareth Morgan and Brian Gaynor are both fund managers who want to see money flowing into the stockmarket (preferably via their own funds which they charge fees on). They hate the idea of investment going into realestate because there is no opportunity for them to charge a fee.
3) - In every major city in the world, it is very expensive to live within close proximity to the CBD. Its just basic economics at work. Yes Ponsonby is very expensive, however Manurewa is not quite so bad.
Happy debating.
 

Expensive housing is due to lack of supply.
If a law were passed tomorrow banning mortgages without owners equity of less than 30% house prices would fall because of a drop in DEMAND.
Supply is only one side of a coin.

You need to go back through the time tunnel and meet your old friend ...........
Rob Muldoon.
Even Hire Purchase on cars and goods required a big deposit!
Yep,  a Command-Driven Economy     ..... otherwise known as Communism, Polish Shipyard Mixed Mode economy!  
Why stop there,   .... why not 50% deposits needed on all PCs & Laptops.   30% deposits on all vehicles.    Cash only purchase of groceries  - not those evil credit cards.
How about a Interest Rate Freeze?   No, not a Wage Freeze!
Get a hold of those Levers...... and control that economy.  

I think you'll find you will only need to jump on a 747 and fly to texas.
By law 80% LVR
and you can only have one mortgage at a time, so I think that means PIs have to have cash....so no speculation via debt.
http://www.ehow.com/facts_7623272_texas-mortgage-refinancing-rules.html
Also didnt get much of a housing boom....
and I must of missed texas going commie....that and texans, boy they will be p*ssed...
and I think Steve Keen wrote a good piece on LVR and how small changes make big differences...so a law stating 80% which the RB could move up or down might actually be a good control mechanism instead of or in combination with OCR changes.
Getting rid of cash only for groceries I think is only something that occured about 8~10 years ago? I think it was more of the retailers saying no as their margins are pretty small.
regards

You are spot on of course Ralph, in fact you should go further.
Expensive housing is due to a lack of over-supply. Its not really that there are insufficient houses by any means. People don't own a house because they can't afford the price tag, not because they can't physically find one which is available.
People have been speculating on house prices appreciating for a long time. For a long time in fact this has been a rewarding strategy, though it does make it progressively more difficult to buy-into the housing market. Your average home buyer is quite willing to pay over the odds for their house, because they feel they can always work a few more years to pay back the borrowed credit. Maybe you could surpress this tendency for a while with over-supply, forcing the prices down, but in this case you can hardly claim that the market is self balancing, it tends towards housing bubbles quite naturally. The only un-predictable thing about this is how readily the banks get sucked into this. Of course you can't have an over-supply strategy which goes on for ever, eventually something will break down.
Of course Mortgage Belt is just scare mongering with his comments harking back to Robert Muldoon. There are many many ways this could be changed. I think one of the best ones is to give everybody more direct control over where their bank deposits are invested. Rather than passively leaving it up to bank investors how they are invested, change the banking system so everybody has access to information of where their money is invested. In other words making investment strategy more democratic.
 
 

the articles that produce the most traffic on this website appear to be mainly regarding property investment and the sale of land overseas.
would it be stupid to suggest that if the nzx contained strong companies that were linked to the dairy industry be it farm purchases or dairy technology  the property investors or speculators would have somewhere else to put their money
they may have also been able to purchase the crafar farms.
at least on the asx mining co mpanies are everywhere.

If you fun the numbers with my modified version of the Quantity of Money Theory. (M.V)+I=P.Q ( with I being interest), then you will quickly find that the money supply is the main problem. Yes there are other issues, but the interest on our debt based money is the clincher as it compounds as a proportion of the money supply each year. 
 
So it has been a mathematical certainty that ever increasing interest payments would necessitate two income households, necessary that it until default. Hyperinflation or Default are the only possible outcomes of course and we will probably have the first followed by the latter.
 
Question I have been pondering today. Does money, as a medium of exhchange, need to have price. Should we expect a return on it as a store of value? How would lending for profit(production) work if there was no price attached to the money lent? I think you would be good for a go at that Misty :-)

I dont agree, I would and indeed am I suppose expecting a depression and severe deflation. The result is of course the existing debts becomes un-servicable...so yes default....but with inflation the house should have appreciated in value so a mortgagee sale shouldnt be to bad....with deflation of course the reverse is true....
Last para, money is a proxy or IOU for work...or energy......so Im not sure what you are saying here.....except if there is no energy the IOU is worthless.  Hence when you charge interest tahst really saying I expect more energy to be re-turned to me........which simply cant happen...
So at some point after the depresion/deflation is over this maybe suggests the copious amount of money against the limited energy will mean inflation....if the paper money hasnt actually been "destroyed".....
Looking back at the vidoes of the 1930s is fasinating, you can feel sorry for them but it isnt actually you suffering or those around you, of course this time, here we are all in it....
regards

I agree, but I think you are missing the point. The deflation will only hit certain asset classes while the overall trend is inflationary. But keep in mind where I say a greater portion of the money supply is tied up in interest payments and thus not available for use as in the standard equation M.V=P.Q. My modification reflects the reality that interest reduces available money and reduces velocity.
 
Prices still go up because P or Q keep inflating as the money supply is increased overall. Net result is less purchasing power but compounding higher prices. It is a mathematical certainty, you will see if you run some numbers through it.
 
The surplus (Q)uantity than can't be bought because interest is being serviced is the method of wealth redistribution from the bottom to the top. The interest still results in increased production(except where it doesnt' and see below for that) so the surplus production is accumulated by those charging the interest.
 
