Bernard Hickey argues the Government's one-eyed focus on housing supply is blinding it to the real demand-side drivers behind Auckland's housing un-affordability

By Bernard Hickey

Ask any optometrist about how easy it is to perceive depth with one eye closed and they'll tell you it's very hard.

Depth perception requires binocular vision and it's the same in the study of prices in economics.

Price is a function of demand AND supply.

Yet our Government is taking an increasingly one-eyed approach to its analysis of Auckland's over-valued housing market, which is driving a good chunk of New Zealand's economic and interest rate outlook.

The mantra recited time and again over recent months is that the final and only solution to Auckland's housing un-affordability is more houses, and faster.

To be fair to the Government, this intense focus from Wellington on accelerating the consenting and building of homes in Auckland is a relatively new and welcome phenomenon.

The machinery of central Government stood back through the disastrous decade from 2000 to 2010 and watched house prices double and land prices triple on the Auckland isthmus, quietly cheering the rising wealth of voters in the mortgage belts.

Land bankers sat tight and councils kept ramping up the consenting requirements, development contributions and planning restrictions that the Productivity Commission and others have argued are at least partly responsible for the affordability debacle.

It was only after the Commission's reports on housing affordability were released through late 2011 did the machinery of the Government crank into gear.

The surge in house prices in Auckland through 2012 and early 2013 ramped up the pressure.

The Government then passed the Housing Accords and Special Housing Areas legislation last year and has been pounding away on the supply side ever since.

Anyone listening to Finance Minister Bill English, Housing Minister Nick Smith and Prime Minister John Key would think the only issue in Auckland is supply. That's fine, but it's only a partial view.

The other side of the coin is demand.

A surge of competition between the banks to lend 90%-plus home loans in Auckland through late 2012 and into 2013 compounded the pressure on house prices, along with record low interest rates.

This year's surge in net migration added the final ingredient to a combustible mix that also includes a sprinkling of foreign buying.

If the Reserve Bank had not acted in record time last year to impose its high LVR speed limit, Auckland's house prices would have launched into the stratosphere.

The banking regulator's moves have only reinforced the impact that a demand-side measure can have on the housing market.

The limit has slashed house sale volumes by as much as 20% in the last six months and the bank has estimated it sliced about 2.5% off the annual house price inflation rate.

Deputy Governor Grant Spencer also reminded everyone how important the demand side was earlier this month in a select committee hearing when rejecting claims that cash foreign buyers were driving the market.

"The market is driven very much by credit," Spencer said.

NZIER Principal Economist Shamubeel Eaqub also pushed back against the supply-side myopia this week when he sheeted the blame for Auckland's housing crisis squarely on rampant demand from rental property investors, who are still targeting tax-free capital gains powered with cheap credit from banks keen to lend to buyers with plenty of equity.

"If there’s a real shortage of houses you would see both house and rental prices rising. In Auckland, that’s not happening," he said.

Yet the Government continues to put its finger in its ears and intone the supply-side mantra when confronted with Treasury and Reserve Bank research showing a rising population does put pressure on infrastructure, house prices and, ultimately, interest rates.

New Zealand First and Labour are now beating the drums for migration controls and bans on foreign buying, both of which at least partially address the demand-side of the housing crisis.

The longer the Government covers its demand-side eye, the more out of touch it appears and more it risks losing its electoral depth perception.

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

A version of this article has been published in the Herald on Sunday. This version is here with permission.

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104 Comments

With high growth isolated in only 2 cities in NZ, one which underwent earthquakes, it's understandable why the supply side should be on the cards. Demand has already been pretty seriously dampened by the results of the lvr tool.

Not only is National one-eyed about the benefits of supply and demand reforms. They are also blind to the supply constraints in Christchurch.
 
Christchurch rents are rising so fast that a recent Cera report shows they will match Auckland's in six month time. This indicates a serious and genuine supply shortage. Christchurch needs thousands of new houses aruably more so than Auckland.
 
Yet National's Christchurch housing accord consisted of 180 social houses, compared to ten of thousands in Auckland.
 
So why the urgency in Auckland and not in Christchurch? Why does National have such poor vision when it relates to housing affordability?

National have conceded defeat in Christchurch. Their share of the vote has fallen off a ciff. The real game is in AKL so ChCh can be left to sort itself out.

The cost to sort Chch is huge, I cant see how the city is viable...if the council spends the $s the debt and hence rates will be crippling...no one will stay.
regards
 

Meanwhile provincial homeowners pay higher mortgage rates as an indirect result of unfettered nonresident foreign Auckland property buyer demand, & Auckland investor demand driving up prices. 
Will Gisborne, Wanganui, whangarei, Hastings, Timaru, etc etc  become small declining country towns under the one eyed policy? 
 

They are or have declined anyway...this situation makes no odds....houses there are cheap anyway?
 
regards
 
 
 

The beauty of the government's approach is that they can shout from the rooftops about all of the land now designated for housing, all the while not having consented or built a single house. The physical situation is exactly as it was.
 
To understand their approach, you first need to understand they have absolutely no desire for house prices to decrease, or for housing to be affordable for the average kiwi. The play book has always been to pump house prices and trust that enough of their voting base around owns property, will rejoice in the paper wealth, and heck might even spend a bit more because of it.
 
