With no certainty of capital gains in the immediate future, recent buyers of investment properties may be forced to pay renewed attention to income versus outgoings

With no certainty of capital gains in the immediate future, recent buyers of investment properties may be forced to pay renewed attention to income versus outgoings

By David Hargreaves

One consequence of the unexpected change in Government is that we may start to see some sorting out between the property investors and the speculators.

There's an arguably fairly thin line between the two anyway (although I'm sure many of interest.co's commenters would disagree) and with the kind of ever-rising market seen in recent years, particularly in Auckland then investors have become speculators and speculators investors.

Till we know more exactly about the shape of policy under this Government then any comment about what it will do and the likely impact is, well, speculation.

No one likes uncertainty

What can be said with reasonable certainty is that no market likes uncertainty.

So, with the housing market having gone into 'wait and see' mode prior to the election, it's not likely to switch out of that mode till we see the whites of this Government's eyes, policy-wise.

What could be reasonably expected till people know better then is a continuation of low housing sales activity and flat prices. And that could be for several months. There will be no pre-Christmas boom in the way there was in 2014 after the National-led Government status quo was preserved.

So, quiet till and beyond Christmas and with greater signs of what exactly the Government policy mix will be in the early months of next year, with the housing market presumably reacting accordingly then.

Government moves

If the new Government is to be taken as read with the pre-election indications of policy (and some tentative post-election indications) then the intention will be there to ramp up house building, immigration will be curbed and non-resident offshore buyers won't be allowed to buy existing stock.

There's plenty of room for discussion on how effective any or all of those policies will be, should they be implemented. I'll come back to that.

What the very presence of those policies does though is add a definite drag factor to a market already being slowed by reduced foreign buying activity, the 40% deposit limits for investors and a move to more cautionary lending policies by the banks.

All this will at the very least cause pause for thought for housing investors, particularly the more recent ones.

Knowing the sums

Only somebody who has bought an investment property truly knows their sums (although presumably the folks who lent them money know too). But anybody who has bought a low rental-yielding property thinking: "Don't worry about the rental yield it will be worth thousands more in a year," will now be having a few thoughts about what they want to do.

The good news in all this is that interest rates are still at incredibly low levels and there's no imminent sign of them going higher.

If interest rates were rising right now, then the portents for the housing market would not be good at all.

A rising interest rate environment would produce what you could call 'push-pull' dynamics. On the one hand the borrower is paying more on their mortgage interest rates - which they may or may not be able to recoup from higher rents, and on the other hand rising interest rates make fixed interest deposit investments relatively more attractive alongside property investment - particularly if the rental yields are lousy.

Interest rate rises next year?

If, as some people are suggesting (though it is VERY early days to do so with confidence) that the new Government's policies will prove inflationary, then maybe we will see interest rate rises next year.

Were that to happen then some of those speculators who thought they were investors might find that the sums really don't work on that investment property they bought.

In the meantime I think that clearly anybody who bought a property just on the basis of a capital gain will hold fire. But if those interest rates do start to move up, well then the pressure might go on.

The Reserve Bank will need to be watchful.

An early priority

A very early priority for this Government I think must be getting a new Governor appointed to take over when Acting Governor Grant Spencer leaves in March (or maybe even before if possible - though that's probably unlikely). Then there is the sorting out of the Policy Targets Agreement and whether the focus of monetary policy will be broadened out beyond just inflation.

It will be important to have both those things in place as quickly as possible because we need to know whether the outlook for official interest rates via the Official Cash Rate will be different.

Then the other thing a new Governor will have to give serious and early consideration to is macro-prudential tools and particularly the LVR rules and whether the current regime with the 40% deposit rule for investors and the general 10% 'speed limit' on owner occupiers borrowing more than 80% will be retained.

Given the new wave of uncertainty the change of Government puts into the housing market I really do think possibly removing at the very least the 40% deposit rule for investors needs looking at.