The oil scenario compounds this because hyperinflation means the right side of the equation (P.Q) has to keep inflating to match the money introduced each year to match the compounding interest. But since production is falling then prices have to take up the extra slack to keep the equation balanced. Well it is always out of whack by 12 months, but you will know what I mean when you crunch the numbers. It will be a vicious downward spiral for most whent it really starts to bit.
 
BTW I have been playing around with the US M2 chart and it reflects what I am saying. But it also says we are 2-3, perhaps even 4 years out from the money supply really spiking.

agree.  Yellow metal looks really good right now...only safe investment.  

Scarfie, Tell you what, I will make a mathematical model which shows this formula and some related ideas are a bit hokey. Then you will develop your ideas?

Well the whole point is to show it is all hokey:-) But interested to see what you have got.

Ok, I just wanted to find out before doing so. I will get back to you when I have written this up. Of course this is non-trivial to show otherwise we would not disagree.
 

NZ Heads,
agree with you in the long term - but in the short term the policy is to pack NZ with as many wealthy immigrants as possible, implicity back banks that lend too much, ensure the RB continues to weight loans in favour of property and persisit with MASSIVE distortions in our tax system that favour speculative gains v income/profit.Will it work again in the short to medium term? maybe, maybe not - but I'm sure there are many getting pissed off waiting for sanity whilst their savings are eroded by full marginal tax rates.

As the asset value increases the return on investment decreases unless equivalent rental increases also. How many houses would have a return on investment > 6% if they were rented? I doubt there are many farms that earn a sensible ROI eithier. It's all about mis-allocation of capital.

mist4nz,
the speculation occurs on the land the shelter is housed on - thats is where all the growth has been. The land will be there regardless of who buys it and what people do with it, so why incentivise and reward investment in a passive non producing asset??

Would you rather we invest in your Kiwisaver Scheme that returns 1.9% after 3 years?
If there are proven alternatives to property, then people will invest in them.
Also, property is so much easier to borrow for than other investments. Went to my bank the other day to try get a margin loan. I could borrow 12x more for a property than for shares.
Need I say more.

What about the risk factor? 
If you are buying into a huge bubble and for me in-arguably property is 2 x its fair value, and that pops where will you be?  If by "we" you mean yourself and a partner and with the Greater Depression thats coming one of you loses your job, where will you be?
With Kiwisaver you can take a "holiday" if your income drops. If its wiped out, and that is quite probable as in effect all kiwisaver accounts are locked into over-priced assets of one sort of another, well at least you are not bankrupt....just wiser....
Investing in this case where debt is involved is really you being the middle man and taking all the risks and impacts on a maybe profit. The real estate agents, banks etc all take their cut / profit with little or no risk.  Sure play that game if you believe that is wise.
regards

There's an elephant in this mortgaged room - what does Morgam think the majority of 'business' and 'wealth' is based on?
 
People buying stuff.
 
Where do the store/keep/use that stuff?
 
Mostly at/in/on their homes.
 
Apparently he thinks you can separate the two. He's not alone in that - BE seems to think the same way. Makes you wouder who they're all going to seell all their stuff to, and for what, and for what....

The "communist" russian collapse is a great example of  "who they're all going to sell all their stuff to, and for what, and for what...."  25% drop in GDP....over-night.....and Russia has cheap to extract oil that it could use to recover with.....the USA?  not since the 1930s.
regards
 
 
 

Amazing ...a few mates (property investors) one got 4 properties, mostly 3 bedrooms, another 3 properties mostly 2 bedrooms and another 2 mostly 2 bedrooms..yet BANKS (esp WestPac) APPROVE THEM all even though with little/no deposit for freaking 30years!!..wait...this is not investment..it is greediness. I'm waiting to see 30 years of propery BOOM! Print MORE MONEY mate!

Speculation of any sort does not add productive capacity to an economy.
Rather than bitching as you call it, Gareth clearly blames the regulatory path we chose and suggests if we want jobs and wealth we better choose a better path.

He paid no Capital Gains tax on his $47m windfall and what does Trademe do?  It doesn't bring in overseas income - it just assists kiwis to sell increasingly expensive stuff to each other (including houses).  Trademe has made a lot of stuff that used to be cheap really expensive.
 
 

What game is Gareth Morgan playing? His periodic articles have two themes (a) over-investment in property which equates under-investment in everything else, and (b) re-distribution of other-peoples-money through the re-arrangement of the tax system.

He is an intelligent man with a (big) intlellect, yet repeatedly hammering the above two themes without offering alternatives is what? Boring?. This is a man who sold his ticket-clipping business to a big wealth manager. It wasn't a productive business.

Why doesnt he lead by example and use the bountiful munificence that has been bestowed upon him by Tangaroa. If he can come up with a productive large-scale NZ business that returns 10% after tax year-in and year-out the lemmings will follow him in droves.

A wise man is not bored by the truth - even if it is repeated.
 
His Big Kauna idea is the altenative you accuse him of not offering.

Ralph: apologies if my comment was imprecise. I am on record on this site as largely supporting the principles of the Big Kahuna. I emphasise the word "principles" here. I consider Gareth Morgan's Big Kahuna to be an exercise in "social engineering" rather than providing alternative investment proposals ie manufacturing ideas, massive (think big if you like) investment proposals that "produce something" that new zealand would or could have a trade advantage in, or investment in scientific IP etc etc. Big Kahuna is a sledge-hammer that then assumes laissez-faire principles will pick-up where it leaves off and direct investment into other areas of activity with no certainty as to the outcome.

Morgan says: New Zealand has its own version of this cancer. The price of housing remains at historical highs relative to household income, despite the housing doldrums of the last 5 years.