The supply side does need major reform, no doubt about it. But the demand side heavy lifting has been left to the RBNZ and thank goodness they have had the guts to do something. The irony of it all is that if the demand side is left unchecked, and the Nats do manage to consent 30k houses over the next few years, we could see a price collapse if the demand to buy isn't there.
 
One way or another prices will return to earth, be sure of it.

"NZIER Principal Economist Shamubeel Eaqub also pushed back against the supply-side myopia this week when he sheeted the blame for Auckland's housing crisis squarely on rampant demand from rental property investors, who are still targeting tax-free capital gains powered with cheap credit from banks keen to lend to buyers with plenty of equity."
 
How disappointing that BH repeats the usual drivel that investors captal gains are "tax free".
Any investor who buys and sells property regularly pays tax. Therefore there is a big incentive NOT to sell.
Most investors would need to retain ther properties for at least 10 years to have even a slim chance of not paying tax, and that is by no means certain.
BH uncharacteristicaly displays poor research by slavishly echoing the nonsense from Shamubeel Eaqub, a clear sign of lazy reporting and scant knowledge of the facts.
The real facts are that home owners are driving the market, not investors. Home owners  can sell and re-purchase their homes tax free multiple times a year if they so choose, each time pocketing vast capital gains with no risk of being taxed, as has been illustrated often in the local press of late.
That's what is  pushing up prices, as home owners represent at least 85% of the market.
Shamubeel Eaqub and his admirers including BH, should get their facts right before repeatedly spouting out wat suspiciously looks like Leftist propaganda.

The real facts are that home owners are driving the market, not investors.
 
That's not a fact, it's drivel. The fact is that home ownership in New Zealand continues to decrease and the age which young people can afford a house is getting older, if they can afford one at all. If an owner occupier sells their home and buys another, the net effect to supply and demand is zero.

It is not about home ownership decreasing or increasing.
It is about given a certain number of sales, how many are bought and sold by home owners and how many by investors and consequently which group influences market prices the most.
Wake up Zombie! Read the post more carefully.
By way of example of vast tax free gains to private sellers:
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11125162
Had this sale been done by an investor, even after that length of time, the IRD would have had their knives and forks out on the same day.

If the IRD happened to be auditing that area with their plastic picnic kids utensils then maybe.
 
I got your post just fine the first time, if owner occupiers represent 85% of purchases right now, then show me the data, otherwise it is just speculation on your part.

if the theory is sound why don't you go research it yourself?  after all, if he provides any kind of data you'll just ridicule the data/source.

That's the point cowboy, there is no data! If there is show it to me, I would be glad to see it.
 
If there was data, it would look something like Australia which would not help BigDaddy's argument.
http://www.macrobusiness.com.au/wp-content/uploads/2014/02/ScreenHunter_...
 
BigDaddy makes things up as he goes along and needs to be called on it. If I made up numbers to suit my opinions I have no doubt you and there rest of the house price cheerleaders would call me on it.

My point is often the hard data, the nasty data, isn't researched.  When I worked in a marketing division we quickly learnt not to ask the questions no one above us wanted answers to.  Gather data on why a quarter of your customers demographic is below the bread line?  Gods no!  How can plausable deniability be maintained with that kind of data lying around.  Ask instead what disposable income is available to our highest spending customers.

Same with the foreign ownership question that was popping up before.  You'd think that would be absolute fundamental priority for OIO or immigration, but no, that kind of info is likely to get someone fired or their department re-purposed.
 It's not until you start mining for that real data, and looking where it should be ... and learning that much of what you are shown is of a rather "interesting" gathering technique...that you realise how deep that rabbit hole goes.  So there's not much point BigDaddy giving you some pre-massaged random data - it's just as easy to quote some other study going the other way.

It's whether the principle and predictions hold up.  and from government, never.  in this case, I think BD's point has some merit worth watching to see if the market patterns support his theory.

That's a lot of words going nowhere there cowboy
Here's a different view from a different perspective
Have worked for a number of large organisations at a senior level. One was a stint performing an activity that would euphemistically be called industrial espionage. You would be surprised the knowledge that can be obtained if you really try. And thats at the organisational and marketing level.
 
Any business that's determined to succeed invests significant time and money knowing its business, its competitors, who its market is
 
If you walk into a Real Estate Agents office looking to buy a residential property, they don't see you as a potential single commission, they see you as two potential commissions. They will qualify you, want to know your budget, whether it's on finance, how much, and more importantly, details about the house you are selling, and where it is, its value, coz they will want the sale business for that too.
 
Within a short period of time, they will know all about you.
 
An organisation like Barfoot and Thompson, Auckland's largest Real Estate business by far, know exactly where their business comes from, who the buyers are, and who the sellers are, whether first time home buyers, whether investors, whether newly arrived immigrants, upgraders, downgraders, where they have come from, where they wish to go
 
They know. And it's just a phone call away.
 
Ask yourself why they dont publish it and why Treasury, or RBNZ, or Govt, or Bernard Hickey, or even Tony Alexander, dont just pick up the phone and ask, or go visit them. It's not rocket science.

