A test of Govt's resolve on housing

David Hargreaves argues that the Government needs to commit 'all in' to the Kiwibuild programme to ensure our chronic housing shortage is resolved

18th Jun 18, 1:07pm by David Hargreaves

By David Hargreaves

It is very easy to talk about building loads of new houses when the economy's strong and the house market is roaring along.

Such was the situation in New Zealand only two years ago.

Now the fledgling Coalition Government looks like having a fairly big test of character over the Labour-led inititative to construct 100,000 Kiwibuild houses over a 10 year period, with half of these in Auckland.

At the time Kiwibuild was promulgated, with Labour in Opposition, we did have the aforementioned strong economy and roaring house market - particularly in Auckland.

While the economy would not be classified now as anything like a basket case, it is slowing. The anticipation is that GDP may come in at about 2.8% when released by Statistics New Zealand on Thursday. That's not bad but it that's what it turns out to be it could be the slowest pace in nearly four years.

More worryingly perhaps is the fact that the knock to business confidence surveys seen by the formation of the Coalition Government toward the end of last year has not really recovered.

Whatever your view on these surveys - and personally I have a healthy scepticism - there is the concern that they can become self-fulfilling. The only truly relevant thing from my perspective to look at in these confidence surveys are the intentions of businesses regarding their own business. And here the confidence has been knocked too. And obviously that does become self-fulfilling.

So, add to that mix the potential for GDP figures showing a slowing trend and this could further knock confidence.

Construction clearly is one area that could be knocked about by a slowng economy and of perceptions among the business community that things will get slower. The investment lead times are such that if the crystal ball is looking a bit murky two years ahead then there can easily be an inclination to pull back on construction plans.

Add in to this mix the fact that the housing market is now well off the boil. This itself could naturally potentially act as a dampener for those thinking of housing developments depending on how the likely market direction for the next year or two is viewed.

Then you've got the rising interest rate environment coming through from the US (although not showing any sign of being picked up here yet) and then the continued worries of global upheavals, not least the threat of out and out trade wars.

What all this means is that where a few years back it was a no-brainer to build more houses, now you would really have to think about it from a commercial perspective.

Not the time for just thinking

But with Auckland in particularly some tens of thousands short of houses, this ain't the time for thinking.

With the exception of a picky, picky Opposition (that has suddenly found a voice on the housing market and even acknowledges a crisis it denied for years), nobody expected that Kiwibuild could magically produce thousands of houses overnight.

People do want to see movements in the right direction though.

And taken at face value, Housing and Urban Development Minister Phil Twyford's announcement last week in regard to the Kiwibuild 'buying off the plans' initiative (effectively an underwriting scheme) that "almost 100" proposals have been received from developers in response to the tender conducted by the Government, looked encouraging.

But we will need to see how many of those proposals actually pass muster once they've been properly assessed and how many houses might result.

Remember, the Information for would-be applicants that was prepared by the Ministry of Business, Innovation & Employment (MBIE) outlined the following targets for the new underwriting scheme:

800 Kiwibuild dwellings in Financial Year 2019;
2,500 Kiwibuild dwellings in Financial Year 2020; and
4,000 Kiwibuild dwellings in Financial Year 2021.

So, according to those documents, about 80% of the 1,000 Kiwibuild homes planned for the 2019 financial year would come from the Buying off the Plans Scheme.

Across the first three years of Kiwibuild some 7,300 of the 16,000 planned homes would therefore come from this initiative. Twyford's response last week though was that in total the Government had received proposals that "could result in anything up to a few thousand new homes”.

The number of houses that might result from the initiative in 2019 (given that the stated target was 800), was "several hundred".

Taking up the slack

A key question that immediately comes to mind in this, is to what extent might we end up with a situation in which builders simply rebadge existing proposals in order to include some Kiwibuild homes. The advantage for them of course is that they get an underwrite from the taxpayer and the fact they've got that underwrite will likely make it easier for them to get financing from the bank - which is proving problematic, with banks having tightened lending criteria considerably.

So, the real question, as it has really been from when Kiwibuild was launched, is to what extent will it simply absorb all the building activity.

My guess would be that with the falling business confidence and signs of the economy cooling, this is now likely to happen to a bigger extent than might have been the case if things remained buoyant, particulary as the house market is currently subdued though hardly ailing.

Clearly the intention for Kiwibuild is to be an adjunct, to supplement the amount of houses being built with more, and affordable, options.

If it simply ends up replacing existing activity, with no increase in the rate of building activity (and I think this is now more and more of a risk) then we will not be much better off at the end of it.

When $2 billion is not enough

When the Government announced it was tipping in $2 billion to Kiwibuild, this sounded like quite a lot of money.

In reality it isn't and Ministry of Business, Innovation, and Employment officials in calling for tenders for the 'buying off the plans' initiative conceded that there wasn't enough money for the Government to buid all the houses itself.

Tywford has said the $2 billion will be recycled as houses are developed and sold.

But, in a quieter market that might not be as easy done as said.

I think if people have confidence that the Kiwibuild programme has proper backing and momentum then this will feed through confidence into the entire economy and particularly the construction sector.

