Days to the General Election: 26
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Opinion: The housing market seems set to be a big election issue - and that's definitely a bad thing

Opinion: The housing market seems set to be a big election issue - and that's definitely a bad thing

I'm not sure who first said it,  but it is a truism that some issues are too important to be put in the hands of politicians.

I think housing now definitely comes into that category.

The politicians have noticed that house prices, particularly in Auckland, are rising. Aha, they have thought. An issue. Let's sprint toward that.

But in the headlong dash to get some media coverage, our pollies are - true to form - leaving facts and practicalities in their wake.

It is now all too apparent that housing will be a very significant election issue. Many people would regard that as a good thing, because it means housing will be discussed.

But the minute any issue becomes all about votes is the time that all rational discussion ceases. It is the time when hasty, voter-driven, policies are implemented.

The subject of banning offshore investors from buying New Zealand houses has been something that has steadily gained traction this year. See articles on the subject here. Back in March I stated that I was in favour of Australian-style controls on investment in houses by offshore buyers. Frankly it is surprising it has taken this long for Labour to climb on the bandwagon.

In fairness to Labour Leader David Shearer, he's not making out that  banning of foreign investment is anything like the whole solution and Labour is promising a "package" including 10,000 "affordable" new homes to be built per year.

But from the overall reaction from the public to the Shearer policy announcement, it seems clear large numbers of people have already decided that the offshore owner ban is the answer.

Well, can I just reiterate my view that more information is actually needed on what exactly is driving the rising house market.

No good information

The fact is that there is NO good quality, independently verifiable information available on the current composition of house buyers either in Auckland or in New Zealand generally. Until such information is available, we are crazy to start throwing new policies around. Unintended consequences and all that.

It is irresponsible of people to be crying out that the reason why houses prices are going up is offshore-based buyers when, for all we know, the real reason is just as likely to be Kiwi house-owners using the leverage on their existing homes to buy more investment properties.

Yes, a ban on offshore ownership of NZ houses is a policy worth looking at. Whatever the current level of offshore buying, it will only increase while this country remains so open to overseas investment and with such generous tax rules for housing investors. 

But such a policy would need applying with care. I would suggest, for example that Kiwis might need to consider giving up the current exemption we have that allows us to own property in Australia when we don't live there. If we gave up that exemption then we could apply a foreign ownership ban here without needing to exempt the Australians - as of course we would need to at the moment.

The race card

Any exemptions we did allow from the ban would obviously leave us open to accusations of racism or racial favouritism. Indeed the Labour policy's already getting such a response.

It is worth noting that top commercial lawyer and former ACT MP Stephen Franks believes that showing such favouritism for Australian over China could actually breach our Free Trade Agreement with China.

Consider this for a moment. Australia is set to be replaced as our biggest trading partner this year - by China. 

Don't let us kid ourselves that we could apply a policy that might be seen as anti-Chinese without there being ramifications. Meat stuck on a wharf in China? Sound familiar? Perhaps some previously unidentified problem may manifest itself with our milk powder? The obstacles that could be placed in the way of our burgeoning trade relationship with China are innumerable.

That's the kind of risk the country will run if we allow the politicians to start unloading policy on the hoof that simply fits the criteria of the latest opinion poll.

No, people. The housing issue is more important than that.

In the absences of quantifiable information on the housing market, I make the following subjective observations:

  • Kiwis are born and bred believing that you MUST own your own home.
  • People who rent are seen as second-class citizens (often even by themselves).
  • Owning more than one house for investment purposes is seen as THE way to invest money.
  • Because you are not taxed on gain from sale of investment properties then owning houses as an investment is THE way to invest money.
  • As other countries such as Hong Kong and Singapore get ever tighter rules on housing investment, in order to quell speculation, then so our unregulated housing market will be ever-more appealing to overseas buyers.
  • Construction of new houses has lagged, particularly in Auckland.
  • It has just been accepted at central government level that Auckland will continue to grow faster than everywhere else and there has been no significant attempt to encourage a more regional spread of New Zealand's population.

I could probably think of more things with time. The point is that I reckon the causes of New Zealand's current rising house market are many and complex.

We need some qualitative research into what is driving buying patterns in the housing market. 

And once we've got that we need a long-term, integrated approach to housing that takes into consideration factors such as Kiwi (I must own a house) cultural perspectives, investment incentives, housing availability, offshore involvement, migration, regional development and availability of capital. 