There are risks

The risk of course is that if enough investors (or speculators, if you will) feel sufficiently pressured to put their properties on the market then this could cause the sharp fall in the market and therefore the consequences for the banks and the financial system that the RBNZ has actually sought to avoid with the LVRs. Yes, that's right the 'cure' could end up being the cause in the wrong circumstances.

I think the coming months will be a test of nerve for some 'investors' and arguably will be a time in which we find out whether reasonable numbers of people have been more risky than they should have been in buying properties in expectation of capital gains but which don't stack up as investments in the conventional property investment sense - IE the rental yields are not strong enough versus the outgoings on the property.

Perception is likely to be a bigger factor than reality in the next couple of years because it remains questionable how much impact any new Government policies now will have.

Any curbs on migration will take time to produce a significant slowing in the inbound migration rate (though it is now starting to slow in any case).

Building the houses will be a stretch

Building 10,000 houses a year is going to be a stretch because the capacity constraints that are already visible in the market are going to be an obstacle regardless of whether the Government itself is literally trying to build the houses or, as with the previous Government, largely (till it realised it wasn't working) trying to get the 'market' itself to do it.

And I still think the ban on foreign buyers is going to be much harder than Labour has been trying to say it will be. My bet is that if this Government lasts a full term (and that's not a given) there will be no ban in place at the end of the term.

So, as I say, many of the obstacles for the housing market at the moment are in the mind rather than 'real' obstacles. But the mind's a powerful thing. And there will be some nervous 'investors' out there. What they end up doing will be very important for the economy over the next year.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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70 Comments

18
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It wouldn't be stretching the imagination for specuvestors to start selling en masse. Despite recent high arrivals, Auckland in particular could become a city with ever larger pockets of overcrowded houses yet large amounts of vacant ones. Once this bubble bursts, it will become a vicious spiral with unemployment being a major driver not to mention loss of consumer confidence. The capital gains have vanished putting the focus on rental return. If the return were to reflect the risk of tenant defaulting, damaging or simply vacating then why are the returns practically as low as a relatively safe bank term deposit? The return I feel should be at least ave 7% in Auckland. This asset class is heading for a massive adjustment southward as I cannot see highly leveraged specuvestors living comfortably with stagnating prices and low rental returns from tapped out tenants.

If you have bought with a 40% deposit how low do you think the yield has to be, before it starts to cashflow negative? I think you will be pleasantly surprised to find that most if not all multi property owners are sitting on some fat equity and healthy cashflow. Buying may have slowed but it is net a positive. While underpinning houseprices is the pent up demand from smart people who are saving up a deposit for a first (or second) home.

The Auckland market is still buoyant in some areas whilst obstacles in other. Current climate may sort out the specuvestors from the long term professionals. Specuvestors shouldn't feel pressured to put properties on the market at a reduced price. The Chinese New Year will be here next year and I have been advised by my RE friends there may be a lot more interest this time around.
MTP

14
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but that is what they said last Chinese New Year......

Ted? Ted is that you??

Speculators should be dumping properties. You don't hold onto a losing trade just to realise a greater loss later on. That would be stupid.

It would be stupid to sell at a loss when a profit can be made in the future, look at how poorly those who sold in 08 have done compared to those who held.

Eventually prices HAD to align with fundamentals. Get over it.

dictator,

Study after study by psychologists such as Kahneman and Tversky, Ariely, Thaler and others, show that people fear loss much more than they value gains. That is why many investors hold on to loss-making shares-it's only a loss on paper!- and the same is true of property investors. Unless the bank forces their hand,most will be extremely reluctant to sell at a loss and the bigger the loss,the more reluctant they will become.

totally disagree, speculators in Auckland should take whatever profit they can now, prices are going to continue south.

The whole idea of being a speculator is to jump on a trend and make some quick bucks. Why would you hang around in a falling market..... That would be stupid

"There's an arguably fairly thin line between the two anyway (although I'm sure many of interest.co's commenters would disagree)"

HAHAHA good zing there, David!

As always, DH, cash-flow matters....

I tend to share your skepticism about the speed and depth of any Gubmint changes. It's a big ship to turn around unless property rights of various sorts are to be thrown under the bus in the haste to get steam up and the wheels turning on all of that policy stuff.