How does plane-loads of price-setting chinese princelings arriving in Auckland with suitcase loads of "instant cash", paying top dollar, out-bidding the locals have anything to do with "household income", or bank lending, or the RBNZ?

This will remain in the short term while China is in its current situation.
 
Currently Chinese migrants can move here with no skills or requirements other than they can speak some very basic english and invest $1.5M in NZ. The loophole is that they can gain residency not by investing in business, but simply by buying a house or houses.
 
Therefore if they don't meet our skilled migrant criteria they can just borrow silly amounts of money in China for next-to-no interest, buy a house or two with it over here and move over with their families. The fact that buying a house in NZ is deemed a suitable investment vehicle for foreigners and their investment money is ludicrous and should be stopped. It's pricing Aucklanders out of their own market.

Exactly. That's why, if you read Morgans article carefully you will realise how stupid it is. If every kiwi stopped investing in property and put their money in the stock market or "productive" enterprises would it make any difference, or would it simply make it cheaper and easier for these cashed up immigrants to squeeze the kiwis out of the nest?

The solution is simple. But it gains no traction here. Too politically incorrect.

Did you know, prior to the introduction of PAYE in New Zealand, every New Zealand resident wishing to travel overseas (even temporarily) had to obtain a "tax clearance certificate" from the IRD before they could leave.

It should be a requirement for all intending immigrants coming into New Zealand with boatloads of cash to produce a "tax clearance" certificate from the taxation authority of their country of origin to establish the money is clean and they were a taxpayer.

That's a damn good idea. No good ever comes of dirty money.

Is that right? The $1.5 million investment requirement can simply be buying property of that value?
Can someone else confirm?
If so, thats ludicrous. NZ gains very little from such policy, in fact it loses as more and more kiwis will be priced out of the property market
If this is true then ordinary kiwis are being taken for one big ride
Our property prices inflate, and what do we get from the immigrants? More pressure on our education, health systems etc.
 

Matt-In-Adelaide. I have been saying that for 2 years. The tentacles stretch into the area of money laundering because its a way of bypassing the Australian and New Zealand Anti-money-laundering controls. 

Sadly it's true. While you can't buy a house that you live in, you can buy a rental property or rental properties. There's nothing stopping you from pairing up with someone else and buying eachother a house and renting it off eachother (something I've known to happen quite frequently).

farcical
seems to me that this is an important factor in the housing cost matter that is being neglected
Did the productivity commission look at this AT ALL?
I would really like to see an interest.co.nz article on this - Gareth Vaughan et al what do you think? 

While the law attempts to stop this kind of action going on, there are criteria to try to stop foreign investors simply buying rental properties, there are some pretty easily exploitable loopholes I understand that aren't too hard to get through.

.

heres a link Matt on what is an "acceptable investment" to meet the 1.5 mill criteria http://www.investmentnow.govt.nz/investor-visa-faqs_page60.html. the property must be a residential ppty "investment"
"
For the purposes of ‘acceptable investment’, residential property development(s) is defined as property(ies) in which people reside and is subject to the following conditions:

  1. the residential property must be in the form of new developments on either new or existing sites; and
  2. the residential property(ies) cannot include renovation or extension to existing developments; and
  3. the new developments must have been approved and gained any required consents by any relevant regulatory authorities (including local authorities); and
  4. the purpose of the residential property investments must be to make a commercial return on the open market; and
  5. neither the family, relatives, nor anyone associated with the principal investor, may reside in the development; and
  6. the costs associated with obtaining any regulatory approval (including any resource or building consents) are not part of the principal applicant’s acceptable investments.

"

I believe there are loopholes around a few of those conditions, which are not too hard to get around.

not sure how easy it is to get around this eg could you invest in equity in a NZ firm, then withdraw it a year later and buy a house? and the devil is always in the detail as to what a "development" is, plus we have to assume we have a govt who actually wants to enforce the law (eg, no one enforces CGT in NZ which is probably payable in most cases).
NZ also has pretty much no restriction on foreign investors - Aus at least requires them to buy NEW properties, and temp residents can buy existing but must sell when they leave.
... time for NZers to get angy about this - immigration is too high, foreign investment in resid housing is too high.

The purpose "commercial return" means it is captured by the IRD's definition of Capital Gain. Wonder if it keeps the IRD awake

That explains why the Taiwanese land at Auckland Airport, head to Dannemora, buy the biggest section they can get and build the biggest most opulent place they can get on the site.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10778773

Thanks Jimmy, they seem pretty onerous conditions, makes me question as to whether there is in reality much abuse of this system, versus the Asian buyers we witness in the market being permanent residents

I think that is a pretty large generalisation. There are plenty of people in Kiwisaver who enrol in it as just part of their overall retirement portfolio. I do, but it forms only 10% of my overall savings and is the only "managed" funds I have, the rest I manage myself.
The reason I do have a kiwisaver account is to get access to the employer contributions and the government tax rebate. I invest in a fund which has only total fees of 0.3% per annum and has a range of sector based funds. As part of a balanced portfolio I am more than comfortable with the value I get from kiwisaver. Having said that, if there was a SMSF option I would go for that.