You've support my point though... all those places do their own research (and often on sell parts of it for a double profit).

And in some cases they don't know.  We had people that were told to be away form the building when board meetings or directors were known to be around.  That way no difficult questions could be created.  Anything that the board needed the boss would have sent to them...after it was prepared...  And yeah I had to "sell advertising" once or twice during my employment there.  Was NOT happy about it, but it was that or out on the street with a gross disobedience dismissal.

That isnt an investment property...
regards

The absolute proportion doesn't matter.  If you have a market with 70% owner occupiers, and 30% investors, and then, as baby boomers have paid of their mortgage, kids have moved out, at the peak of their earning capacity, start looking for somewhere to put their money, adding another 10% to demand, prices are going to go through the roof!  
It doesn't matter that owner-occupiers still make up 65% of the market, it's the additional demand that drives the price up, weather that's immigration, domestic migration, natural births, or investors.

there's a lot to be said for power of investors to hold and sell to drive demand down.
we see a lot fo that in the cryptocurrencies at the moment.  So many alternatives crypto's coming out, but most of them are only any good for speculating or trading against BTC (bitcoin).

 That produces a slowing expanding supply (similar to how housing slowly expands supply).  But the trading itself, unless there is reason for uptake, forces the price down (despite supply being inelastic & deep, it is very soft).  The result is for there to be any value in their holdings the whales have to keep buying into their portfolio, and they can't sell out much as they'll collapse their own value.

There is a difference bwteen a landlord and a speculator.
regards

Not just that BigDaddy...

But BH has proved again his value is only as empty rattling media can because

RENTAL PROPERTY INVESTORS

are the exact opposite to

TAX-FREE CAPITAL GAINS

how can one be a rental investor... and making capital gains (on a sale).  You do that BH, what do you think you're renting out?????????????????

"Most investors would need to retain ther properties for at least 10 years to have even a slim chance of not paying tax, and that is by no means certain.
BH uncharacteristicaly displays poor research by slavishly echoing the nonsense from Shamubeel Eaqub, a clear sign of lazy reporting and scant knowledge of the facts."

 
Ok then BigDaddy.
Please provide the facts.
 
Provide year by year data showing the number and value of properties sold by investors, and the amount of tax paid.

"f the Reserve Bank had not acted in record time last year to impose its high LVR speed limit, Auckland's house prices would have launched into the stratosphere."

That's unsubstantiated rubbish.

If I hadn't chanted three hail mary's while hoping on one foot then "Auckland's house prices would have launched into the stratosphere."
that is to say, the causal claim is just as valid.  It was happening anyway, the only thing that happened is any prospective FHB's got knocked out of the running in favour of established portfolio's.

 

Two thirds of all dwellings in NZ are owner occupied. The other third are rentals owned by an odd mixture of investors, the Goverment, Councils or Trusts. A further large number are provided free.
It is impossible to argue that the minority of varied and mixed owners could drive prices upwards on their own.
The majority must carry the blame.

"How disappointing that BH repeats the usual drivel that investors captal gains are "tax free"."
 
BigDaddy
Please provide the facts .
 
Provide year by year data showing the number and value of properties sold by investors, and the amount of tax paid.
Investors, not traders and speculaors.

The dark art of deception
Big-D says it's not investors but home-owners
Tend to agree, but what you didnt say was this
 
There are different categories of home-owners
 
(a) Flippers who buy to-live-in then flip'n'sell in a short time-frame, then move on to the next
(b) Young local FHB's seeking to buy their first own home and get a foot on the ladder
(c) Existing home-owners upgrading or downgrading
(d) Inbound PLT migrants who intend to and will buy their (first NZ) own-home
 
Please clarify, which in your opinion is the most influential segment?

All of the above.

Still unable to provide the data I see BigDaddy.
 
As my ol' pappy used to say:.... "all mouth and no trousers"

and you're a tyre kicker.  go away
 

Nope; still here.
Still waiting for the data showing how much tax  has been paid by property investors when they sell their properties.
 
All I'm seeing is bluff and bluster however.
 
Come up BigDaddy.
Back it up with some facts.
 
After all; you wrote this:
"BH uncharacteristicaly displays poor research by slavishly echoing the nonsense from Shamubeel Eaqub, a clear sign of lazy reporting and scant knowledge of the facts."
 

prove him wrong. and yes, know you're still here, still kicking tyres - easy to be a winston and throw demands at the guy doing the work... lets see you prove you're up to the task you set for others...prove him wrong.

BigDaddy made the comments about BH and Shamubeel.
He said :
"Shamubeel Eaqub and his admirers including BH, should get their facts right before repeatedly spouting out wat suspiciously looks like Leftist propaganda."
 
Just asking for BigDaddy to show us HIS FACTS.
 

Regarding property investors.  According to the IRD, the capital gains taxability is determined by the buyers intention (see below).  So as long as you say the right thing to the IRD, you'll never end up paying capital gains tax.    I suspect very few people pay capital gains tax.
From the IRD website.... "If you’re an investor you buy a property to use it to generate ongoing rental income and not with any firm intent of resale. The property is a capital asset and any later profit or loss from selling the property is capital and isn’t taxable (apart from clawing back any depreciation, which is now recoverable)."
 

yes I can read it from the original comment.

his theory lines up with my observations, but you said he needs facts.
I'm asking _you_ for _your_ facts about where his is wrong, otherwise you're just flipping.