Legal Eagles and other Birds of Prey are gonna have a field day - some policy could turn into a turkey-shoot as a result. Accounting and law more generally, is a conservative business, with good reason. Part of the checks and balances of a nation without a constitution....

"One consequence of the unexpected change in Government is that we may start to see some sorting out between the property investors and the speculators"

Excellent !

lol, yippy, I thought most people wouldn't have a clue after messing their minds up throughout this elections ....

All investment is speculation, or gambling. The distinction is all in your imagination.

Don't underestimate the power of imagination. With our thoughts we make the world.

scarfie,

I have no idea what you do,but that is a truly stupid remark.Thus,education is an investment in the future,maintaining a home or a car in good condition,is an investment in the future and so on.
On a bigger scale,infrastructure is an investment in a country's future;roads,rail,schools,hospitals,sewage disposal,clean water,etc.I won't bother with the stockmarket,about which you must know nothing.

Scarfie is quite correct. However, you are extending the point he was making. Yet even investing in infrastructure is a gamble. There is no guarantee that such infrastructure may not be superceded by other future changes. It happens to businesses all the time with the tech industry a prime example.

And as to the stock market not being a gamble try telling those that lost so much in the 1987 crash. Or those that lost so much when so many finance companies went bust.
https://en.wikipedia.org/wiki/Finance_company_collapses,_2006-12_(New_Zealand)
https://en.wikipedia.org/wiki/Black_Monday_(1987)

All trends say we dont have the capacity to maintain ever greater amounts of "infrastructure". Yet add more energy sucking roads/hospitals/fossil fuel reliant money pits we do ...
You have to suspend any idea that growth is dead if you believe what currently constitutes as "investments" are still that ...

I agree, nothing in life is without risk. As with all things in life, investment is all about risk management and keeping things within your acceptable limits. Some people see gambling as a dirty word, I do not. Choosing a career is a gamble, choosing a car is a gamble, choosing a partner is a gamble. Definitely not a reason not to do something, just consider the odds first.

And from a little "wider perspective" from the IMF Financial Stability Report by way of Zerohedge:

In the section also called "Global Financial Dislocation Scenario" because "crash" sounds just a little too pedestrian, the IMF uses a DSGE model to project the current global financial situation, and ominously admits that "concerns about a continuing buildup in debt loads and overstretched asset valuations could have global economic repercussions" and - in modeling out the next crash, pardon "dislocation" - the IMF conducts a "scenario analysis" to illustrate how a repricing of risks could "lead to a rise in credit spreads and a fall in capital market and housing prices, derailing the economic recovery and undermining financial stability."

This section illustrates how shocks to individual credit and financial markets well within historical norms can propagate and lead to larger global impacts because of knock-on effects, a dearth of policy buffers, and extreme starting points in debt levels and asset valuations. A sudden uncoiling of compressed risk premiums, declines in asset prices, and rises in volatility would lead to a global financial downturn. With monetary policy in several advanced economies at or close to the effective lower bound, the economic consequences would be magnified by the limited scope for monetary stimulus. Indeed, monetary policy normalization would be stalled in its tracks and reversed in some cases.

The Global Macrofinancial Model documented in Vitek 2017 is used to assess the consequences of a continued buildup in debt and an extended rise in risky asset prices, from already elevated levels in some cases. This dynamic stochastic general equilibrium model covers 40 economies and features extensive macro-financial linkages—with both bank- and capital-market-based financial intermediation—as well as diverse spillover channels.

This scenario has two phases. The first phase features a continuation of low volatility and compressed spreads. Equity and housing prices continue to climb in overheated markets. As collateral values rise, bank lending conditions adjust to maintain steady loan-to-value ratios, facilitating favorable bank lending rates and more credit growth. As discussed, leverage in the nonfinancial private sector has already increased over the past decade across major advanced and emerging market economies. In the scenario, a further loosening in lending conditions, combined with low default rates and low volatility, leads investors to drift beyond their traditional risk limits as the search for yield intensifies despite increases in policy rates.

http://www.zerohedge.com/news/2017-10-22/here-imfs-global-financial-cras...