That's why I think even at this early stage that the whole thing is at something of a crossroads and that the Government should go "all in" and make considerably more money than that $2 billion available (double the amount, at least) and perhaps even increase the number of targeted houses beyond that 100,000 figure.

The concern would be that this is absolutely the wrong time for any kind of 'pause' in construction momentum.

Auckland is suffering

In general terms the Auckland market is suffering now from the fact that a 'pause' in the mid-2000s in terms of the rate of construction was then followed by everyone sprinting in the general direction of 'away' after the 2008 Global Financial Crisis. Then you got the migration boom and that helped dig the big hole that the Auckland housing market is now in.

I don't think Auckland and the country as a whole can afford a situation where, faced with some uncertainty right now, we see the construction sector back right off again.

The housing market will come again, don't worry about that. Particularly when and if the artificial loan to value ratio restrictions put in place by the Reserve Bank are lifted. If we go into the next serious upturn with Auckland 40,000 or 50,000 or 60,000 houses short then things could be far worse even than we've just witnessed.

If the private sector can't look through the 'cycles' and produce a steady flow of new houses (and history would suggest it tends not to) then the Government must.

But equally, we taxpayers have to be prepared to foot for some reasonably serious financial damage while all this is taking place.

I don't think we've got much choice.

Relying on 'the market' has put us where we are now

The vagaries of relying totally on 'the market' to provide the solution have put us in the situation we are now in.

The Government can stabilise the slightly faltering start Kiwibuild has had by fully committing to the initiative.

Twyford is clearly fully committed. I'm not sure the whole of the Government is.

Any backdown or faltering on commitment to Kiwibuild now could have quite bad repercussions down the track.

There's likely to be a big bill to pay for removing our housing shortage. But I think we have to pay. Otherwise we will pay a social price down the track.

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90 Comments

by RickStrauss | 18th Jun 18, 1:17pm 1529284630

Good article, cheers.

by Boatman | 18th Jun 18, 8:59pm 1529312392

We need to rid ourselves of this hopeless Government ASAP

by Zack Brando | 18th Jun 18, 11:42pm 1529322141

Don't know about that one, National don't look like a party ready to govern - let alone form a coalition. TOP really needed to be in there - big opportunity missed by Kiwi's there .. or as your people like to say, 'at least 3 more years guaranteed worth of loopholes to avoid the greedy government taking my hard earned capital gains'.

by NorthernLights | 19th Jun 18, 4:06am 1529338014

Worry not for the Chinese are about to invest in NZ infrastructure
NZs governance by all parties over the decades has been inadequate Thus Watch China implement through consultation of course.
You want houses ? China can ship you prefab housing at all price points
Get with the new paradigm it’s China 1st USA 2nd

by The_4th_estate | 19th Jun 18, 12:54pm 1529369685

Well they have proven very adept at shipping vast amounts of meth to NZ so prefab houses should be a doddle.

by Zack Brando | 19th Jun 18, 2:45pm 1529376318

Sounds amazing.

by saving_for_aus… | 19th Jun 18, 3:42pm 1529379763

Get with the new paradigm it’s China 1st USA 2nd

People used to say that about Japan in the 80s. They ate their words - and so will the China spruikers.

by kpnuts | 18th Jun 18, 1:31pm 1529285498

Thanks David - you sum up many of the issues very well - and yes many developers are simply re badging existing plans and builds to fit the ITP - hence why they wont announce anything except they have had a lot of responses - hardly surprising to a proposal underwriting your entire development and removing all the risk!

Buying off the plan, buying and leasing existing motels, having providers move their properties into government funded schemes or funding CHP's to provide more housing may add to government stock but only at the expense of private landlords - and whilst many may argue that is a good thing - it does not contribute to increasing the overall stock or the numbers that would have been built without Kiwibuild.

It would make far more sense - to invest some of this energy into some options that might just might reduce the gap between houses needed and houses being built for example

1. First turn off the tap of all non essential immigration - it was promised but no traction yet - reduce demand reduce the GAP
2. If we must have immigration - make it builders, tradies, nurses, teachers, doctors - real skill shortages we need - will increase capacity more than it increases demand on our infrastructure
3. Get all those fit and healthy people off WINZ - into apprenticeships or filling teh many vacancies in teh building industry - increases capacity and frees up much needed money for public services
4. free up land and reduce red tape - no brainer - its a nightmare consenting anythign in auckland
5. PRE FAB units - its easy , being done all over the world - so lets do it here - use the money to kick start some major pre fab factories - - this does mean we could build far more units with the same workforce in a faster time
6. break the duopoly on building materials - drastically reduce material costs - reduce house prices - incease demand - make more builds viable

there are more i am sure - but the current methodology ( generous wording) of buying and transferring ownership will not increasing the number of builds by 1000 a year never mind 10,000

by Fritz | 18th Jun 18, 2:18pm 1529288304

Labour said a year or two back they would build a prefab factory somewhere in the Bay of Plenty. What happened to that idea?