BD acuses others of not looking at facts, by logic BD must have facts of his own to repute BH's.
If he hasnt, and I bet he hasnt...its his usual worthless poo.
regards

by logic, no that's not correct.

by logic spottie must have an argument at least as good as BD.  Then BD would have to show that his theory is better aligned than spotties.

If P, then P.  unless `P
P requires data/facts
then by the same logic `P would demand at least an equal weight.

Logically declaring
BD :-   P
spottie :- unless you give data then `P must be true and P must be false

is non-sequitor.
spottie would have to identify somewhere in P where there is a logical fault, or have a Q where `P is present.  that would then mean we have to test P and `P or find logical fault in Q which would still beg the question on P.

lack of data can't -prove- P, but just screaming for data/facts doesn't _disprove_ it either.

especially since the normal politician/college debate/internet flipping troll, will demand data/facts then argue about the minutae of the data collection/validity/source than examine the underlying logic and causality.

BD's claim is against, "Shamubeel Eaqub and his admirers including BH, should get their facts right before repeatedly spouting out wat suspiciously looks like Leftist propaganda."
So we have on the one hand an economist (yes Ok not my fav ppl) plus BH being acused of leftist propaganda and their facts are not right by BD with a  history of factless claims.
I think BD shoul dput up some proff that BH is wrong myself, I certainly try to so I odnt see it as wrong for someone to pull up someone else, especially BD.
regards
 

Uh no, If BD says BH etc are wrong then logically BD has an un-substantiated opinion as he cannot prove it.   Also spottie is pointing out that BD shows no logic, or data and hence cannot be challenged to be proven wrong or right.  BH, etc well we can see his logic.
regards
 
 
 

just because it's an unsubstantiated opinion, doesn't make it logically wrong.

spottie is _claiming_ BD shows no logic...yet isn't backing that up.  
AND 
(  spottie is _claiming_ BD is required to show data to support his opinion
  AND
  spottie _isn't_ providing any data to support any of his positions)

AND
spottie has given no opinion (unsubstantiated or otherwise) or logic to why BD's unsubstantiated opinion is wrong - beyond claiming data/proof must be given..... yet by spottie's own method, he fails that same test.

BD can easily be challenged and/or proven wrong.  As you've said, it is an unsubstantiated opinion.  It just needs a break in logic flow, or small data sample to prove otherwise, or even line-of-thinking that shows an error in BD's observations.   Yet spottie provided absolutely none of those - thus it is up to spottie to provide at least something unsubstantiated or better to defeat BD's claim. Then, and only then, does BD need to do the same process and offer stronger proof (ie better/more accurate data/sources)
  Just whining "you have no data / unacceptable source" isn't good enough (unless you're selling media space on climate change)

No, we are arguing different points here.  The Original piece listed an opinion based on information, ie rents are not rising, therefore is there really a shortage in accomodation.  BD claimed it was rubbish due to the facts not being correct and a leftie piece, yet cant substantiate that claim that the facts are in-correct.
Also spottie is asking BD who has shown a considerable lack of proof or logic in previous posts to substantiate his COUNTER claim....he has not.
Spottie's point of view is based on the ORIGINAL article. So in effect you are asking for double proof on one side V none on the other.
That is not logicial, I mean do you want spottie to repeat it?  Well I have done so above.
Lets see BD's counter logic and facts.
In terms of climate change, the overwelming amount of cross supporting data from different sourecs that has been peer reviewed for fact etc is simply the best thing we get to irrifutable in terms of  acting on the risk and impact.
Of course it is good enough to throw BD's comments out. Without any evidence, data or logic his point of view should carry no weight in making a decision/determination.
regards
 
 
 
 
 

No.

spottie hasn't referred to the data in original piece (in this thread).
he has just demanded data and declared BD to be wrong.
otherwise we wouldn't be having this discussion.
even if spottie referenced the article, he would still have to indicate why that original article data proves BD wrong.
And if BD refutes the accuracy of the orginal data, then spottie merely repeating or referencing the original data as a source doesn't qualify as a stronger argument (although even a simple appeal to authority of writer does stand until toppled).

neither is ad homein against BD a suitable methodology.

not even slightly.

salespeople are the easy to sell to.   Do you think all those people in fx and security markets are end users??  You think when Warren Buffet sells,  that it's to people who want to sit and hold stock?

No, investors often sell to other investors.
Why? because what makes a great rental is often different to what makes a great emotional home.  So investment properties tend to stay that way.  Wherer the long buy thinks there's more value in than in the short sell

Which is why the LVR is so good....
regards

Well, there's a way to sort the place-of-residence-flippers from the professional investors, surely.
 
Introduce a Property Tobin Tax:  clip every sale to the tune of 10% or so, ring-fenced from income tax so 'losses' cannot be offset.
For the poor struggling FHB, allow a full refund of the GST content of the house (3/23rds, for the mathematically minded) as the one and only exemption to the whole shebang.
 