There is no one answer to this problem and don't let any of the policians make you think there is.

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52 Comments

Sorry David, Bernard gazzumped you on your favourite subject.
You will just have to get out of bed earlier.
;o)
Basel Boom! Boom!

That is a great deal isn't it.  We won't buy your meat unless you throw in the the ownership of the country as well.
In reality I think that you are painting the Chineese rather harshley.  I would hope that our free trade deal has a bit more to it than the rather crude image you portray.  If it is as you assert, it is a poor deal and we would be better of walking away from it.

I'm currently re-reading Mantel's 'Wolf Hall', which seems to me to be a useful guide to the zeitgeist.  Thing to remember is that poliies will do anything - Anything - to get elected or re-elected.  System just does not allow longer-than-next-election thinking on issues such as these once they have achieved critical mass.
 
And housing has.
 
Sigh.
 
My own thoughts, crystallized here, ended with this:
 
"Not one of these is politically possible, can withstand the deadweight of custom, guilds, unions and convention, or can be defended against the Legal eagles of said duopolies and assorted corporate interests."

"for all we know, the real reason is just as likely to be Kiwi house-owners using the leverage on their existing homes to buy more investment properties."
I can't see how that would work- given rising prices if it was Kiwi leverage then household debt should be increasing in proportion to the value of the housing stock. As the value of housing stock is outstripping debt, the difference must be coming from somewhere not measured within New Zealand.

What may well be happening is that the local investors are scrapping for property that would otherwise go to first home buyers. Even that action will elevate prices because they have more financial clout and can borrow more without breaching any LVR limits.
The overseas buyers have no need for debt raised locally which could easily explain the apparently contrary figures and the local buyers have less debt than first homers on a per purchase basis.
So if political capital is to be gained by shutting out one it will be lost by spoiling the others game.

That policy was recommended by Tony Alexander
However, Alexander said while not significant now, in the next two to five years New Zealand will see more foreign buyers enter the market.
He said New Zealand’s engagement with China in particular is going to grow.
Alexander said he believed “there will be an upward trend, especially out of China, because there’s simply so much growth in wealth there”.
China is New Zealand’s second largest trading partner, and Prime Minister John Key has been encouraging the link between the two nations.
Key visited China earlier this year, where he re-signed a visa fast track scheme for Chinese business people travelling to New Zealand, and pushed for a boost in tourism numbers to New Zealand.
Alexander told ONE News: “The number of Chinese migrating to New Zealand is rising, their desire to get assets outside of China is rising, we’ll see more foreign purchasing and because I believe New Zealand house prices for domestic reasons are going to go higher I do think we need a foreign house purchase policy.”
Alexander is calling on the Government to adopt Australia’s foreign ownership model, which dictates that anyone without permanent residency must apply to buy property and can only purchase ‘off the plan’ new builds or build their own houses.*
This way they contribute to housing stock and do not put pressure on existing stock, Alexander said. They must also sell property if they move overseas again.
The Green Party has signalled Hong Kong’s housing policy as being a successful model. Last year Hong Kong placed a 15% tax on properties bought by foreigners instantly cooling the market, which had become the most expensive in the world.
First home buyers accounted for 24% of house sales, while investors accounted for 19%.
He said those figures are consistent with the results in March.
http://tvnz.co.nz/national-news/housing-market-not-flooded-overseas-buyers-economist-5440103

 

remember John Key has responded with a lot of talk about how banning foreignors from buying property could be got around by getting a resident to act on behalf.
In that case statistically there is nothing to see?

What we may be seeing (in buyer behaviour) is that they don't believe media and politicians who say it isn't happening? Maybe there is a perception that journalists, spin doctors, business are all inbed together

So landlords when Labour/Greens win an election, what are you going to do? bail out of housing as they force  WoFs, tenancies for life etc?
regards
 

I hope they do steven... I hope they do.
'Cause I know something you don't :)

Awww, c'mon ... do tell, YL!!! What do you know!???? I love a good secret.

Seriously guys come on... Number 1 rule of property - Everything that happens in the economy is good for property. Crash in foreign demand because of regulation - good for property. Low wages so many Kiwi's leveraging to the hilt - good for property. Atomic bomb hits Auckland - good for property. Earthquake hits Christchurch - good for property.
 