by kiwi_overseas | 18th Jun 18, 4:05pm 1529294727

1. Yes - bring immigration down to something sustainable
2. Yes
3. No. We run a monetary policy that runs on price stability and required a % of the population to be unemployed, full stop. There is very little we can do to change the net number of unemployed except make sure the employment market is relatively open.
4. Yes. Reform the RMA and remove zoning & go effects based as the RMA is meant to be.
5. Yes, if the market is big enough.
6. Yes

by Roger Witherspoon | 18th Jun 18, 4:55pm 1529297738

We do not have a monetary policy based on price stability. We have a deceptive, even fraudulent, policy of 2% currency debasement per annum. We have been sold a lie on that one. We are told that is because it would be worse if we had a 0% target, but all that has happened is the interest rates have come down in order that our indebtedness may balloon. Tis a mess.

by kiwi_overseas | 18th Jun 18, 5:23pm 1529299380

I don't disagree that a 0% inflation rate would give us true price stability, however it would mean:
a) Higher short term interest rates
b) Higher unemployment
c) Higher risk of entering deflationary periods

by Yankiwi | 18th Jun 18, 9:55pm 1529315732

Not sure that b) follows... but the other elements sound quite good to me.

by Roger Witherspoon | 19th Jun 18, 1:54pm 1529373253

Higher short term interest rates = less expensive houses.

by Fritz | 18th Jun 18, 1:53pm 1529286836

If, like me, you think the building of much more houses at lower price points is much more important than total housing supply, then you shouldn't worry about some housing already contemplated for the open market going to Kiwibuild

by Grendel | 18th Jun 18, 2:06pm 1529287599

The point is that's not happening. The houses that would have been build anyway are just getting branded as Kiwibuild. So not only do we end up with the same number of houses (which isn't enough) the tax payer is taking all the risk. The whole thing is backwards and is wasting our time, money and effort in the process.

by Fritz | 18th Jun 18, 2:13pm 1529288000

How can we know the houses would have been built? If they were, they would be at price points much higher than 600k for 2 bedroom townhouses.
With the govt backing, developers can proceed with much greater confidence. They will hence tolerate a lower profit margin and be able to realise housing at lower prices.

by Grendel | 18th Jun 18, 3:52pm 1529293921

Ok Fritz, same question, how do you know they will drop there profit margins? There is no incentive too do that at all.

As for the question on how do we know they were would have been build originally? They had campaigned on actually building houses, the line was clear then (or at least les blurred). Now they can just call anything Kiwibuild, its ridiculous.

by Didge | 18th Jun 18, 5:09pm 1529298574

If enough houses get built who apart from property spruikers and other vested interests gives a rat's derrier.

by Grendel | 18th Jun 18, 6:08pm 1529302115

You really should read the whole thread not just jump into the last comment. My whole point is exactly that if they are not careful we won't have built more houses and instead have wasted money giving it to spruiker and other vested interest.

by kpnuts | 18th Jun 18, 5:41pm 1529300486

Ye i understand that you cannot know for sure what would or would not have happened in the future - but what we do know for sure is that the building industry has been working flat our for several years now - that they are crying out for more and more tradesman, apprentices and hammer hands - we also know that if you want a few cubes of concrete delivered to lay a pad for a new house - make sure you order well in advance as there is often an 8 week lead in minimum

And try to find an electrician or plumber to come and fit out a new bathroom or similar - you cant without a few weeks delay -

And tolerate a lower profit margin - please comedy night is Fridays - having a guaranteed purchaser at a fixed price -aka kiwibuild means you can build smaller lower spec properties knowing the price has nothing to do with the market and increase margins nicely alongside your reduced risk profile!

by Kumbel | 18th Jun 18, 4:32pm 1529296358

No dangers there, Fritz. Any government that fixes land supply commits instant political suicide.

I don't doubt for one second Twyford's sincerity but, by itself, Kiwibuild is little more than a band-aid. A way better band-aid than Nick Smith's National Policy Statement (btw anyone know how that's working out?) but a band-aid just the same.

If we were witnessing a genuine attempt to fix the housing market dysfunction we would already have seen the government take a hard look at how councils invert the RMA turning liberal legislation into highly restrictive district plans.

by Grendel | 18th Jun 18, 4:51pm 1529297482

I couldn't agree more. I too genuinely believed they want to improve the situation and would be overjoyed if I had to eat my word now if they do. But like you said I just haven't seen anything from this government that look like it will actually do anything in the long run. I hope I'm wrong, I really, really hope I'm wrong but I won't put blind faith into anything especially not politicians and there campaign promises

by unaha-closp | 18th Jun 18, 1:58pm 1529287126

The housing market will come again, don't worry about that.

In much less ebullient form and at fire sale pricing.

If we go into the next serious upturn with Auckland 40,000 or 50,000 or 60,000 houses short then things could be far worse even than we've just witnessed.

You've got that wrong. The pain will arrive far before the next up turn, because in any constrained financial phase everyone will be looking at their bottom line and compare rental costs. Auckland has been the sick child of Australasian construction rates for a decade now. Rental costs are highly overpriced in Auckland, because it did not build much.