And then sit back and watch.  It would, I surmise, concentrate the minds of the Eternally Upwardly Striving mightily - one might even predict a sudden slowing of the velocity in the market, a shake-out of agents, and a new resolution to Hold and Wait.
 
Nevah gonna happen, of course - after all, agents have a 4.95% Tobin Tax revenue stream anyways, and it doesn't seem to have stemmed the madness....

GST is charged to consumers.
Those in business can claim back the GST paid anyway.
there is currently no GST on residential private purchases...but there is for trading/letting companies (business providing service, not a residence home)

your ring-fence only stops the small portion using negative gearing.  In most cases it's better just to let the losses accumulate and use those credits to offset the eventual profits.  So ringfencing really won't make much of a huge difference.

You want a difference?
(1) ring fence, and make insulation, double glaze, solar hotwater 100% depreciable in first year.
(2) bring in -minimum- standard, no leaks, no holes in the floor or walls, no drafts, no damp mould in walls, running water hot and cold, toilets must work.
(3) maximum age 4yrs on tax credits for losses (gasp)
(4) progressive taxation on 2,3,4 th etc holdings; GST on non-private holdings (by lot, not by apartment) including residential rent.  (force the rich money up the ladder, make it worth their while; open the bottom to fertile new entrants)

That's a real doozy
Think about which demographic and WHO comprises the bulk of FHB's
GST would only be rebateable on new-build houses
You would have the local peasants beavering away paying their GST only for it to be immediately rebated to new-arrivals who buy their very first NZ home

Now that's very interesting.
If correct, then it means that more people are opting to rent rather than to buy, either because renting is cheaper (which we know) or yet again underlining the fact that buying is much more expensive.
It also means that those who wish to punish the business of property investment, will have the dismay of witnessing how any such punishment will fall straight onto the shoulders of the very renters themselves- a fact lost on those of the Loony Left persuasion.
 

With high house prices, and low wages for many people...
and now the RBNZ kicking out the bottom 4 rungs on the property ladder..

I suspect the "opting to rent" isn't a deliberate choice.

Although transitory jobs and loss of elderly wealth (no longer helping young couples or grandkids into first houses) is also slowing the trend towards ownership.

Hah.
BigDaddy; I see you are now agreeing  that property investors are benefiting from tax free capital gains.
About time you ackowleged that.
 

Perhaps you are unaware of the Fair Dividend Rate (FDR) rules under the Foreign Investment Funds (FIF) system.
This is a tax paid by investors on numerous overseas shares based on the annual value of these shares.
Effectively a capital gains tax on UNREALISED gains.
 
Also; many properties ARE being sold every year by investors.
Is tax being paid on these gains or not ?
BigDaddy says yes.
But can't support his assertion.
 
What say you, and where is the data ?

It was published just the other day in an article / interview with Nick Smith that the IRD collected $53 million in 2011 in income tax off property developers and or speculators
 
The only worthwhile comment about that was is was 2011 data released in 2014
 
and
 
$53 million is not a lot and most of it would have been from property developers making a taxable profit in the normal course of their activities
 
In other words it was a loaded feel-good statement intended to make you go away

Rubbish. It was reported that "...in the first year of increased monitoring, the IRD had found $53 million in tax discrepancies on property transactions."
 
It's not the total "income tax off property developers and or speculators" in 2011. 

You can't benefit, but that never stopped a government or bureaucrat from taxing people for it.
eg shares, livestock

Of course you can benefit from unrealised gains - or are you trying to say you don't understand the concept of leverage?

You're not using the term "leverage" correctly in that statement.

Given rents are flat, I think you are deluded on seeing rent  rises, no sign of it so far.
regards

... interesting chart that  ... a wiggly squiggly line , clearly trending upwards .. ... rentals are tracking an un-flat path ...
 
So BigDaddy ain't " deluded " at all ...
 
... wondering if steven is big enough to apologize for that crack ?

Ah Gummy that chart was for Christchurch's 3 bedroom rentals!
 
A recent Cera report predicted Christchurch rentals would match Aucklands by Jan 2015. Maybe our resident statistician-DH can comfirm this.
 
I believe Big Daddy's happy property hunting ground is in Auckland where rents are more squiggly than trending. So Steven hold off on that apology.
 
In summary Christchurch is the city that needs a supply solution, which is not surprising considering it has recently suffered the biggest disaster in NZ's history. Yet it is Auckland that is getting the attention, housing accord wise.....

There's also an Auckland 3 bedroom tab at top of graph. These show Christchurch 3 beds rents have put on about 30% since 2011 - Auckland 3 beds about 20%.

Bob David Chaston's excellent regional rent charts show in Christchurch a clear upward trend of 35% price increases with little spikiness since the first earthquakes in 2010. $325 per week to $435. The Auckland chart shows a less clear upward trend over the same perios of 16% -$480 to $550 per week. Auckland's rent chart is much more spiky. Auckland's rents have spiked up  to its current level in March 2012 and June 2012, before dropping back again. Based on these statistics, further rental price increases can be confidently predicted in Christchurch and smaller increases in Auckland with less certainty.
 