New Zealand Prospects by Australia and New Zealand Bank Limited (Head office 71, Cornhill, London, E.C.3.) Note it is an English bank
from booklet Revised September 1960

Labourer        =    10p 4s 6d (that is $1063.40 pa)
Skilled worker        =    13p 0s 0d (that is $1352 pa)
Women
Hospital Ward Maids    =    7p 15s 4d (that is $808.08 pa)
Skilled Clothing Worker    =     7p 18s 4d (that is $823.68 pa)
Shop Assistants - Up to =     8p 0s 0d that is $832.00 pa
Metal Trades        =     7p 8s 8d that is $773.76 pa

Note p = pound, s = shilling and d = pence

Based upon a minimum wage today of $13 per hour, $520 per week and $27,040 pa then compared to this wages have increased

Labourer        =    25.43 times increase
Skilled worker        =    20.00 times increase
Women
Hospital Ward Maids    =    33.46 times increase
Skilled Clothing Worker    =     32.83 times increase
Shop Assistants - Up to =     32.5 times increase
Metal Trades        =     34.95 times increase

Not bad you may say

Houses
Minimum price for a reasonable type of standing house in one of the main centres
Most houses weatherboard and not insulated
about 3,750 NZP that is $7,500
So compared to wages houses cost

3.52 times wages of a Labourer
2.77 times wages of a Skilled worker
Women
4.64 times wages of a Hospital Ward Maids
4.55 times wages of a Skilled Clothing Worker
Up to 4.51 times wages of a Shop Assistants
4.85 times wages of a Metal Trades

Now assuming a similar house today costs $350,000
Then
Houses have increased from $7,500 to $350,000 or 46.67 times compared to wages increase of 25.43
And now a house costs

12.94 times Minimum wage paid worker

How does this compare to the sharemarket?

The DOW on 30 December 1960 was 615.89
Ttoday it is say 13,000 that is a 21 11 increase
SO
House prices have increased 47 times
Minimum wages (in NZ) have increased 25 times
AND
The DOW has increased a miserable 21 times

How is that for an investment?

Had everything remained equal to the minimum wage then today

An average house would cost 25 x $7500 and would now be $187,500
and the
DOW would be 25 x 615.89 and would now be 15,397

Even if house prices crashed by 30% today they would still have outperformed the DOW and guess what? Yes, they would jump up again.

On the basis of all this who would silly enough to invest in the sharemarket rather than houses?
The real problem now is that as everything increases by the same percent the gap between the different levels become even greater.
The real problem is inflation, even small amounts and so we need a stable money supply
 

If a labourers wage $1063 pa and house cost $7500 how does that equate to 3.52 x annual income ?

Thank you iconoclast
Too many numbers to juggle.
Should be
In 1960 a house cost $7500 and anual wage = $1063.40 which = 7.05 years wages
That makes it more interesting
If we say that back in 1960 there was more equality, so a labourers wage was close to the average wage. Then if we look at todays ave wage, which i believe is about $50k, we have the following
wage 1960 = $1063.40 and today $50k then the average wage has kept up with house prices as shown by
7.05 years wages for a house in 1960
and
7 years wages for a house today ($350k house and $50k wage)
 
That then destroys Gareth argument.

Yes, thanks Mike B. Nice and factual. If you wait long enough, eventually the real facts rise to the surface.  About 6 months ago I made the (then outrageous) statement that in the 1960's the ratio was about 6 x income and was promptly contradicted by someone quoting Brian Gaynor.  And it also destroys Hugh Pavletich's raison detre.

The income in pounds and the house cost of 3,750 in pounds also.
 

Not sure what you mean
Income for a labourer is just over 10 pound per week or just over 500 pound per year.

In the US the value of residential housing currently equates to around 110% of GDP historically it has been around 82% of GDP. In NZ our housing stock is currently valued at around $600bn or around 320% of GDP along with $180bn plus of debt.
The other critical measure as stated is the value ratio to incomes which is massively out of line.
Massively overvalued housing is a prime cause of poverty and the huge volume of related social problems welfare etc just a mess sure some may be rich but the bottom end and inreasingly the middle are just screwed.
Working in the commercial sector for the last 20 odd years I have noted a general theme with moderate to successful business people. Surplus cash is more often than not siphoned off into various forms of property investment or speculation.  In most cases the results are very successfully and who could blame them. Very rarely do you witness large expansionary reinvestment back into the business/s, the sort the investment which is capable or needed to create an international winner.
The distorted NZ housing market is a root cause of our poor economic performance. It’s just dumb it makes us uncompetitive internationally it is the main contributor to our appalling indebtedness, almost all of which is non productive debt just a dead interest cost the banks love. The so call planners are locked into their views clueless lacking any ability to think laterally or adopt the solutions from outside their sphere. By international standard nobody lives in NZ get on with it and stop screwing the country.
 
 

Before we work on artificial intelligence why don't we do something about natural stupidity?  ~Steve Polyak

IN PRINCIPLE, GM is not so wrong in what he is saying. Near total focus on buying and selling houses probably does not make for a diversified economy creating high-skill, high-pay jobs assuring future generations' prosperity.
However, it is basically too late for NZ to change that. I mean who in this country wants to have a challenging job in a challenging industry? The few who do, leave. The rest dream of some kind of unproductive activity that nonetheless generates lots of dough, yes, in property for example. I mean, face it, NZ is never going to be the next Germany, China, Taiwan or even Singapore, excelling in manufacturing or at least trade. 
I can understand the frustration of people who comment here and believe in honest work for an honest salary and get horrified and - yes - jealous of the bludger next door who does nothing much but trade in property. Stop commenting here, and leave. In Germany you can get superior quality housing (like lightyears away from the stuff that is being sold here) for a fraction of the cost in NZ, and there are plenty of jobs for genuinely skilled folk. In addition, once you do well, you can spend your weekends in Florence, Rome and Paris rather than fab Mount Maunganui or a traffic jam out north. 
No polly here will change anything, until the whole system crashes, as it will, sooner or later, as it lacks all substance. Wait for that time to come, then consider returning. But for now it is not worth your trouble.