The rest of Australasia had a record breaking building phase.

Everyone is going to leave, because everywhere away from Auckland will have better value rental costs.

by Fritz | 18th Jun 18, 2:16pm 1529288202

'Everyone is going to leave...'
I think that will be part of it. People will only have so much tolerance for Auckland's cost of living. Rest of New Zealand and Australia as options, hell I even know some people considering London as a more affordable option!

by Malarkey | 18th Jun 18, 5:34pm 1529300096

Almost everywhere else on the planet is more affordable than Auckland and NZ in general.

by Brock Landers | 18th Jun 18, 9:05pm 1529312731

Everyone has been leaving Auckland for some time now. It's just been hidden by 'net' migration figures as the kiwi population is replaced.

by Nic Johnson | 18th Jun 18, 10:12pm 1529316728

where are the kiwi's going Brock? Kapiti Island perhaps? where it's still safe from foreign invaders?

by Yankiwi | 18th Jun 18, 10:04pm 1529316255

I went to an event here in Hawkes Bay a couple of days ago. Ended up seated with a bunch of ex-Awklanders that moved here in the last couple of years. Amazing, three couples, all with rather disparaging views of what Auckland has become, and all quite pleased that they have moved to a happier location. I suspect a bit of the converse of survivor bias in their views... It is clear that we in Hawkes Bay have had a rather large influx from Auckland. Maybe the NIMBYs here may be able to forbid future JAFA incursions... :) it appears to be a more likely result than foreign purchase restrictions!

by Nic Johnson | 18th Jun 18, 10:41pm 1529318513

What tends to happen is that everyone is more than happy to take the foreign money - so long as they can move somewhere else..... where there are less foreigners...

NZ welcome to the 21st century>>>how much of it do you want?

by unaha-closp | 18th Jun 18, 2:17pm 1529288248

The vagaries of relying totally on 'the market' to provide the solution have put us in the situation we are now in.

Nope. In a functioning market a larger city with 10x the population of a smaller city will gain an economy of scale advantage and build much faster. In NZ homes get built about 50% faster in Tauranga than in Auckland. This is very much not a market problem.

This is an Auckland Council generated problem. Taxpayers have had nothing to do with it and any money we offer will be subject to the colossal mismanagement of Auckland Council .

by JimboJones | 18th Jun 18, 2:49pm 1529290191

To be fair its much easier to build on large flat sections than space constrained sloping ones. I would imagine most houses in Tauranga are single story off the shelf houses that require 400m2 sections minimum.

by unaha-closp | 18th Jun 18, 3:53pm 1529294030

That is hardly fair, the new suburbs of Tauranga are hilly apart from Papamoa.

Imagine if Tauranga banned building in Papamoa.

by Davo36 | 18th Jun 18, 6:48pm 1529304526

I was going to quote that line too. Utterly wrong.

IF WE HAD A HOUSING MARKET, then that statement would be wrong. But we don't as you say, Auckland Council have done everything they can to stop development over the last 20 years.

by Nic Johnson | 18th Jun 18, 10:16pm 1529316966

Davo36 you're right..... 100% Auckland Council attitude to housing for the last 20 years and National Housing attitude for the last 10 years has been 100% WONG.

by BuyLowSellHigh | 18th Jun 18, 2:24pm 1529288666

Last year Shamubeel Eaqub said "I fully expect a construction bust next year. We are going to have a construction bust before we have a housing bust". Maybe he will be right - there's a first time for everything.

https://pro.newsroom.co.nz/articles/1616-new-zealand-s-missing-500-000-…

by Retired-Poppy | 18th Jun 18, 2:42pm 1529289779

Hmmmm - headline should read "New Zealand's missing 500,000 affordably priced houses"

by BuyLowSellHigh | 18th Jun 18, 10:10pm 1529316613

Better typology choice might be the only tangible benefit of kiwibuild - I doubt it will result in many new houses that wouldn’t have been built anyway, but at least the ones that are built under the programme will be small, terraced, cheap(er).

by JimboJones | 18th Jun 18, 2:46pm 1529289967

"nobody expected that Kiwibuild could magically produce thousands of houses overnight" - except Hosking and other idiots who think 100,000 over ten years means 10,000 in the first year. Does this also mean they should have built 27 houses on their first day in power?

by THE MAN 2 | 18th Jun 18, 3:05pm 1529291120

Jimbo, you are kidding aren’t you?
They have finished none, zero and nothing in the pipeline!
Unitec land development is so far away if it ever gets off the ground, and it won’t be the way Twyford says!

by JimboJones | 18th Jun 18, 3:14pm 1529291696

I imagine they have much more grand plans than building the odd house here and there like Nick Smith tried. To design and contract large scale housing developments takes much longer than 9 months.

by Houses Overpriced | 18th Jun 18, 3:33pm 1529292790

That's exactly the point, hence it's surprising that so called property experts can't get that fact.

by theglc | 18th Jun 18, 3:40pm 1529293224

"so called property experts"

They are no such thing, just Nat supporters that havnt gotten over their crushing loss, similar to the Democrats in the US.