This indicates in Christchurch there is only one factor moving the market. A housing shortage that is consistently pushing up rents. While in Auckland there are multiple factors impacting on the market -some pushing the market, some down. Thus the variability and spikiness in the Auckland market. Auckland needs a range of measures to calm the market, that can be summarised as demand and supply reforms.
 
Yet the solution from our government is to concentrate only on housing supply efforts in the Auckland market. Auckland gets dozens of special housing areas consisting of tens of thousands of newly consented residential land (although developers actually releasing these onto the market in these numbers is unlikely). Christchurch gets 180 social houses. Auckland also gets major new upgrades to its transport infrastructure, while Christchurch faces a shortfall of $500 million from Wellington in repairing its current transport infrastructure. Note transport is an important component to accessing new housing supply. So Wellington transport priorities is an indication of where it wants to increase housing supply.
 
Ignoring the problems in Christchurch makes no sense to me when you analyse the economic fundamentals.
 
These statistics also shows in Christchurch since the earthquakes there has been a transfer of income/wealth from renters to landlords. A medium 3 bedroom renter transferring $5,500 more of there income to landlords now compared to pre earthquakes. Probably more given the time lag in collating the statistics. Given a medium household income of $70,000 in Christchurch this indicates a significant decrease in disposable income for renters. The equivalent to an increase in income tax of 8%. These 'tax increases' on renters will continue with absolute predictablity as little is being done to change the trends.
 
The current government has done nothing to rebalance the winners and losers from Christchurch earthquakes. Despite Christchurch suffering the worse disaster in New Zealand's history it gets little attention from Wellington. Unfortunately the media and opposition parties have shown little interest in addressing the matter either. This clearly shows to me that Canterbury needs stronger local public and private institutions to recover and be a success.

Christchurch - the place time forgot
 
Have been to Christchurch a number of times - the second to last time was about a year prior to the earthquakes
 
Watching the saga from afar, seeing it disappear from our consciousness, I had to see it for myself, so, went and spent some time there - in February and March this year.
 
Frightening
 
Those who havent been and had a look for themselves have no idea - it's just words
 
I feel for you - what on earth are the authorities doing - anything?
 
Please David Chaston - can you get someone to do a feature on it - otherwise it will disappear altogether and just become some past thing that people reminisce about - go and have a look for yourself - make it real

Agree.
regards

I cant believe this has been allowed to drag on like this

Thanks Iconoclast it is hard to describe what is happening down here in Christchurch -to make it real. I try to stick to prove able facts. But that tends to be dry and doesn't paint a rich picture.
 
As you say we need more people reporting on the rebuild to paint that picture, to make it real for kiwis who can't visit. Really it is the biggest event to affect NZ since WW2. Kiwis will be talking about the Christchurch earthquakes long after Key and Cunliffe and the rest of the Wellington crowd are long forgotten.
 
One thing that seems to be clear is Cantabrians are interested in getting their day to day lives back into order. Not spending all their incomes on a roof over their heads and for that 'roof' be warm, dry and healthy. Going about their day to dayslives on congestion and pot hole free roads....
 
Cantabrians have adapted to not having a CBD. The issues of cathedrals, convention centres and stadiums have gradually lost relevance. People have more basic problems to fix first.

Re: developers releasing land in AKL.
 
Is there nothing in the housing accords to force the land onto the market?  Have we just made it easier for landbankers to re-zone the land, which they will continue to drip feed the market in stages at inflated prices?

The housing accord isn't providing new housing. It's taking bits of land (generally already zoned for housing) and theoretically making RC process easier if developed to Unitary Plan rules. But in places like most of the Great Noth Road SHA the unitary plan rules allow LESS than current zoning and includes sites that have brand new apartment buildings just gone up. So being in the SHA means you can pull down your brand new apartment building and build something smaller - not sure how that is supposed to increase housing stock?

So what are you saying Bob? SHA are pretending to be a genuine supply response but in fact are not? That National want to say they doing something about affordable housing when in fact they are doing bugger all?

In some cases like:
 
http://www.aucklandcouncil.govt.nz/EN/ratesbuildingproperty/housingsuppl...
 
it's a joke. Downzone most of the area then claim they have provided 1000 new potential dwellings? The orange area is a lot less than currently zoned for, the light purple is a bit less than current zoning (except the bit at far right which gets some extra height)
 

The current Govn is focused one thing, getting back to surplus so no spending IMHO. They seem to think that a) keeping the Auckland housing market on the up, b) high exports prices for farmers and c)  showing how "safe" they are is enough that the rest of NZ is being left IMHO.  Poor urban areas? well thats labour voters so who cares is how they think IMHO. Looking at the polls they could be right.
Meanwhile the Greens proposed a NZ wide levy, to kick chch off it was poo poo'd.  We see shortages for housing builders so they are getting screwed over by the landlords...The builders then in turn seek to charge more.  So nice earnings for yet more National voters.
Whats to fix?  win win for national.
regards
 
 

I have discussed with some local government types in Christchurch why they didn't consider a land swap for red-zoners instead of a buyout or as an option instead of the cash. The government would have created a new residential area the equivalent size of the red-zone. There would have been many advantages.
 