PeterPen sadly you are right it's too late until the next total crisis. The really is the pollies will do nothing on any front unless they have a gun to their head dishonest bastards.

Gaweth .... you just are so full of it . Actually your Kiwisaver Funds look like they have Dysentry as they do appear to have SH*t themselves.
 

How can we afford to sell houses to each other without real production and decent jobs of the wider population in this country ?
 
For a working, well balanced economy, ¾ of all NZreal Estate agents and selling “houses to each other people” should be involved in NZproduction – the real economy – planning, manufacturing and maintaining the widgets/ infrastructure we import from skilful foreign workforces in decent jobs - in the billions.

Walter you old codger..aint you sussed it out yet...we can afford to trade properties using the make believe money from the parasites...goes on forever Walter...all BS wrapped up in  a farce...... and all at our cost because we have us an economic joke....so the parasites get to milk the country and they didn't produce a dam thing but credit.....

Your mom is a cancer for the economy.

Gareth having an investment dream!....those who can are not silly...they know the pollies will be into property speculation boots and all....stands to reason given the shoddy govts this country has been saddled with for decades.
You folks got to expect that every effort is being put into triggering another property bubble...with a burst of immigration icing on the cake...works a treat every time...media lap it up...fools call it a boom...start using the recovery word....hahahaaaa
Then it's back to bust one more time....
Oh and I wouldn't go putting all your chips on the China food import square either. They own the casino.
 

 

 

The pleasures of ignorance are as great, in their way, as the pleasures of knowledge.  ~Aldous Huxley

Completely distorted incentives
 
I sold my business and house at the same time a few years ago. Had both for about 8 years.
House we spent about $10,000 on in that time on a few minor cosmetic things but basically untouched(by us) semi renovated 1870 villa, cold, uneven floors etc. Made $380,000 capital gain
Business worked 80+hrs pw, employed about 30 people over that time, paid good wages, turned over $1.5m with about a 25% net profit, paid all my taxes. Weathered two recessions and almost lost everything a couple of times. Sold and walked away with about $400,000
 
What was the point of all the stress and hours of a business when you could make as much if not more money for merely buying a property(s) and sitting on it? It was profoundly depressing. When you look at the risk/reward equation of owning a business versus property there is no comparison and that's why we are where we are

If someone buys a house and the market goes up, then they have been a responsible citizen by following that Good Debt Bad Debt principle. They got into debt but thats ok when their asset wealth has increased. 
However if the market goes down then they can beat themselves up with the thought that they have been greedy speculators and have foolishly gambled their money away based on their fickle emotions when they bought the house.
All this really proves is that it is hard to make intelligent decisions when living in a Casino.
 

Hi Kiwi
Sounds more like you are talking about the share market than property
Every night on the news
"Look, shares have gone up because JK did'nt sack JB"
next day
"Oh dear, shares have slipped back because Labour went up in the opinion polls"
Blah, blah, blah, garbage.

.

There was so much scaremongering about property in 2009/2010 but if you were brave when others were scared and purchased a property in say Grey Lynn for $650,000 in 2010 ie a run down villa, today it would be worth $1.1m - $450,000 capital gain.
How else could one have made a 70% gain in a two year period?
The various commentators predicting a 20% to 40% price collapse were clearly wrong!

The market's still turbulent, buddy. Why don't you jump in now, get some irons in the fire, and tell us in 3 years about your guaranteed profit? Hahaha.
 
Or you could build a business, do something useful for the economy for a change. Better  than just benefiting from the productive economy & real people's misery.

It's still cheap.  I would strongly advise jumping right on in!!
 
It's not just Grey Lynn going strong, yesterday an auction of a 2 flat dunger bungalow in Telford Ave Sandringham/Mt Eden border sold in the mid 800s (I left when it was still going and already nearly 200 above CV because there was so much bidding and the top bidders were trying unnerve their opponents by taking their bids slowly).
 
Prices aren't getting any less, because the fully renovated properties are in such short supply and so keenly sort after that everyone's trying to get anything decent they can do up.
 
If you've got a full site with modern open plan living (high spec) and north or west facing with a bit of character, a level lawn and off street parking and a quiet street with good sun then the price will go sky high!
 
One in Duart Ave on the far side of Mt Albert sold for a massive $1.375m a couple of weeks ago with about 200 people attending the auction for a massive $625,000 above CV.

Dunno. I'm paying $390 pw rent for a very respectable house, in a leafy tree-lined suburban corner just 25 min from town. Not Sandringham exactly, but probably, similarly valuable. (Too nice for me to even disclose where.)
So how much capital valuation, can $390 pw rental justify? Glad I'm not bidding those prices.  Bad luck for all those who are :-(

$390pw wouldn't rent a 2bed flat in a converted house in Sandringham at current market rates! I tried to find one on the net, but there aren't any available only grotty purpose built units and things on main roads certainly nothing leafy.
 
This is the closest thing at $515pw in Mt Albert and it's not even what I think is a good area:
http://www.realestate.co.nz/1774508
 
A $1000pw isn't actually that much for a nice inner city house even without a garage:
http://www.trademe.co.nz/property/residential/to-rent/auction-472814489.htm

I found one, a 2 flat conversion in a leafy street for $465pw:
http://www.trademe.co.nz/property/residential/to-rent/auction-466420575.htm
Probably already taken though!