Maybe it was the Russians... hahahahaha hahaha

by Houses Overpriced | 18th Jun 18, 3:56pm 1529294181

If you didn't pick it up, I was being cynical

by Grendel | 18th Jun 18, 4:40pm 1529296837

You have to spell out a lot of things to theglc.

by Houses Overpriced | 18th Jun 18, 4:45pm 1529297124

If thelgc didn't pick it up, I doubt you would have. .

by Grendel | 18th Jun 18, 5:01pm 1529298070

Yes but that's because I disregarded your comment by default now. Efficiency is they key here.

by Houses Overpriced | 18th Jun 18, 5:04pm 1529298241

What a dud, did you not realize you replied to my earlier comment. Clearly shows you've lost it

by Grendel | 18th Jun 18, 6:02pm 1529301746

=) Wow what a lame response. I'll let you try again.

by Houses Overpriced | 18th Jun 18, 6:06pm 1529302009

Haha loser

by Double-GZ | 18th Jun 18, 7:22pm 1529306539

Stop the childish comments - you are both losers!!

by Houses Overpriced | 18th Jun 18, 7:30pm 1529307009

Ggz. You must be quite thick skinned to always butt your head in..lolz

by Zachary Smith | 18th Jun 18, 10:52pm 1529319160

Grendel did make me laugh. Houses Overpriced not so much.

by Houses Overpriced | 19th Jun 18, 6:24am 1529346275

I'm glad I at least brought a smile :)

by Mrs The Point | 19th Jun 18, 12:28am 1529324933

Shanghai Surprise thinks he is the Intrest.co.nz police. Must be the CCCP rubbing off on him.

by kpnuts | 18th Jun 18, 7:24pm 1529306667

Agreed , but after 9 years shouting about the crisis it was reasonable to expect them to have a few ideas and solutions already in place, goodness knows they had plenty of time - wasted plenty of money in focus groups and working parties and given how completely ineffectual they were in opposition - obviously had plenty of time on there hands.

The frustrations that are growing are not purely political or ideological - they are more around the fact that after 9 years in opposition and 8 in government we have a total of 18 houses started ( which were already consented to a failed developer) the revamp of the Unitec development so well thought out that we still dont know if its 3000 or 4000 units - no real change in immigration and a country about to be plagued by multiple strikes - none of which is actually doing anything to sure the crisis

by gordon | 18th Jun 18, 4:35pm 1529296542

It is interesting to see how angry the National supporters have got on this site. I suspect their anger is just a mask for their rising fear. Fear that housing is losing its gloss in New Zealand. Realising that they should have diversified.

by Roger Witherspoon | 18th Jun 18, 4:48pm 1529297329

The problem I have with Kiwi build is even if the government can actually get things built (which is a much bigger if than I think they realise) then you still have the problem that their building will just substitute for private sector building. So exactly the same number of houses get built, at exactly the same prices.

The only way I see that not happening is if the government keeps building through the next recession when private sector building would normally stop. This has the added advantage of increasing the pool of skilled builders.

The problem as I see it is maximum indebtedness.The banks have lent the populace the maximum they can handle, so now we fall into the trap of getting the government deeper into debt too. 1970s replay.

How to cut the Giordian Debt Knot?

by THE MAN 2 | 18th Jun 18, 5:05pm 1529298332

Pointless debating anything with people with their heads in the sand.
Which part of none or zero or zilch do some of you not understand?
KiwiBuild is no such thing and the policies that you were sucked into so you could buy your first home in Auckland for 550k is not going to happen, now or anytime in the future.
The longer you put it off waiting for a 40m2 shoebox apartment, the worse you will be off financially.
How do you expect that even if they were built, how are they going to hold their value with so many of them????

by Nic Johnson | 18th Jun 18, 5:35pm 1529300104

Do you ever read what you write before posting?

None of it matters, the housing crisis is largely a made up non-reality by the spruikers and interests that hold all the debt.. They are now so deep in the mire that they have had to manipulate the media to encourage First Home Buyers into the debt trap (through fear) that they stupidly entered/or funded whilst competing with hot foreign money.

The housing issue is merely an allocation issue caused by a debt bubble. A lot of the housing problems will be sorted as highly leveraged speculators go bust, losing their underutilised family homes that will be returned to the market (where previously they were just being re-mortgaged - now they become available for purchasing). Some of these foolish people may ultimately ease their pain by reducing their exposures and moving into the final rental they own. For many that will be the 40m shoe box they thought was a good idea at $600,000. The moral of the story, never visit a casino controlled by the Chinese.

Good luck TM2

by kpnuts | 18th Jun 18, 5:53pm 1529301227

If it was simply an allocation issue - the government could solve it tomorrow - simply borrow and buy every empty property and reallocate it to someone who is homeless, has no permanent housing, is living in the garage, or sharing with other families - but its not - there are not enough houses compared with the number of people living in New Zealand - when you use a sensible multiple to work out one household per one accommodation unit

Spend some time trying to find a rental property not just in Auckland - but in Tauranga, hamilton Tokoroa, Taupo - in fact any small town across the North Island and many more in the South - its often three or four rentals and 50 applicants on an Agency books -

there are empty properties - and the government could find a means to tax those in a way to make people rent/sell them - but there is simply not enough of them to solve the problem -

we need to be thinking how to build smarter / faster not simply carrying on the same as before -

by Nic Johnson | 18th Jun 18, 9:40pm 1529314807

Allocation is a large part of the problem.. Let me explain further.

