'We would like to see more confidence in investments outside of housing'

Property

ASB senior economist welcomes increase in investor confidence but questions the idea of confidence 'being driven by an investors’ house rather than things like KiwiSaver, the share market or investment property'

29th Jan 20, 5:14am by David Hargreaves

ASB senior economist Chris Tennent-Brown is welcoming a solid boost in investor confidence but bemoaning the fact it's based on surging expectations of gains from house prices.

The latest ASB Investor Confidence Survey for the three months to the end of December showed a bounce after a large drop in the previous survey. The latest survey shows a net 11% of respondents expect better investment returns over the next 12 months, up from just a net 8% in the previous survey.

But Tennent-Brown says "it’s all about housing this quarter, as signs of life in the property market saw investor confidence lift".

He says across the country, views of own home as providing the best return rose from 19% to 22%. This rise was driven by improved confidence in Auckland, where sentiment regarding one’s own home providing the best return on investments rose from 14% to 23%.

“The spring burst we’ve seen in the housing market has boosted confidence, but I really struggle with the idea of investor confidence being driven by an investors’ house rather than things like KiwiSaver, the share market or investment property,” says Tennent-Brown.

“It’s problematic, because we know that simply relying on your house going up in value isn’t an investment strategy.

“While it’s encouraging to see some expectations lift, we would like to see more diversification in investments, particularly as both KiwiSaver and the sharemarket had a stellar year in 2019, and are likely to continue providing solid returns over the long run."

Tennent-Brown says he'd like to see more confidence in investments outside of housing - "but it’s a big ask. The love affair with housing just keeps on going, as we have seen over spring”.

However, while ownership of the house you live in was well starred in the latest survey as offering good investment returns, perceptions of rental property providing the best return on investments took a dip - to their lowest level in 15 years, down to 13% from 17% in the previous survey.

"The divergence between perceptions of rental property versus own homes is interesting, given the positive drivers for rental property as an investment," Tennent-Brown said.

“The lift in the housing market, signs of increasing rents and low interest rates don’t seem to be offsetting some of the other issues that rental property investors have faced over recent years. Nevertheless, there is still a core group of investors who continue to believe and invest in rental property – it’s just smaller than the survey showed in earlier years."

Tennent-Brown says investor confidence varied significantly by region this quarter. Auckland remained the most downbeat with just 6% of respondents saying they thought return on investments would improve in the coming year, although this had risen marginally from the 4% last quarter.

“Despite Aucklanders viewing their houses more positively in terms of investment, other factors are still dampening their enthusiasm,” says Tennent-Brown.

Comparatively, Wellingtonians were much more confident, with 21% thinking return on investments would improve in the year ahead.

Fluctuation continued when it came to views of other types of investments, with 13% perceiving KiwiSaver as the best investment for returns, and 8% viewing managed funds and term deposits each as being the best investment for returns.

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35 Comments

by Nzdan | 29th Jan 20, 6:54am 1580234075

Come on everyone, pile into housing. The Greater Fool revolving door.

by Good Samaritian | 29th Jan 20, 8:23am 1580239387

Not wrong about the ponzi scheme; aid and abated by previous government to create the feel good effect.

The major winners out of this house price inflation have without doubt been the banksters. You only have to look at the ex politicians who are now on their payroll to understand the system has been gamed. One can only hope the ex politicians pay the price for their sins.

Now that the cost of housing is beyond affordable, government will have to turn to investment that is actual sustainable for the economy. Lifting wages for those at the bottom, and reducing the take home pay for those on obscene salaries at the top. Highly paid executives guarantee nothing. You only have to ask Fonterra shareholders that.

by Noncents | 29th Jan 20, 9:22am 1580242949

Population is increasing while education standards/results are decreasing.

Doesn't that mean there are actually more fools?

by tothepoint - d… | 29th Jan 20, 9:43am 1580244195

The likelihood is that there will be a serious shortage of housing in NZ for a very long time.

Thus, we shouldn't expect much to change. Notably house prices and rents will continue to edge up in the long term: especially in Wellington and Auckland.

Further, globalisation is having the effect of encouraging more interest from foreigners in the NZ housing market.

Housing remains a very good bet for investors.

TTP

by Noncents | 29th Jan 20, 9:46am 1580244372

I agree - demand is not going to decrease. Although would say it is not a "shortage of housing" in general. rather a shortage of viable/suitable housing.

by Kezza R | 29th Jan 20, 2:11pm 1580260267

Except if this virus take hold and 3.5% of the old and very young are deceased, which would equate to arround 45,000 people, we will have pleanty of houses and a house price collapse, along with the building sector, timber exports, produce exports, tourism and a lot of other things thrown in.

by Pragmatist | 29th Jan 20, 5:27pm 1580272044

might need to be a bit more than 3.5%.. that would probably be enough to stop prices rising for a year or two tho.

by Averageman | 29th Jan 20, 3:15pm 1580264112

Simple, lower income tax and bring in a pay quarterly land tax to force some utility out of property investment. Without a tax change nothing is going to happen, because the easy/lazy promise of tax free gain via easily obtained debt is just too strong. Try borrowing for a business...the very first questions is always "how much is your house worth?"

by RickStrauss | 29th Jan 20, 7:38am 1580236702

Indeed, it's that simple. Stop privileging housing as an investment and penalising productive enterprise, and people will invest in business.

by GV 27 | 29th Jan 20, 8:35am 1580240108

No, they won't. As long as there's a shortage of housing, the market has the ability to set prices. If it couldn't set absurd prices, we wouldn't be in this mess. A lot of these reforms are all well and good once supply equals demand, but until then you're just giving vendors another excuse to add more up-front cost to retain their margin.

by RickStrauss | 29th Jan 20, 9:37am 1580243843

They also have an effect on supply and demand.