Get with the program guys, ya can't lose with property! MAAAAAAAAAAAAAAAAATTTEEE

Not much of a secret Kate.
But if steven had his way and all the Landlords ran for the hills my 'phones would be ringing off the wall.
I would be happy.
As we all are in Landlord land.
 

what do you think is my way btw?
suspect you are wrong....so lets see.
regards

When will people wake up to the fact that there is better living else where?
Where you can easily earn 140K+ for a young couple and have all the lifestyle to boot i.e. nice new warm dry house, 5 minutes drive to work, free parking and the list goes on.
 

The grass is always greener...and there is always those who believe that....
regards

Landlords are doing a wonderful job. Evidence?
In the NZ Herald today there is an article quoting the % a household pays for rent.
In 1998 the median rent was 34% of total household income.
In 2012 the median rent was now only 31 % of total household income.
Why do so many bloggers on interest.co.nz grumble about land lords? Clearly they are doing a damn fine job at providing a more and more efficient housing service.
Landlords we salute you!

haha. Yep, well one of our kids rents. When the agent for the landlord said they were going to increase the rent - they said do that and we're outta here. Rent stayed the same.
 
If you are a good tenant these days you can practically name your price. Got nothing to do with landlord efficiency .. got everything to do with supply and demand. Good tenants are in hot demand.

Just spotted a mistake... the article with the figures is in stuff.co.nz
Sorry about that.
Your 'highly efficient' Landlord 

Nothing like using lies, damn lies and statistics,
"In 1998 the median rent was 34% of total household income."
and that was what % single income households?

"In 2012 the median rent was now only 31 % of total household income."
and today thats reflected by a higher % of double income households?
In which case quite possibly, not.
regards

steven... stop tryin' to fudge the issue.
Quite clearly Landlords are more efficient at providing housing.
You should acknowledge that fact and salute landlords for the efficient job they are doing.
This is a valuable service to society and landlords can feel proud of their contribution.
So... not only financialy but morally... it's true that all's well in Landlord land.

Oh but you are claiming an improvement in efficiency, not I.
I have never said that landlords dont provide an essential role when they operate as a cashflow positive business and not as a) a outright tax dodge, b) gambling prices will rise and there is a bigger sucker to sell to.
regards
 

I was going to ask what percentage of peoples income you steal but there it is. Actually I suspect you are worse than that as you probably target lower decile earners and they probably pay a proportinately higher percentage.

I would be more interested in how many rentals YL has stolen from under the noses of potential first home owners by bidding a few hundred higher and keeping them in his renter pool.
YL would probably blame the banks for making it all too easy.

An excellent call BBIII, but according to the man (or woman) himself butter wouldn't melt in his mouth and his property investment works on this earth are so good he will be deified. Shame he doesn't do some homework on the history of the rentier class and the derision with which it has been held in the past for its parasitic behaviour, but then ignorance is bliss and fortifies the delusion.

 Basel Brush III... it's none.
The first-home buyers are just too damn prolific and quick for me.
And good on 'em too 'cause if its the ambition of those people to buy a house then I say to them "go for it... you won't regret your decision."  

scarfie, Landlords earn their money they certainly don't steal it.
All our tenants willingly sign to lease properties.
Mutual gains from voluntary exchange. Everyone's happy.

and yet some tenants complain they pay too much and/or the house isnt good enough.
Its interesting listening to both sides as it were...
regards

We need some qualitative research into what is driving buying patterns in the housing market
 
No, I think its more quantitative data/research that is needed - meaning we just need a black and white count;
 
1. Of the total value of all RE purchased across NZ in "x" year(s) - what was the percentage (i.e. value) of that purchased by non-residents?
 
1a. Repeat above by Auckland region versus rest of New Zealand.
 
2. Of the total number of new permanent residencies granted in "x" year(s) how many of the new residents entered on the "investor" and "investor plus" categories?
 
2a. Of those entering on the "investor" or "investor plus" categories - how many purchased real estate (land and/or land and buildings) within the first year of their residency grant and what was the value of those purchases a) across NZ and b) in the Auckland region?
 
These simple stats will tell us what percentage of the money being spent on RE in NZ is money that has not been earned in NZ.  The real issue is whether NZers living and earning in NZD are able to compete in their own housing market.
 
Existing qualitative data/information we already have - and that suggests they (NZers) are not able to compete.
 
Its simple black and white quantitative data that is needed.
 