There are currently several hundred thousand baby-boomers who have borrowed money to get into buy-to-let. Many on the assumption that it would improve their retirement position (those endless capital gains that we were seeing during the credit boom) to help to pay down the big mortgages that a large number of them are carrying on the family home into their 60's. Sadly a large proportion of these people did this in the last 5 years on the back of the hype. In previous generations if you got to 60 and wanted to consider retiring, you'd sell the family home (a bigger property with 4-5 beds) and downsize, ie 2 people underutilising a big home move to something smaller, reduce mortgage/get cash out. During the debt bubble these houses have come to the market far less frequently (they were re-mortgaged for deposits instead) and for a while have artificially inflated in price because of low supply. (and a bit of foreign buying).

Now what we have is a market where the bottom end has gone up (pressure from buy to let and First home buyers) and the top end that did go up (well it didn't really but a lot of people borrowed a lot of money when the banks told them it had gone up) is now falling (not many actually have more than $1,000,000 now the banks are having to be sensible on lending).... Now the baby boomers are all getting closer to retirement and now that we are at the end of the cycle they will either want to cash out of the family home (which is still mortgaged) or sell the investment property (to help the mortgage on the family home). What they don't realise yet is that the gains on the buy-to-let home (made over several years) have recently been off-set by losses on the main family home... There are now more of those available and the conditions are very much different. So what do you do..... Keep working? Take the credit risk and significant interest rate risks.

I would posture that over the coming months the losses on the bigger family home will exceed the perceived gains on the investment purchase, both will go into sharp decline..... The debt is still there however and retirement gets ever closer.... This could last for years so what do you do. Sell the 4/5 bed home and downsize to the smaller property..... And hopefully you've not lost too much in the process..

Either way, part of the allocation problem we have, ie.the bigger houses not being available to buy (fit more people into) is going to change...and they are about to get significantly cheaper as they are in Australia. It all depends on how quick the rush for the exit is.

Addendum. Retirement on income alone with no capital is a very limiting existence.

by Rex Pat | 18th Jun 18, 6:26pm 1529303202

Nice hypothesis. Morgan tried the same logic in his retirement book. Spectacularly wrong in his case. Where are the facts to back it up? The leveraged ones I see are peak earners in their 40s, not boomers. You’re dreaming if you think an oldie is going to cough up the house you want. They’re more likely to have every spare room filled with cr@p and will move into a retirement home about 18 months before they cark it.

by Nic Johnson | 18th Jun 18, 9:41pm 1529314883

Rex.. You seem to think it will be a matter of choice.. It won't be, refinancing of interest only debt, Refinancing of high Loan to value debt, refinancing full stop is going to be a lot more difficult and for many a lot more expensive. It matters not to me..
I'm just trying to explain how it's going to play out in the upcoming credit crunch... You can thank the Aussie banks, seriously did people really think that a house value could de-couple so far from incomes without the assistance of a massive credit boom. What's funny is how little equity many of the 40 year olds have, there won't be many of them able to trade up to get the boomers out of the hole because they are already in a hole themselves (or will never be responsible enough anyway to be leant the money). Guess we'll see how many 50 -60 year olds have pickled themselves refinancing when everything was on the up and bank debt fell from the sky like confetti.

by kpnuts | 18th Jun 18, 7:01pm 1529305286

interesting thoughts - but hardly likely to make a critical difference - as those large families already exist and are staying in smaller homes - not too dissimilar in size form those the baby boomers will reportedly downsize too -

it still wont change the number of households too much - although a redistribution on the lines described would improve living standards for some over crowded families - but it does not create more homes

And regards the cost of homes - even if they were reduced to 100K each - and a maximum price put on them - there is still not enough to go around at any price - even free - no one in a home would give it up - and all those without a home - all those arriving, all those growing up wanting to leave the nest and set up their own household - would still be unable to puchase a home - not due to cost - but simply because there would be no empty homes and not enough new homes to cater for the demand -

by Shoreman | 18th Jun 18, 8:47pm 1529311665

I don't understand why people like yourself get so wound up about property. If it's not your thing fine let it go the market doesn't care about anyone's opinion, it's like you have an axe to grind. Maybe it annoys you other people have made money on it good on them just lead your own life and relax.

by gordon | 18th Jun 18, 6:21pm 1529302914

How many houses did National build in their nine years? Zilch. Did National admit New Zealand had a housing problem? No. Labour only has to build one house during their time in power in order to prove they are a more caring and honest government than National ever was. I think they will be able to do just that.

by THE MAN 2 | 18th Jun 18, 7:11pm 1529305886

Nic Johnson, you are surely dreaming?
Have you got any success in predicting anything correctly?
You are so far off the mark and just because you wish for something doesn’t mean you will get it!
In your cAse it isn’t going to happen and you are totally wasting your time continuing on this line of thinking.