Your point rests on the assumption that demand is all about places to live. If that were the case, we'd expect rents to be higher than they are in Auckland, for example, rather than some demand looking to be based in speculation and expectation of future capital gains (i.e. the privileged investment vs. business).

by Fritz | 29th Jan 20, 8:36am 1580240178

Well we all know this but it's simply not going to happen!
No problem discussing it though, because of course it's the *right* thing to do.

by Sluggy | 29th Jan 20, 9:50am 1580244646

The reality is, no government has the balls to do anything about it - so when it eventually does implode there will be an immense blame game. The general patheticness of our gutless government astounds me. Its exactly how you end up with the trumps of this world in power.

by Kezza R | 29th Jan 20, 2:17pm 1580260678

Trump who does what he says and delivers, Obama who did nothing in two terms. One one hand we want politicians that actually deliver instead of empty talk or a long list of failures like NZ has at present in the other hand they are grilled for doing what they said they would do in the first place.
Is this a please BS us about what you plan on doing because we dont want you to do squat thing?

by linklater01 | 29th Jan 20, 4:46pm 1580269580

Kezza R,

is this the same Trump who promised to bring back the coal industry-'make it great again'? Well, last year 5 major coal companies shut down. Where are all the manufacturing jobs that were coming back to the US? perhaps I shouldn't mention The Wall!

Mind you, I must be fair. He said he would gut the Environmental Protection Agency and he has done a pretty good job. Are you happy that many environmental standards are being ditched?

I think this perfectly illustrates the man. His envy and hatred of the Obamas is such that his administration moved to roll back nutrition standards championed by Michelle Obama on a Saturday-her birthday. The change will allow schools to cut the amount of fruit and vegetables required and let them sell more pizza, burgers and fries. Do you approve? sadly, you probably do.

by The_4th_estate | 29th Jan 20, 7:25am 1580235920

In my view its a matter of education versus utter ignorance. At your next social gathering where everone is going to be inevitably indulging in public asset masturbation i.e. going on endlessly about the only asset they will most likely ever own...a house...drop a line into the conversation about how well your 'multi class assets' are doing and watch the gobsmacked reaction you get from the group. Most of them won't have a clue what you're on about....then rub it in by adding you haven't had a trashed house or rental arrears ever and watch the housing mob go wild!

by redcows1 | 29th Jan 20, 10:25am 1580246758

By the time you get to the word "class" you'll be standing alone alone in the corner mumbling to yourself.

by The_4th_estate | 29th Jan 20, 2:25pm 1580261103

You're probably right. I see Infratil is at a 52 week high this afternoon...who on here made that call about their price heading up?

by richard1965 | 29th Jan 20, 8:11am 1580238718

Hi David H, Admit that in NZ only Economy / Rock Star is Housing economy.

Tourism and dairy, yes but only feel good is Housing ponzi and now many people in Auckland have shut down their business and have become developers, so is more important that this housing ponzi continues for ages to come or NZ is finished .......finished means will be over, so now running this casino is a necessity for survival by all political parties.

Also why would people not speculate for tax free money, which is much more than weekly wage earned in NZ. One slog and pay taxes and still get less than what the housing ponzi offers. So government is providing incentive to all who can to enter this ponzi.

by Nzdan | 29th Jan 20, 9:58am 1580245095

New Zealand exports around $50 - $55 billion per year.
New Mortgage lending = $74 Billion a year (existing Mortgage lending growth = $13b).

by Pragmatist | 29th Jan 20, 5:33pm 1580272410

Would be interesting to see what the value of the mortgages (origination value) that get paid off each year is to put that into perspective. Or change in total residential mortgages.

by clone278 | 29th Jan 20, 8:21am 1580239265

House price rises are primarily just inflation. It's a depreciating asset so should be worth less each year but supply and demand imbalances mean the opposite.
The banks are all too happy with the situation as they get to cream profits, while they essentially promote their own book. They give bigger loans which means more risk but they essentially own the house through securitisation so by pumping the market they increase the value of their asset.
Most of the population is happy as most are still homeowners but don't realise the value of their labour is being devalued.

by murray86 | 29th Jan 20, 8:44am 1580240640

The biggest problem is all the best companies to invest in are fairly quickly snapped up by overseas buyers, so alternative investment opportunities are limited.

by linklater01 | 29th Jan 20, 4:48pm 1580269723

murray86,

Which companies are these? You can't be referring to the likes of F&P healthcare, Mainfreight, POT and others I could name as they are easily acquired.

by Audaxes | 29th Jan 20, 2:02pm 1580259738

Tennent-Brown says he'd like to see more confidence in investments outside of housing - "but it’s a big ask. The love affair with housing just keeps on going, as we have seen over spring”.