3 bedrooms, nice late-60's house, leafy tree-lined corner. Close to shops & transport. Yep, I pay only $390 pw. That's me :-)
Looking at your suggestions. Location? Vinter Terrace is actually quite nice. Hendon Ave & down on the flat (across Underwood Park) is a ghetto area, but criminals don't tend to walk up the hill.
Contrast with Grey Lynn and Hakanoa, Tutanekai Streets. These have burglary records for most of the Auckland area. Somehow I think Vinter Tce would be miles better.
Russell St -- I used to work down that street, was regular at a cafe near (better caf than SPQR) and used to park outside, walk past this house. No, I wouldn't pay $1k pw for this. Used to pay $540 a week for a nicer place, cooler location, with much better character. That kitchen ain't even functional.
If only the NZ dollar wasn't so high, then maybe people could afford to pay for a place to live.

Your landlord is likely to be putting your rent up soon unless $390 is just for your bedroom, not the whole house?
$390 per week would service the interest on a $407,000 mortgage at 5% floating mortgage rate. Chris J is right - get out there and buy something or you will be renting forever.

No, not correct.  Maybe you're misreading 'real estate fever' and keen to rush in & overpay, but I don't recommend this as a time to buy high.
Timing wise -- high NZ dollar & house prices are driven by the global 'search for yield' -- when the US & Europe pick up a bit further, over the next 12 (US) and 18 months (Europe), significant proportions will flow elsewhere.
Thus putting a dampener, on further gains here. We won't be the only yield game in town, and the hot capital will go elsewhere again.
It's the macro, bubs. Houses in Ponsonby are not inherently worth $X million for utility value or rental return -- that's completely unjustifiable -- bubble pricing is *only* an artefact of global-macro money flow.
NZ dollar too high: jobs, crime, unemployment
 

Thomas W if you think Hakanoa is grotty and crime ridden you are insane!
 
It is one of the most desirable areas of Grey Lynn.  I'd pay $900k for a tidy villa everyday of the week down there.  Unfrotunately lots of others would pay well over $1m.
 
You're absolutely dreaming if you think that's grotty and Mt Albert is better!

Check the burglary statistics, Chris.  Actually I've lived in Auckland for a while.. 6 different places around the inner & near city, over the years.
So yes, I do have the local knowledge :-)

Plenty of people are happy to park their $100k cars on the street in the area, so I wouldn't be too concerned! 
 
When I bought in Central ChCh 15 years ago there had been a murder across the road from one property, glue sniffers were always lurking and derelicts sitting on the streets.  All that was soon gone and prices went up.  Things change if you're in an area on the up - you just need to make sure your in the right area.

What;s wrong with these people. Can't they afford a garage?

Unfortunately you'll be lucky if $1m gets you a garage.  (One sold for $1.05m last month without any parking!)

Well I think we can safely assume then, that the next Hamilton Jet,  Britten motorcyle or indeed anything homegrown and inventive, is very unlikely to emerge from GreyLynn, anytime soon.

Not neccessarily - How did John Britten have enough money so he could spend his time building bikes?  apparently property and property development.  What did Bill Hamilton get into first?  
 

In Remuera, a full-site villa/bungalow with modern open plan living (high spec) and north or west facing with a bit of character, a level lawn and off street parking and a quiet street would fetch 640k only thank you.

What are you on about doublegz???  I'll give you $900k right now for something like that!  And I still have 4 to buy so give me the addresses or sell me your house!!

 
Did you buy Sherwood yesterday?

No $1.115m was too rich for me.  There's better available for what I'm looking for.  Unfortunately someone loved it.

I'm trying to get some friends to go in on a do up with me, won't specify where but there is potential for good profit. The property isn't for sale but we are looking at dropping about $700K for a offer, do up will cost $200K, will sell for $1.2M I reckon. Chris_J if you're looking for a good do up I'll give you the addy and the area, but you have to cut me in, I still have that 50K lying around :P def worth consideration though.

Oh yeah its on 1/4 acre in a great suburb and the house is untenanted, possibly because the house looks a shambles. Looks like good bones though

MK, sorry that breaks all my rules.  You never want to go in with anyone in an investment or renovation because it's just far too complicated, especially with an uneven contribution of money and effort.
 
I'm not in favour of approaching people because it seldom pays off unless you're lucky.  It's a bit like the old saying if you kiss enough girls you will find one to marry you!  I certainly don't like the idea of ever ripping some unsuspecting owner off by giving an undermarket offer.  (If it's on the open market for competitive sale of course I'll offer the lowest I can but trying to get someone to take $500k for something I know is worth $900k doesn't sit well with me.
 
The other is that renovations seldom make money unless you know exactly what you are doing.  The rules are now tight for doing building work and the market knows quality so you have to be right on to it.
 
It's best to work up from a small project than start out with something major.  Property isn't a quick get rich scheme, you'll make money from a long term buy and hold approach but quick flicks are never a sure thing.  Buy right and you won't go wrong.
 
Look for real opportunities and know your costs.
 
There are probably good opportunities but keep within your means.  A lot of people that tried quick flicks on the first properties they ever bought ended up losing money, I still own the first property I ever bought.
 
Being a renovator is probably harder and less profitable than being a real estate agent! (which of course is well known for being a hard and unprofitable job unless you are right onto it).
 
Think twice before buying a doer upper you can't live in while you still pay rent - that's a certain way into hardship as well.  Also think twice before quitting you job to become a full time diy-er that's another recipe for bankrupcy.

Yes yes, I'm selling up to move to the desirable part of Auckland in Grey Lynn (Schofield St).  Remuera is now considered shabby, filled with rotten leaky houses, grotty and low-socio infested by mongrels as most people would agree.  I am ashamed of myself just to drive down to the bottom of Seaview Rd and Hapua Rd where the state houses are right next to the Shore Rd Cafe.  I am about to start a campaign by Shore Rd saying 'Toot if you are ashamed of yourself!!""
 