 

That is secret-mens-business
That information is "contained" in the census data
Problem is getting it out
You just need to know how to use the Statistics Department Query Tool
Next Census results not out until December 2013

It should be a very simple query
The necessary information within the census data by each household is

  • Nationality
  • Country of Birth
  • Do you rent the property, or
  • Do you own the property

Learn how to use it and practice ready for December release
Then compare 1 census to another
When you have mastered it let me know how. It's got me bluffed

That got me thinking - an OIA request to Immigration will answer the "investor" and "investor plus" category questions.  I suppose as well that such an OIA request could even ask what type of investments by dollar value these new residents made in order to qualify under "investor" and "investor plus".  No info on individuals needed - Immigration can just provide broad categories for that investment (e.g. NZ Govt bonds, bought a going concern business, angel investment/start up funding, etc.)
 
So, how about the author of this piece who is calling for data put together that OIA request - and tlet us all know the results.
 
Plenty of quantitative data/information to be found there - and readily available!!!!!
 

Yeah I assumed he meant quantitative.

With the high percentage of auctions in Auckland the impact of a very small group of wealthy foreigners is likely to still be significant.

A person might attend and bid on several auctions before finally winning one, so they lift prices even when not the winning bid.

They are also the marginal buyers, and a small number may be all that is needed to stretch final sale prices to the stupid levels we are seeing in auckland.

Value assets on the income they produce and consider opportunity cost of tying money up in something like a low yielding property. Leverage works both way, if you're only getting 4% or less return yield and borrowing at 6% then over time you'll lose money.

Can we worry about aging problems in NZ a bit more, as you will eventually own your house when you age.

"Don't let us kid ourselves that we could apply a policy that might be seen as anti-Chinese without there being ramifications. Meat stuck on a wharf in China? Sound familiar?"

Considering China restricts their own population from investing in property and New Zealanders are banned outright from buying in China I think it is insulting to suggest the Chinese would be so petty and unreasonable.

Yes, I thought that quite an "off" comment as well - pure conjecture and the implication being that the recent hold up in China was politically motivated.  That's stretching it.  More anti-Chinese / prejudice.

Unless I'm seriously mistaken ( yet again ) don't folk of Asian descent now comprise 20 % of our population ?
 
..... which may help to explain all those " Chinese " faces seen at house auctions ... they live here , they're citizens !
 
Foreign ownership hasn't been clearly identified as the problem to our highly priced houses ....yet again , the actual problem , lack of new supply , has been lost in the politicking between Labour / Greens / Winnie & the Gnats ...

I looked that up for some research the other day - from stats site (and I think it was 2008 data) - 9% Asian, 7% Pacific Peoples, 17% Maori, balance European and other.
 
Auckland is likely a much different split.

bring back the good ole days!!!!  No first home buyer has ever had it easy as this article states.
http://www.stuff.co.nz/business/money/8974584/Home-goal-no-longer-starts...

Well he completely misses the point - using his own numbers.
 
His first house cost $13,500 and at the time their combined income was $10,000.
 
Work it out.  What's the median house price in NZ - around $360,000, I think?
 
Meaning to get to the same proportionality to annual income as he had - the combined income of the first home purchasers would have to be $266,400.
 
I rest my case. Today's FHBs are screwed. Just another silly old cobber that thinks the youth of today are 'soft'. 
 
And as for his DIY story - yep, have come across plenty of those that were an absolute nightmare.

Just had an enquiry today from a client
Looking at a do-up house for $110,000
Price two years ago $175,000
Asking price today $110,000
It's on a flood plain - 200 metres from the river
The 100 year flood happened last year - 1.5 metres high
 
Suggested he get some quotes from a house-lifter or engineer to jack the house up 3 metres and put it on poles, then offer the asking price minus the quote to jack the house up
Forget flood insurance - its nearly $4,000 per annunm and going up

I'd be very, very cautious about any purchase in a flood plain these days.  Problem is - what is this year a 1 in 100 year hazard designation may well be changed to a 1 in 50 year hazard designation in a year or two .. or worse.  Thing is - the predictions for climate change effects with respect to sea level rise aren't materialising (yet) but those with respect to storm frequency and intensity are (in fact anecdotally it looks to me like they may well have under-predicted these effects).  Take NYC - two storms of the previous 1 in 100 year within 5 years of one another.
 
All meaning - as soon as the new IPCC results are out - I'm guessing regulators will be under pressure to update their flood modelling.
 