In my case Nic, I have got absolutely no problems being invested in housing as our returns are great, our equity is great and our income is great!!

by Nic Johnson | 18th Jun 18, 7:41pm 1529307704

So you have no need to worry TM2. But I love that you have to tell me how great your returns are, how great your equity is and how great your income is....Its great to be you I guess

you sound a bit like Donald Trump though....'It's going to be great, probably the greatest piece of great that I've ever had'

All sounds great, but will be a reducing 'great' for the foreseeable....

by Chessmaster | 18th Jun 18, 8:49pm 1529311775

Nic, Do you ever say anything different?! I noted your comments on stuff as well, funny you use the same name and your comments are exactly same conspiracy theories and debt bubble talk. This is a will written article backed by some facts. We do a have a shortage of properties and this dumb Kiwibuild is not going to solve anything. It's not money launderers or overseas buyers wrecking for Auckland more but families needing homes and paying asking prices for the limited supply.

by Nic Johnson | 18th Jun 18, 9:32pm 1529314320

Good to hear from Cheesy... Have you been able to read and understand what I have written above, well done, those foreign language courses are paying off.... I wasn't sure if your grasp of the English language would extend to more than 2 paragraphs?

Given our previous exchanges I think that you probably belong on Stuff though where my offerings are toned down for a different type of readership.. Smaller words there, Monsieur Fromage, and more sponsorship by the real estate industry and banks... you'll be more at home on STUFF, I fear that you won't understand the theories, data and hypothesis that I post here.

And why hide behind an ever changing name... If you have a consistent argument and an opinion, you can be yourself without changing names on different forums. Unless of course you are ashamed of what you are or are posting on behalf of a vested interest??? PRC? ANZ?? NATIONAL? The monster raving loony party??? NZPIF?????

by Houses Overpriced | 18th Jun 18, 9:36pm 1529314598

Ouch, I sense someone is squirming ;)

Will take a lot for a comeback

by Nic Johnson | 18th Jun 18, 9:51pm 1529315468

He is persistently Cheesy is Cheesy but he's no Vacherin Mont D'Or.....

by Mrs The Point | 19th Jun 18, 12:36am 1529325399

I thought it was just me that found his writing a bit Cheesy.

by Chessmaster | 18th Jun 18, 10:19pm 1529317174

Haha PRC, that's a first. I'm not Chinese but Is there anything wrong with being Chinese? I think they very cultured and mostly polite people. Ain't you supposed to be in Russia with the rest of the pom soccer hooligans. They only have 3 games so get there quick before they exit and start complaining about everything and anything.

by Nic Johnson | 18th Jun 18, 11:10pm 1529320212

I did offer a number of options but while we're here lets go through the details...

'Haha PRC, that's a first.' That's you cheesy (It was one of a number of options I gave you, including the Monster raving loony party , you chose PRC as your defence because you're not?);;

'I'm not Chinese but Is there anything wrong with being Chinese?' (not at all, the food is great but very poor cheese and most of it is highly indebted cheese... many a time have I enjoyed the small offerings of a chicken claw in London with a petrified egg, some people will eat anything).

'I think they are very cultured and mostly polite people.' (of course they are while they pump your system with debt)

'Ain't you supposed to be in Russia with the rest of the pom soccer hooligans.' (I am a cricketer, but it's lovely to see that a Chinese Cheese Master has a misconception about what English people care about??)))

'They only have 3 games so get there quick before they exit and start complaining about everything and anything'. - Like I said before I like cricket and feel lucky as an Englishman that our sports (football, rugby, cricket,) are deemed the benchmark of civilisation......... Maybe when diving from a high rise factory without a parachute is a recognised as an international sport, China might have a chance of winning?

by Nic Johnson | 18th Jun 18, 11:35pm 1529321723

NZ - you are being sold out by your banks and the debt that they have acquired on your behalf....

by Hardly | 18th Jun 18, 5:44pm 1529300673

I agree with the need for Labour to go all in on this. They either win the war on housing or they face oblivion.

I also agree with the comments above, where is the agreement signed with prefabs? Where is the greenfields development with scale and standardisation. It’s been what 7-8 months? Time is a wasting. I haven’t given up hope but if nothing has happened by the end of the year I will be getting grumpy.

by Boatman | 18th Jun 18, 9:03pm 1529312604

We need to rid ourselves of this Government ASAP , bunch of lying cheating idiots who conned the electorate into believing that pigs could fly and three of those little piggies would build lots of houses for everyone .

I warned everyone on this forum at the time about these outrageous promises .............. it was a Con Job , it simply could not be done

by Houses Overpriced | 18th Jun 18, 9:08pm 1529312889

You ok boatman

by Boatman | 18th Jun 18, 9:34pm 1529314476

Sure I am good thanks ........ just a little annoyed that everyone seems to still think this Government can honour its election promises which were simply a lie or a con -job .