See if you like http://www.trademe.co.nz/Browse/Listing.aspx?id=469430967 and the CV only 910k.  4 beds 2 baths 2 livings double lockup with internal access with lots of character features.  I am happy to sell at around 700k.  Let me know Chris_J.  Cheers.

Not sure if you're serious or not - but the wife would probably be happy to take that off your hands...

Actually, I like it!  Doesn't look bad at 700.. not that I'm in the market.
Would Chris J care to take a look? Or maybe this is a bit under-priced for him! Add an extra 250k on, it'll fit better with his perceptions of the ever-climbing market :-)
As always, inspect first & buyer be aware.

It's down the bottom of a gully.  Doublegz can keep it unless it's going cheap.

'How else could one have made a 70% gain in a two year period?'
Try Lynas Corp (LYC) on the ASX. 
Has more swingers than a Berlusconi Bunga Bunga party.
Charts are always there if you want to check, but as old Silvio says, best way is repeatedly in and out, and don't muck around.
What's more, once the Malay operating license details are finally sorted, it could well be a keeper!

Aaaah yes but I do not think my bank would allow an 80% loan to purchase shares in one Company.

Ah - if only!

High interest rates, and the resulting high NZ dollar, divert investment from productive economic activity (manufacturing, exporting, jobs) into unproductive asset bubbles & real-estate speculation.
 
One of the core causes, is the RBNZ's policies -- pushing up interest rates to try and halt inflation, actually makes the NZ dollar more attractive to foreign capital. Speculative money rushes in, in search of yield.
 
The high NZ dollar, and resulting loss of jobs (more than 40% of our manufacturing exports, since the mid-90's) cause rising crime, alcoholism, unemployment. We read about this in the headlines -- job losses, bullying, car theft, glue sniffing -- all different sides of the same coin.
 
NZ dollar too high: jobs, crime, unemployment

Interest rates actually at extremely low levels - never been this low in the last 30 years.
Banks very keen to do a deal - brokers report banks offering 5% floating and 5.5% fixed for three years  plus cash as a sweetener if you will change bank and they will front with 100% if you have equity in other real estate.
Try borrowing money for a new business venture or shares without having real estate to secure it against - you won't have a chance. Loans secured against real estate are all the banks are interested in.
Chris J has come from ChCh to Auckland and quickly educated himself about the market and seems to have his finger on the pulse - that's the key - knowing the market, attending the auctions, sussing out the rental returns, etc, 
Many more like him have ChCh insurance payouts and are investing in Auckland. One former ChCh investor just purchased a commercial property in Auckland for $50m. The flow of insurance money into Auckland has certainly boosted activity in the central suburbs.
With this ChCh money, the Chinese pouring in and the lack of new construction the central suburbs could see a 10% to 15% price lift through the remainder of 2012.

Get in there BB and borrow all you can..and then a heap more...think of the fat profits to be had...nothing will go wrong...the govt and the parasites have the economy safe as houses.

Correction:
Price lift of 10-15% in Herne Bay, St Marys Bay, Ponsonby, Freemans Bay, Grey Lynn, Westmere, and Pt Chev only. 
5-10% in Mt Eden, Sandringham, Greenlane and Epsom.
1-5% in Morningside, Kingsland, Mt Albert. Royal Oak and Onehunga.
0% from Te Atatu to West Harbour, and the rest of South Auckland.
-5% to 0% in Northshore from Devonport to Matakana.
-10% to -5% in Eastern suburbs in Parnell, Remuera, Orakei, Mission Bay, Meadowbank, St John (incl Stonefields), Kohimarama, St Heliers and Glendowie.
Happy?

doublegz ,do you have any idea of how values have changed in the Hillsbourough suburb generally in the couple of years or so. Thanks heaps.

Sell derelict do-up in Grey Lynn, pick up a cheap Remuera manor with pool and tennis court.

Hey guys, What's the point?  Remuera is regarded as undesirable for most people due to 'beige', 'retirement villages', 'boredom' and 'blue-rinses'.  Furthermore, there are lots of rotten leaky homes dotted around the suburb, not to mention the grotty state-housing part at the end of Seaview/Hapua Rd where people can only afford 640k.  It's a shame to live in such a run-down undesirable suburb infested by mongrels, don't you think?  I know Chris_J would agree with me and cherish my point :)

You've got it doublegz.  Remuera is on the decline!  Watch it go down hill as all the leakies become rentals.

really.??   Maybe only parts of Remuera..??
 I was at an auction and witnessed a mini bidding war for a property on a street off meadowbank rd..  It is a State Housing kind of area..    Was 2  ..2 brms units on a normal size section.  Out of curiosity I went for a drive thru that area...  and I like it..  Has a neat feel to it...  Has a train station... plenty of reserves.... Orakei Basin...  North facing..

Reserves, leafy and basins are not regarded by desirable by the younger generation anymore.  These elements are perceived as 'beige', 'retirement village feel' and are associated with 'blue rinse' and 'boredom'.  More importantly there are lots of grotty leaky homes dotted around the suburbs.  The eastern suburbs are often linked to people with OLD money.  The young ones with NEW money typically aged between 25 and 39 are now looking at the central west areas like Grey Lynn, Ponsonby, Freemans Bay, Pt Chev and Westmere for lifestyle villa and bungalow living.  Hence the comment 'Watch for Remuera to go downhill.  Eastern suburbs will be at the Otara/Manurewa/Mangere level in a few years time.  Chris_J is always rignt.  He has done his homework and he is indeed the king and queen of Auckland Real Estate so to speak ^^

Hahah LOVING the comments doublegz.... you're saying what we're all thinking about a certain abraisive know-it-all in here. :)

 Abrasive's the word I think you meant!
 