16
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That can't be right, I've been assured by National voters that Winston was talking claptrap when referring to dark clouds on the horizon and was just trying to excuse his own failure. Apparently all this talk of an economic reckoning for the debt bubble has no basis in reality.

Yes, but if the chattering classes are simply channeling the Hosk, it doesn't really include any deeper thinking of future risk. Not sure Bill English would read too deeply into this either.

Who is this Bill English guy?

Head of the New Zealand Tea Party, IIRC. At least, from recent reliance on exaggeration and untrue statements.

Just put the rent up,no shortage of takers.Gummitt happy to contribute.

That's why ive always bought on yield insted ofcapitol growth.it's a slower way to make your money but in the end your better off!!!my lowest yield is 7.8/ and that will be going up soon following up the soon to be rent increases

Has goverment put the rent supplements up???

"Just put the rent up,no shortage of takers.Gummitt happy to contribute." That is about to change,

Most investors are probably locked in for two or three years fixed so not really to much of an issue on that front and the exchange rate has been as low as it is today or lower several times over the last 12 to 18 months but interest rates stayed down. More likely that interest rates will go lower due to less demand for the stockpile of cash banks are sitting on.

Proof banks collude and rig interest rates - maybe John Key can update us on local impact of this:

http://www.theaustralian.com.au/business/financial-services/why-anz-was-...

ANZ has reached a last-minute settlement with the corporate watchdog ASIC, just as the Federal Court trial was about to begin this morning.
ASIC alleged ANZ, along with Westpac and NAB, had engaged in market manipulation and unconscionable conduct by rigging the bank bill swap reference rate (BBSW).
In particular, ANZ was accused of breaking the law on 44 occasions, from 2010 to 2012, and influencing the setting of the BBSW to "maximise its profit".
The BBSW is one of the most important interest rates in the economy, and it provides a benchmark for setting personal and commercial loan rates.
The maximum penalty for companies which breach the Corporations Act is $1 million per contravention.
ASIC is seeking financial penalties and a court declaration that the banks broke the law and engaged in unconscionable conduct.
The corporate regulator also wants the court to order that ANZ staff, involved in trading in the bank bill market, undergo a comprehensive compliance program.
ANZ's and ASIC's settlement is an "in-principle" agreement at this stage, and the parties are currently negotiating final details.
The settlement sum that ANZ needs to pay is reportedly $50 million.
The ABC has contacted both ANZ and ASIC for comment, but neither would confirm the settlement amount — or whether the bank will admit wrongdoing as part of the deal.
In the meantime, the Federal Court has stood down the hearing until Wednesday morning.
If the case against NAB and Westpac proceeds, it will be heard by the court over six weeks, an ASIC spokesperson said.
The cost of this settlement will impact ANZ's full year results (for the 2016-17 financial year), which will be released on Thursday, October 26.
ANZ's shares have risen 0.36 per cent to $30.70 at 1:05pm (AEDT).

Increase of minimum wage to ultimately $20 per hour will make it easier to put the rent up

Increase of minimum wage to ultimately $20 per hour will make it easier to put the rent up. Employers, in particular retailers, will not have the appetite to absorb these increases. All good intentions by Government but I feel in the end will result in less staff doing twice as much work and popping anti depressants just to cope! It's always a possibility that retailers might be protected somewhat by the introduction of GST for online purchases. It would be even more expensive to eat out at establishments full of $20 workers. This might be reconsidered if people are feeling less wealthy from declining or stagnant house prices (food for thought).

All my employees are on $20 and more: nek minit dey on minimum wage.

That has been the problem in the US where they put the minimum wage up - everyone else who was already being paid above the old minimum wage also demanded a pay rise, in order to reward those with skills. Its sent many businesses broke. Others are frantically replacing people with machines, which is why McDonalds now has self-ordering kiosks and robot burger flippers.

.............. the headline followed by ............ particularly if the new order removes allowances or ring-fences losses and disallows deductions from other income .