Our dysfunctional Government with the limitations that we have could ever embark on the massive public -works program needed to build 100, 000 additional houses , hell it took Germany 50 years to rebuild just the western half , and that with American money and 60 million people to do the work ( and a 50 to 60 hour week and 80% income tax on companies ) .

Government does not have the manpower , the money , the skills , the business acumen , or the land to do this .

They should simply but-out and make it easier for business to build more houses

by Nic Johnson | 18th Jun 18, 9:56pm 1529315813

Boatman... They don't need to do much to be fair, and if they 'but-out' we'll see the same outcome, the Aussie banking crash will create more affordable homes for Kiwi's without the government having to build a thing. See my earlier posts of allocation...

by THE MAN 2 | 18th Jun 18, 10:09pm 1529316590

Boatman of course you are right.
Problem is that many of the posters on here are still trying to believe in this COL, how and why this is still possible defies any sort of logic!
They have done absolutely nothing positive for business in NZ since they have been in charge.
Then you get people like Gordon, who keeps stating that even one house built is more than what National did in 9 years.
What a load of bollocks, This COL are t building anything off their own back as they have not got the ability to facilitate this.

by Houses Overpriced | 18th Jun 18, 10:24pm 1529317485

Ttp, suck it up, everyone, including their current leader knows that national failed on housing. So don't give us your crap about the col failing

by Brock Landers | 18th Jun 18, 9:17pm 1529313458

Nah.

Underdelivered good intentions is vastly more preferable to evil.

by Eco Bird | 18th Jun 18, 9:44pm 1529315098

Over the past 25 years .. Govs failed to do their job and confused themselves with the private sector responsibilities -- every party tried to fiddle with the market in some shape or form once it gained power and control, be that by intervention or neglect, .. much like a deprived and spoiled kid in the candy shop ....

In my view, Gov should constantly look after the social segment of housing ( that is its mandate and responsibility) - they have to make sure that the needy and homeless are always looked after and there is enough housing stock available to accommodate them at any time today and in the future ... just like the private sector is providing to the needs of other classes and the more expensive demand side....
Once that is done, both the housing and rentals markets will stabilise and each will nicely be governed by S&D.

Over the years, Govs neglect the needy group and relied on the private sector to provide for them ( being compensated by tax incentives or AS) and theee were some hard times when Gov didn't have the money to invest or borrow.

However, they got complacent and failed to rectify the imbalances accumulated over the years -- then they lost control and disturbed the markets - Homes and rentals are all interrelated vessels and water flows easily from one to the other, disturb one and the other will bend immediately ...

This CoLs is making the same mistake, albeit at a time when they actually do have the money to make a change !... but , not only they didn't and want do it, but are now chasing investors out to exacerbate the problem ! -- they have tangled themselves with FHBs' demand and forgot the main segment of society they were supposed to look after and help first ! hence you see KB is going in the wrong direction building shoe boxes for the wrong demand priority.

Why? because the CoLs thrust is run by daydreamer noobs or selfsering characters , and outdated expired bureaucrats at several related ministries ( issuing outdated data as factoid !!) and some ideological morons who think its their time to make a mark and help the poor regardless of long term damage while turning a blind eye at their mates in the rotten councils ... you see , it is more important ( and apparently justifiable even by hiding reports from each other) to build a $1B stadium and $1.5B light rail projects in Auckland today than anything else - have to distribute the spoils eh?

If they would only concentrate of the social side and solve that relatively easy problem in years one and two, then they would have made a huge leap ahead.

The amount of self serving, selfishness, and foolishness is what will hold us back again and will make the problem worse - they are just kicking the can down the road....again ! -- Alas, people don't learn even at the high of a Crisis.

Some were hoping that National will continue its social programs once they got the country producing again and had some dough to play with, but now that we have "booty" taking warriors, tree huggers, and the TU Mates splashing generously to buy their next term votes in earnest, who would have anytime to look in serious matters like housing?

The current political fabric is already tense enough without housing flashes and sparks flying around ..everyone using MMP as a shield.

by Houses Overpriced | 18th Jun 18, 10:03pm 1529316187

"The amount of self serving, selfishness, and foolishness is what will hold us back again "

Thanks Eco bird, your precise reflection of the national government

by Houses Overpriced | 18th Jun 18, 10:25pm 1529317552

https://pro.newsroom.co.nz/articles/3245-foreign-buyers-ban-relaxed
https://www.newsroom.co.nz/2018/06/18/125403/foreign-buyer-ban-changes-…

by Mrs The Point | 19th Jun 18, 12:45am 1529325905

"Meanwhile, lawyers will also be welcoming one significant change in the select committee report. In the original wording, property lawyers and conveyancers could be fined $20,000 if they sold residential land to a foreigner. Now the onus is on the person buying the property to give the conveyancer a statement saying they meet the criteria."
Bugger, the lawyers wiggle out, yet again.

by Houses Overpriced | 19th Jun 18, 6:29am 1529346541

I think it's ok, the onus is on the buyer, we rather get the bill passed, than for it to be held up anymore