Homeowners with damaged land but undamaged homes would have had the option of relocating their own homes.
 
The new residential area could have been acquired cheaply at rural prices and rezoned residential as an emergency measure.
 
It would have kept communities together.
 
It would have prevented this flood of red zone home buyers onto a supply restricted market with their buy -out money.
 
The key disadvantages for the government was it wasn't 'free market' and the government would have needed to work hard to keep the new residential land costs below the payout for the red-zone.
 
Many people and organisations in Christchurch had suggested this exact land swap idea.
 
I think it was risk of cost blow outs in constructing a new residential zone that made Brownlee choose the cash payout option. Because he had been instructed that there was no extra money from tax increases and the government needed to be in surplus by 2014.
 
This transferred the risk of inflated land, housing and rent prices to the public. So here we are in 2014 with a government in surplus and here in Canterbury record house and rental prices.
 
 

Agree, so we have a govn wedded to the free market, when massive events are not and its in the interests of their voting block for the Govn to do nothing, that should tell you who not to vote for, sadly Im not sure there is a worthwhile alternative...
regards

Most of us know that this is what should have happened Brendon. Christchurch has suffered a severe type of administration incompetence. The signs of incompetence were there from the very earthquake in September. Most people realised the administrators were going to make mistakes given the size of the events and would probably have been quite understanding if they had admitted those mistakes and remedied immediately.
 
Christchurch is legislative and regulatory nightmare.

The earthquake recovery was a golden opportunity to think outside the square , to innovate with new building types , alternative materials , newer sites , overseas products and companies ...
 
... and much alike the rugby team , our chiefs just kept dropping the ball all season ....
 
Shame to waste a once in a lifetime opportunity .... but we all saw that outcome ahead of time ...

Like the advert said:
"Our government prides itself on its ability to think outside the square and on its innovation"

... oh what, you actually expected them to DO it?  LOL!   but they do pride themselves on it.

"So here we are in 2014 with a government in surplus " no no no.
So here we are in 2014 with a government in surplus predicted for 2016 and here in Canterbury record house and rental prices.
The government is currently running a deficit.  They are predicted by 2015 to be in surplus.  That 'surplus' of 372M includes 375M of debt financed motorway widening.  So actually a 3M deficit.  So they won't be in surplus till the next financial year.
 
 

Yup it's bad what's happened in Christchurch. Still a 16% increase in rents over 3 years is not the same as flat. Flat would presumably be matching inflation - like 4% 

If you said 2% which is more like CPI, that is 6% over 3 years, so a 10% gain, 3.3% per year not huge in fact small, with a genuine shortage, so what the hell is happening in Auckland?  Auckland didnt suddenly become so hugely short like chch.
regards

A 9% increase over and above inflation is not flat (and acccording to reserve bank inflation calculator it's 4% pa over the 3 years so 12%)
 
You argue that 0% over inflation indicates no shortage so surely 4%pa indicates some shortage?

You do need to have a good read of it. There's a lot of downzoning happening too - especially on commercial sites. The 4 floors you note is in many places currently 5. There's going to be some very suprised and upset Mixed Use land owners.
 
Although theoretically allowing more development in some places the apartment rules particulary add a lot of new constraints (stud heights, room widths, entry locations) and layers of discretionary urban design involvement that weren't there before. You may be able to do more, but your resource consenting costs are going to go up a lot.

What about the torrent of cheap QE and ZIRP money washing around the globe in search of a yield?    Also consider the vast sums of capital fleeing China and looking for hard assets.  Instead of asking the question "How do we protect New Zealanders from this would-be rentier juggernaut?, how do we direct all this foreign money to make NZ more productive?"  The government has decided to sit back and relax, loosen the OIO rules, and let the money go where it likes.  The rentiers and privileged will do very well, but the overall result will be a social and economic disaster for NZ.   Unfortunately by the time that manifests, the current national government will be long gone.
Auckland is a perfect storm of easy foreign money, Christchurch refugees, and loose immigration policy.  What goes up will inevitably come down as the conditions change IMHO.  

Non-compliance through property speculation, raised tens of millions of dollars last year.
This is in additon to any tax already collected from property deals.
Who said property investment was tax free?

What FACTUAL DATA do you have to support your assertion that property investors pay tax on the capital gains when they sell their rental investments ?
 
If you do not have any; then why did you critisise BH and Shamubeel Eaqub for this article ?

NZ Herald

Friday Apr 11, 2014

"For non-compliance through property speculation, $53.8 million worth of discrepancies were found, a return of $8.42 for every dollar invested."

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11236667
 
 

What percentage of those "discrepancies" translated into recouped tax?  That $8 return looks hypothetical.  Tricky wording on that article.  
Investors dont get taxed as long as their intention is not to sell.  How do you prove intent? 

IRD's own numbers so the $8 odd was "profitable".
regards

Still not answering the question are you BigDaddy ?
 
The article on this site says INVESTORS.
That is the critisism you directed at BH and Shamubeel.
 
Is there any chance you might have THE FACTS about that category ?
Or will you simply continue to ignore the question?
 

Hate to say it but he has answered the question.
 