So far, I did not meet any nervous long term property investor who is worried about a bit of yield adjustment, most don't care as they have built a lot of equity in their properties and their yields are actually rising yearly ... however, they are also happy to top up their recent purchases as these are bought to hold for another 10-20 years .... According to some surveys, most serious investors are not contemplating buying in this market now ( but happy to hunt for a bargain) ...

While No one can now predict what this Gov. Will or Won't do to upset this market, I still believe that market activities will resume slowly albeit in low volumes in the next couple of weeks ...and prices of quality stock demanding ( modest) higher prices , especially 4-5 bedroom and new apartments and townhouses. Older and smaller stock will gradually return to their real values i.e. to what they were worth in 2014-2015.

Jacinda said they will build 20,000 kiwi-built homes in the first 3 years - so that is not 10,000 a year and it will only begin after setting up a commission, permits etc, meaning building would only start this time next year if all goes well !!!

DH , you were right about LVR and other tools being a two edged sword , I might add, that the possibility of tipping the market the other way is higher now because this market is almost at standstill (relatively speaking) ... any more restrictions will push it over a dangerous edge which will hurt this Gov ( and threaten its existence) in so many ways .....

Whoever just purchased a property i'm looking at renting really really hopes you are wrong about older houses returning to 2014 values. The property recently sold for a smidge over $900k, (1960s era 3 beddy on 740m2 in Mt Roskill) and was immediately listed for rent at $570/week. So if the market drops back to 2014 prices the new owner is taking a significant haircut, and the yield isn't helping in the slightest.

As you know , every house is different .... Mt Roskill is a very crowded and sought after area, if the house is in good shape and renovated recently, then it will hold its value, ... if you are holding it long term, then you have enough time to appreciate.
I was talking about lots of 1960s pigs which were splashed with some makeup and still need serious work and do up to be modernised ( like 50-100K work)... some of these were also sold up to 900k in Feb/March peak while they are on the market for 750k or less regardless what they are shown on Home.co.nz
Quality is the secrete of Value - Good luck

Pragmatist probably considers himself an "investor". But he has "invested" in a house that shows only a 3.3% gross yield. Once he has paid for rates, insurance and some maintenance he'll be losing over $20,000 pa and therefore must be relying on a capital gain to make it all worthwhile - so in that regard he is absolutely a speculator. Considering Labour/NZF's stated policies (5 year bright line test, ring fencing losses, banning sales to non-citizens and non-permanent residents and reducing immigration) his hopes of a capital gain have turned to dust.

You might want to read the comment again. Pragmatist is looking at renting the house. He/she didn’t buy it.

Correct, if a numpty property investor wants to let me live in his "million dollar mansion" for less than the interest payment on his mortgage who am I to stop him. Only downside is the possibility that at some point he'll come to his senses and realise the market is tapped out and there are no capital gains to be made and sell. Considering locking in a one year fixed term tenancy to avoid this risk short term.

Unless you know the investors balance sheet you have no idea whether he/she is a numpty or not. As an accountant I can tell you that the non-descript neighbour with the Camry could easily be sitting on $1,000,000 deposited in a Bank. It's the Audi RS driver who's more likely leveraged up the ying-yang.

Even if he paid the whole $900k in cash, he's gambling on capital gains, or doesn't realise that he would get a much better return on investing in the sharemarket even in a low risk portfolio.

I stand corrected. But my comments would still apply to the "investor" who bought the property for $900,000 and a gross yield of 3.3%. Their only motivation has to be a capital gain that now looks unlikely.

It's all relative. My gross yield on bank deposits is 2.2%. The after tax return is 1.47%. I'm likely going backwards.

With a 40% deposit he will be losing $5k max, but I'm sure he can afford it.

Might want to check your figures.. Rent after property manager and rates is about $24.5k/year. Mortgage repayments @4.7% 30y is ~33.5k. That's 9k backwards without maintenance or other expenses. So call it 12k/year backwards.