Lobby government to force the RBNZ to raise extraordinarily low capital risk weightings approved for bank lending to facilitate leveraged residential property purchases.

Force banks to diversify their lending to overturn this economic outrage:

Two thirds of NZ bank lending to one third of households is not for productive purposes that creates jobs or boosts GDP, but instead for assets, causing asset price inflation. Link

Now that the central planners have been causing decade-long recessions in the eurozone & elsewhere via their irresponsible monetary policies, they are adding insult to injury by verbally abusing those firms that have survived the recession so far as "zombies". Japan copy & paste. Link

by waymad | 29th Jan 20, 9:59am 1580245192

Exactly, Audaxes. Until incentives all the way across the spectrum are changed, nothing else will. At the moment, those incentives point solidly to houses, way above anything else.

by Jamin | 30th Jan 20, 12:22am 1580296932

I think this is the reserve banks end game with raising the bank’s capital requirements. My guess would be in about 10 years time we will see rule changes from both the government & the RBNZ to massively incentivise lending in both more productive Areas as well as areas that have a positive rather than negative environmental outcome.
Lending is the juice of our economy, but it needs to be directed by more than just how an Australian bank can make more money with as little risk. There is far too much at stake both economically and environmentally.
First step: make the banks hold more capital to increase their stability to absorb the extra risk.

by Jamin | 30th Jan 20, 12:22am 1580296933

by CJ099 | 29th Jan 20, 10:31am 1580247072

There are only two facts that can help boost house prices and that's falling mortgage interest rates which has a short shelf life because they can only fall so low, And overseas investor/money launders which are unreliable as a revenue stream. If you want to curb local Investors the banks could easily introduce "Buy To Let" mortgages aimed at Landlords which have a higher mortgage rates than standard mortgages. Again this is basic business practice in most Western countries to reduce the impact from Landlords on the housing market.

by Audaxes | 29th Jan 20, 10:44am 1580247854

Thus it can be plainly seen today that the most important macroeconomic variable cannot be the price of money. Instead, it is its quantity. Is the quantity of money rationed by the demand or supply side? Asked differently, what is larger – the demand for money or its supply? Since money – and this includes bank money – is so useful, there is always some demand for it by someone. As a result, the short side is always the supply of money and credit. Banks ration credit even at the best of times in order to ensure that borrowers with sensible investment projects stay among the loan applicants – if rates are raised to equilibrate demand and supply, the resulting interest rate would be so high that only speculative projects would remain and banks’ loan portfolios would be too risky. Link-section II-3

by Peri | 29th Jan 20, 1:29pm 1580257759

Absolutely, if the leverage available on house equity (governed by LVR limits applied to existing home owners and investors) enables the creation of credit in quantities greater than the elasticity of supply of the housing market can absorb, then you have a positive feedback loop whereby house prices spiral up and away (until the unsustainable can by sustained no longer). At an elasticity of supply around 0.7, the LVR limit for those who use house equity must be limited to around 70% of house value if a spiral is to be avoided, and around 60% if the crowding out of FHBs is to be avoided.

by SmoKey | 29th Jan 20, 2:21pm 1580260906

Let ASB be floated in the market here. That will help draw money away from housing ?

by linklater01 | 29th Jan 20, 7:17pm 1580278635

Sadly, we know that all too many Kiwis are financially 'challenged' as is evidenced by their addiction to property. I think I will scream if I hear another reference to the '87 stockmarket crash-that was over 30 years ago folks and sensible people have moved on.
However, I had not expected to include the Retirement Commissioner in this cadre. His view that the retirement age can safely be left at 65 for the next 30 years is correct only in a very narrow sense. Yes, NZ can just keep paying a pension from 65 to all the many additional retirees, but that totally ignores the many other costs of an ageing cohort of increasingly older retirees. The additional healthcare costs will be vast, both for the greater numbers, but also to cater for the inevitable medical advances which will allow more people to be kept alive for longer.
His suggestion that Kiwisaver could also be used for investment properties is just bizarre.

by Keen Observer | 30th Jan 20, 12:38am 1580297917

Follow the Nat Co./CCP mantra - life is short, it's all about to get rich quickly. The only way to get rich? is to sell your land to market of 350million of Super Rich from China, albeit.. that those 350million actually benefited from the hard labour/support of their 1.3billion poor citizen. No need to study, no need to save, no need to work/produce anything meaningful, everything can be imported cheaply. Guide our young generation to loan market education, savings is for looser.. kids need to loan from their parents and parents need to really teach them to clean house, car, do paper run, do grocery shop, cook for parents..daily. This how we should teach our kids. No need to study, just teach them to be enslave. After all, later Banks will take over..

by Somebloke | 30th Jan 20, 11:47pm 1580381264

ASB should put its (OPM) money where its mouth is. Banks usually only lend to the majority of businesses that are SMBs if they put up their own house as collaterel.