The article clearly states "rental property investors, who are still targeting tax-free capital gains".  As FatPat points out above if intention is capital gains you pay tax (IRD don't care if you call youself an 'investor' or 'speculator') . BD has provided link to article about IRD catching up with people who have tried to avoid this tax. Clearly there is tax to pay if you are targeting capital gains.
 
They could probably catch more cheaters, but that doesn't mean there isn't tax to pay. I hypothetically might know people that have gotten away with shoplifting - but that doesn't make shoplifting legal. If the article had referred to investors who are targeting rental returns paying tax on their rental income and not on capital gains it would be a different story (but it didn't).
 

Pretty obvious that recent migrant cashed-up arrivals who buy a property and then leave it un-rented, holding it empty, are targetting capital gains exclusively and not rental income
 
It's like they are putting a target for the IRD on their back

Which shows how many ppl are trying to dodge it...
 
regards

and how many were caught in 2011 which was when profits from projects started a few years earlier would have been realised - i.e. in the depths of the GFC when nothing was happening. 
 
I know one property person who spent a few years inside for not being honest with the IRD around that time.

That's short-term speculators.  Long term investors still get tax-free capital gains.  If you are saving for retirement, which would you choose, the taxed route or the not-taxed route?  And still we wonder why FHB are being pushed out of the market by investors.

Hence why a CGT is a must, farmers, self-employed etc lots doing it to dodge tax.
regards

The under the radar speculators I have come across are often quite ordinary people working for others on a wage or salary and not furnishing their property speculator income to the IRD.  How often are wage and salary earners fully audited by the IRD?
 
As legitimate business's are already doing their annual financial compliance IRD stuff I can't see this group as being part of the group not paying their taxes. Everyone in business is subjected to IRD audit processes either directly or indirectly and I don't know of anyone in business who doesn't have an accountant that ensures the business is fully compliant and paying the correct taxes.
 
 

There's not actually that many suburbs in NZ where capital gains are made. They watch all the sales in those areas and who's involved.

They might be targeting those suburbs now Bob but in the past the IRD's record has been abysmal. There is only one reason the Government injected extra funding into the IRD.....they knew there was a problem........Even the IRD must have known there was a problem but have obviously chosen the cop-out-line of there wasn't enough funds or resources available to chase those speculators who were evading or avoiding taxes in the first place.
 
This was what The Herald was saying in 2005
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1000...
 
This was what The Herald was saying in 07.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1044...
 
If we had any kind of competence in Wellington at all we wouldn't still be discussing housing and housing related issues like tax avoidance by speculators.  I wonder how many public-servants have retired on their tax-avoidance speculative-housing  strategies? 

C'mon people, show a bit of gratitude, be thankful for the crumbs you do get
 
Few things worth mentioning
 
(a) yesterday David Chaston in his top-10 posted a comment that demonstrated what information is available and can be obtained with a bit of perseverance and due-dilligence
 
(b) see my comment further up-thread
 
(c) The facts you are challenging Big-D over will never be released into the public domain - too politically incorrect to do so - bordering on the socially-dangerous
 
(d) It has been stated often enough that the information is not gathered at a national or regional level
 

Big-D has repeatedly demonstrated that he is a seasoned operator. He knows what is going on. He is close to the market. I take for granted that he has a close working relationship with the largest Auckland real-estate agencies. In the absence of any denial from him I assume he is on talking terms with the principals of those agencies
 
So, in the absence of publicly available data, and in terms of my comment up-thread, I believe Big-D is the closest thing you are going to get to reality (whether you like it or not)
 
He is a long-in-the-tooth seasoned operator who is very close to the action
 
So listen to the chatter

For someone who publically claims to have sold his 300 rentals decades ago and now only does commercial property, he sure shows allot of interest in the rental market.

Effectively commercial property is on a wing and a prayer, ie if/when residential goes pop its time to sell commercial fast and retire IMHO so watching it closely is understandable to me.
regards

Get used to being tenants-it's a world wide trend.

... those of us who prefer to keep our money tied up in alternative investments , in small innovative tech companies for instance , thankyou for providing a nice warm abode for us to rent ...
 
'Cos if being a landlord is your thing , then I'm cool with that ... and I wish there were more 'like you , providing a much needed and appreciated service for us ...
 
... and I'm sure that it doesn't bother you one iota that owning a house just aint my cuppa tea ...

and/or run with a more Das view
dreams of prosperity were built on the wealth trinity -- a good well-paying job, a nice house and comfortable retirement financed by superannuation. Unfortunately this has now become an illusion
http://www.youtube.com/watch?v=3K2m7NnO7iY
round the 26min mark and on...
 
the question of policy, is it geared to building houses or, building house prices.
 

World wide trend?  Not in Europe. 68% owner-occupiers in 2005, now increased to 70.4%
 
http://appsso.eurostat.ec.europa.eu/nui/show.do?query=BOOKMARK_DS-057102...

It's great that there are so many landlords happy to receive a miniscule return on investment, desperately hoping for a tax-free capital gain that might never come to pass. Far better to rent and put your money in a profitable business or somewhere it actually earns a reasonable rate of return. Better to have your money in something that is actually investing for the future rather than physically degrading bricks and mortar.