Watch out! I'm out with the sandpaper again.  A house with no indoor toilet and the stench of decades of tobacco on a 760m2 odd site sold for $930,000 in the Onehunga area today.
 
Clearly doublegz knows how unpopular Remmers is so that he can only get $700k in Lingarth St!
 
Is that your house?  I'm sure an investor will find a bunch of mongrels to move in at a modest rent.  Glad to see it's not a leaker, but you've got a few ex-stateys in the locale.

But 1% or lower in US, Japan, Switzerland.. which is where the 'carry trade' originates. That's where money is borrowed, to invest in high-yielding currencies.
This results in a tidal wave of money, having few other 'safe' high-yield investments internationally, inflating asset prices in our country.

Given the level of supply there is no depth in the market, it would be interesting to know how much property some on here running around are actually securing. It was difficult enough second six months of last year with just a few Christchurch investors had insurance or free funds to buy in and a lot did hwoever not many central.
 
I agree with Mission Bay not performing, sold after the interst rate injection to the market last March.

One of my favorite economists is Gary Shilling..  he has a neat saying..
"Inventory is the mortal enemy of Price"...      (Inventory is existing supply that is wanting to be sold.)
I've only just rebought a family home... ( And yeah... part of the reason was my term deposit returns were shit. ) Having said that ...the choice was between renting and owning...NOT productive investment.
the main reason is that I can see a growing imbalance between the demand for good quality homes and the supply of them... (along the lines of what Ollie Newland and Chrisj talk about )
Also...  I can see rents slowly keep creeping up.   In my view rents have far less to do with interest rates and far more to do with actual Supply/demand dynamics.... Any increases in av. wages will be reflected in rising rents.
politicians are only just starting identify and discuss the constraints to increasing supply of houses ( eg. Council control of building consnts process... urban limits...etc ).... I'm figuring it will take a real housing shortage type crisis before anything gets done.
As far as talk of speculative bubbles go Manias go....  I don't see any..????   There is no building supply/construction boom... which suggests that the gap between the cost of building a new home and the price of an existing home is not that large..
In my view, I don't see much downside risk to Auckland House prices.... And I don't see this as any kind of Mania.
I'm not taking into acct. any Macro Global considerations...But I do think we are moving onto an inflationary world... ( The french election results fit in with this view)
These are just my current views... about auckland...  just thinking ..
 

I advocate policies to lower the high NZ dollar -- back to US 65c or similar. This would boost manufacturing, exports, employment & productive activity in general.
It would also tend to lower housing & dairy farm prices, which are essentially an artificial bubble inflated by overseas money, seeking NZ's high yields (the 'carry trade').
I'm in favour of productive work & affordable housing, not an artificial world of poverty, crime, McJobs and ever-rising real-estate commissions.
 
NZ dollar too high: jobs, crime, unemployment

Reserve Bank could lower the dollar, by adjusting the 'prudential ratio' on residential, commercial & farm lending.
 
As a matter of fact, this is something the RB & policy-makers are starting to talk about -- they're recognizing that high interest-rates, rather than acting as a brake, have just attracted 'yield seeking' overseas capital.
 
There are other options too -- have a read.
 
http://stratpark.co.nz/society/nz-dollar-too-high-jobs-crime-unemployment/

ChrisJ...et al
Do u subscribe to the "ripple Theory"....  That as Central Suburbs experience strong price growth....  it slowly ripples outwards as buyers who are priced out of the mkt look to buy in cheaper suburbs..???
 

There's always a ripple effect, but prices in undesriable areas will never perform as well as desirable ones.  But desirability is always hard to judge - something desirable today can become undesirable making it a bad investment (careful doublegz!!)
 
Watch out for areas that decline in desirability.  Look at the Birkenhead/Chatswood are on the North Shore, St Johns and surrounds without views in Auckland Central, Khandallah in Wellington and Avonhead, Burnside in Christchurch.  In all those areas, houses were very expensive in the late 80s early 90s and all of those areas have suffered relative decline so that prices are now relatively cheap for the quality of houses in some of those areas.
 
Take Avonhead (as I know the price history well) in 1988 a large brand new house would cost $350-$395,000 (as much as a character house on a half acre in Fendalton), today those houses are worth something like $550-$700,000 less than double, whereas the average house in the whole city has gone from something like $90,000 to $300,000 ie more than triple.
 
But that doesn't mean I think Remuera is down and out (I have just been winding up doublegz) but realistically it's not the sole top suburb.  It seems that Epsom and Mt Eden have become more desirable now with essentially a 1100m2 section in Woodside Rd selling for $2m last week.  Let alone the inner west where 450m2 costs a million.
 
Remuera is a prime area but when you can get into the location on a full freehold site for under $600k it shows that it's a real mixed bag:
http://www.trademe.co.nz/property/residential/for-sale/auction-473515641...

Pop! China's real estate bubble has burst  Will it be us or Australia that is next?

That article is 5 months old. Do you have anything more current?

China's housing & construction sector has been problematic for years. There's been vast over-investment and entire streets of apartment blocks, standing empty.
That said -- the Chinese aren't interested in crystallizing any losses, and there are few other places for the money to go.
One of the factors in NZ's housing market -- we're one of the few politically stable, productive high-yield countries not in recession at this time. However, other countries will start to pick up over the next 14 months.
NZ's housing market may plateau, or soften;  but given the prevailing 'tide of money' looking for returns -- it won't fall very far.
 
http://stratpark.co.nz/society/nz-dollar-too-high-jobs-crime-unemployment/