This is only a guess of mine - but in NZ if you are in a flood plain within a densely populated city boundary - protection works will keep up with climate change.  Anywhere else - you are on your own against nature going forward.  Lifting the house is a good idea - but how high?  Also of significant concern going forward will be slope stability. That will be the next hazard that I believe will get mapped in future. 

Agreed to the point that its un-insureable...
The 1 in 100 are looking more like 1 in 20 IMHO....seen comments to that effect as well, which means hundreds of years of insurance data/history is now moot...so how do you pirce it.....
 
regards

High, there is probably a calc, but I'd start at 1 ~ 1.2metre....
regards
 

"This is only a guess of mine - but in NZ if you are in a flood plain within a densely populated city boundary - protection works will keep up with climate change"
I wouldn't count on that if I was buying now- for example a year or so back the Dunedin City Council spat the dummy over engineer's reports that South Dunedin would need to be abandoned, saying the city must be defended. The decision this year was to start building some flood protection works, but only build more if it was cost effective. I interpret that as gradually coming to terms with reality.

People were encouraged to own their own home and IMHO should still be.  It is cost effective for an economy to encourage people to buy a home and have it paid off by the time they retire.  Can you imagine the cost to the taxpayer if a large number of the population are still renting when they retire.  WINZ would be inundated with request for help.

rent is overly high to pay the landlords mortgage. Mortgages/property is un-sustainably high, so its going to fall a long way, 60%~75%...better off renting IMHO.
regards

We have been hearing about property collapses on this website for years now steven.
Yawn.
But don't rent for too long.
 

It would seem to me that the issue is to big for reporters to report on David.
The story is not that Labour seek to limit oversea's property investers, the story is that they want to impose property tax yet who in the media is talking about that.
 

David Shearer and Labour has got the right issue and election buttons....whatever the merits of banning foreigners from buying houses (there is NONE), Labour has got the right buttons to push this coming election.....And National John Key can only sneer....no policy respnse..
 
Labour has promised 10000 houses each year....Good Political Slogan to those agonising about house supply issue (and therefore prices)
 
Labour has promised Capital Gains Tax....Good Political Slogan for their socialist left..(Take from Peter to pay Paul and yet help poor house buyers...who's not to like ??)
 
Now Labour has promised to ban "foreigners" from buying houses....Good Political Slogan for our Xenophobic undercurrent....Always blame the foreigners when you find yourself in trouble.....
 
Be sure that National will soon come out with their own version of "I am dummer than you" to beat Labour to the election post.
 
Unfortunately, all these may come to naught if the financial world implodes before the next election when foreign investment and currency outflows kills NZ economy....
 

You're an optomist Kin:-)
What is the point of 10,000 homes if they are in the middle of now-where? With rising petrol costs Labours policy is a road to no-where.
Auckland needs property intensification where transport costs of time and money make it viable and if that means putting up appartment towers in Posonby, Parnell and Remurea then I'm all for it.
Can you imagine though how much less money both Labour or National would recieve from business people who live in the above area's if they choose the correct option to create real progress for the people they claim to represent

The point of an election is to win it....what happens is secondary.
 
If you cannot fulfill your promise to built 10000 houses....there is always an explanation why you can only built 6000.....Even building it in the middle of nowhere can be easily explained, and the guilable electorate will give you benefit of the doubt.....
 
In event all explanation is unacceptable there is always the foreigners to blame....or Bankers, or Rich people....just anybody but themselves 

Zanezane, National isn't going to win any friends either with lending limits - it tells every property invester who looks for capital gain that first first home buyers wont be able to afford the capital cost to get in the market and hence their property value will go down.
Also, my understanding is that investment in shares and businesses are taxed on profit - it's just not called capital gains, correct me if I am wrong.
By introducing capital gains tax Labour would treat housing like everyother form of investment on the planet and this would benefit the ecconomy in that the $ resources of the invester could be better allocated to shares and investment, creating meaningful jobs.
Historically, property was the only investment where banks would lend to the common man, so having free capital gains was a good insentive to increase the available funds in the country and not surprisingly the ecconomy grew.
Now, the debt needs to be paid back - look at America and their housing bubble. Where do people think NZ is in this debt for growth cycle?
All these NZ property investers sitting on there hands seem to think China or India are running out of land and that their investments will continue to grow.
People in oversea's countries I imagine sit around laughing waiting for another Greece to happen, waiting for the inevitable reajustment (which is a fancy word for colapse).

Days to the General Election: 26
See Party Policies here. Party Lists here.