These 10 thousand homes that The coalition say they can build every year for the next 10,are they solely in Auckland or NZ wide?
Reality is that you won’t be able to build these 100m2 box’s in new subdivisions unless the government buys the land themselves.
All,the developments in Chch have Building covenants i.e. size of the house etc. and developers will get more for their sections selling to people with some money rather than people who haven’t and want to build a basic box!

Half in Auckland. Didn't say where the other half will be.

Let us see how regional development works.

It would be good for New Zealand to have better offerings in the regions so that Auckland is not the only game for younger people. With the excess demand gone, we can shelve/delay all of the expensive infrastructure plans and enjoy what we have.

They dont need to go in new subdivisions. You only need to buy an old house on a quarter acre section in the suburbs, and you can put a building with 30 apartments on it. Welcome to development, Australia style.

No need to pull the plug on LVRs just yet. Hold investor's feet to the fire and let markets drop another 10-15%. They've done that since the 2016 peak and the world hasn't ended.

Then at that level, a strong FHB bid (cumulative wall of buyers who have missed out over the past few years) will emerge to put a floor under the market.

Any premature intervention to prop up the market would be counterproductive. What we actually want is motivated/distressed investors selling to FHBs.

Excellent post

Given the many NZers see property investment as a way to secure a comfortable retirement and thus have invested their savings in property, which has helped drive up property prices, there is an economic and political risk in addressing the housing crisis in a manner that reduces house prices significantly. An alternative to housing as a retirement plan that NZers feel psychologically comfortable with would thus appear to be a good idea. E.g. Why not make investing in a superannuation funds (as is the case in Australia) compulsory and clearly demonstrating how this will provide a comfortable retirement? And/or introducing a capital gains tax and contributing at least part of this to the Cullen fund?

The problem with using property as a retirement fund, especially as just about anyone who can, does, is that it requires a constant supply of people who cannot buy to provide for them and as we move on through to a system that requires people to provide for their own retirement, so wider and wider gaps will appear in things. I still think that some sort of universal pension is still the best way to go, especially as Kiwisaver is not guaranteed, it could end in tears, so its no surprise that those who can elect something tangible.
Also, if technology and robotics deliver what we all suspect, in the future, we are going to have to address the need for some sort of UBI, which, of course, will include older people, the whole argument will become moot.

I think rental will remain strong, if house prices were to 'drop', providing Auckland remains strong for employment prospects, demand for temporary accommodation will be strong. Investors who will likely hold for the long term will likely do OK as demand for rentals will only increase. Will home owners want to trade up in this market or hold on if they have seen their share in the house drop? Would you expect a limited supply to have artificially hold prices higher?
Will home affordability change in realistic terms if banks require a larger deposit to counter falling prices?

When too many invested in the sharemarket it crashed. Now we have far too many invested in rentals.

A lot of people who swore off shares because they got greedy and stupid with Goldcorp and Ariadne and fell on their arses in 1987 are about to belatedly realise that they've pulled exactly the same boneheaded trick with rentals.

Kakapo it would have been better if they had actually diversified and held both shares and property. Shares have done well since the 87 crash and have actually done extraordinarily well since the GFC. Receiving those dividends every six months with imputation credits often attached is great when you are retired.

Factors supporting the housing market:

• rising incomes - not for a long time
• falling interest rates - not for a while, possibly heading up
• rampant population growth - likely to slow

So we have already seen TradeMe listings jump back above 10,000. There will be a lot more properties heading on there over the spring but how many will come off?

For a year people on this site have said wait for Chinese New Year, wait for the election, it was rainy this month. There are no more lights at the end of the tunnel.

The market is already falling, it will only take a small increase in sales to increase the pace of decline. I’m not picking a 40% fall but a 10%-20% fall in REAL terms over the next three years is very likely, almost a certainty.

Add to that a ban on Foreign Buyers and Bingo Demand falling off a cliff

Pragmatist probably considers himself an "investor". But he has "invested" in a house that shows only a 3.3% gross yield. Once he has paid for rates, insurance and some maintenance he'll be losing over $20,000 pa and therefore must be relying on a capital gain to make it all worthwhile - so in that regard he is absolutely a speculator. Considering Labour/NZF's stated policies (5 year bright line test, ring fencing losses, banning sales to non-citizens and non-permanent residents and reducing immigration) his hopes of a capital gain have turned to dust.

My money is not in the property ponzi scheme, mine is "safe as houses" in diversified sharemarket funds. IMO the Auckland property market is a grenade with the pin pulled, just waiting for the timer to expire. Those long term investors with good equity and reasonable yields will survive and shrug it off, but those that are just joining the airplane game are about to have their wings clipped.

Personally, IMO this is all just wild speculation, because there are so many variables and factors affecting the NZ housing "market" that any predictions can only ever be weak at best.

Average houses are over priced against a average salaries and Kiwi's have more household debt than is usually considered healthy for a developed economy. But that doesn't necessarily mean there will be a big crash, or widespread financial disaster because there are so many other factors at play, and not all of them rational, predictable or even controllable.

The spending habits of retiree's have minimal impact on any developed economy, because retiree spending habits are very predictable. Retiree's spend moderately compared to any other stage of life, so let's stop fretting about how much wealth baby boomers may or may not lose. In all likelihood, if house prices dipped, yes, on paper they would lose some wealth temporarily, but they are likely not to be playing fast and lose with their retirement assets anyway, so if they are renting out that house, they will be going long on it anyway. If they were planning to sell and realise capital gains, to reinvest elsewhere, then what's the worst likely case scenario? They lose 100/200k absolute MAX. But overall still have a HUGE wad of cash? Diddums. They'll be fine too.

Working age adults are the spendy demographic, a large chunk of them are renting, locked out by high house prices, so if house prices did come down some, then they would buy houses rather than rent, so feel wealthier, have a smaller mortgage and then feel inclined to spend more. These are very predictable demographic behaviours repeated decade after decade the world over.

So a great deal of the wealth that MIGHT be lost to the boomers, would be a benefit to the younger generations, who would then become more wealthy and their spending habits would offset some of detrimental effects elsewhere. The economy is a system, it is super silly to look at single factors in isolation. And i'm just mentioning one factor. There are many many more that will effect for good and bad.

In all likelihood though we won't be talking about anything like an extreme crash, a more likely scenario is that houses dip in value some, and then flatten out for ages. But because values are so extreme, even a dip of 100-200k would still leave anyone that bought a few years ago, with some equity. Many experts say that emigration has peaked for now, Chinese and Oz economies are past their peak in the cycle, so no boost to be found for NZ there. So there will be some weakness for a bit and then it will all start all over again, to a greater or lesser degree regardless of what Labour/NZF + Green's do.

There is a house building & infrastructure problem, in addition to the house price/asset bubble problem. There is clearly price fixing going on and construction companies are not subject to anything like the competition that you would ideally like to see driving innovation and fair pricing. So we need governments to address that sort of thing. If they can bring down house building costs, via economies of scale and long term projects, maybe that will in some way address some of that problem. Ie if NZ construction companies have to compete with government builds, but that isn't a guarantee. It could just be a big flop. I voted Labour this time, but even I acknowledge there are flaws in policy. I'm not some kind of blind, fundamentalist commie. Labour gov aren't even very left anyway, so those insinuations are very silly. There were flaws in all the parties policies, there are flaws in the "capitalism" and market forces supposedly given free reign in NZ (*hint* there are no genuinely free markets in NZ, they are all totally skewed by corruption, monopoly and government intervention).

National did not solve the housing crisis that they campaigned on in 2007. And they denied it even existed for most of the last 9 years. Labour/NZF now also campaigned on housing crisis, and they may or may not contribute anything positive to the problem. They may cause it to worsen like National did (but via other interventions) honestly, I have no idea how these policies will play out, but I sure as s#%t know that Nationals policies didn't work, so i'm game for someone else to try a different approach. If it all goes horribly wrong well, National will be back in in 3 years times.

People need to chill on the political extremism and cheap stereotypes.

Really enjoyable read, should be posted as an article on this site, better than 3/4 of what they put up.

Great post.

Agree entirely.Well said!