According to the latest RBNZ data, the value of our houses fell the most-ever in Q3-2022, extending the 2022 retreat. But we are still a long way from winding back the outrageous gains that began in 2020

Exactly. The same old boom bust crap.

Nice analogy.

From what I hear, being juiced in sports is just the norm these days.

The housing market is nothing more than supply and demand. The issue was that there were not enough houses for the demand.

Demand had gradually been increasing over the years due to the way the house construction industry has been structured to make the availability of land and new houses go up in cost a little slower than would satisfy the demand for housing.

But then with the COVID-19 pandemic lots of NZers returned home and wanted to buy or rent a house. Of course this put enormous pressure on the housing market and we saw the market value correspondingly increase.

Those tourist folk who had been doing low wage jobs such as working in hospo, of course left NZ, but they didn't own houses, and more folk with money returned than left.

so, over all, the demand to buy a house, or to rent a house, went through the roof. Building activities also increased because the property developers saw the opportunity to make pots of dosh.

Now that people with money are once again leaving NZ, and now that interest rates have doubled, and the equity requirements have been put in place, the demand for housing has fallen.

Has certainly fallen from the price point that people who own houses are wanting to sell.

Those who won out of this were the people who bought an existing house just before the pandemic hit, and who fixed their mortgage for 5 years just as the mortgage interest rates started to increase.

I am sure they never thought that one day they got to pay that money back too and with interest ( in bold) 

And remember, this isn't 'real money' they are borrowing. You know, like loans backed by cash savings deposited at a bank. The banks more or less create this credit 'out of thin air.'  Our property ponzi has some similarities to pulling a rabbit out of a hat.   

They were real people who needed a home for their families, and who were buying in a sellers market where there was insufficient supply to meet demand.

Yeah, I was a COVID refugee back in NZ with a fair swag of cash/no issues getting a mortgage, and I looked pretty hard at finding a pad to buy at the end of 2020 and through most of 2021, but never pulled the trigger simply because the prices versus what you get was insane and worsening by the day. I have zero regrets that I didn't get sucked in. Will await my opportunity, and if it doesn't arrive, ne'er mind, plenty of other options for me rather than to be debt enslaved for a house/property that isn't even that great.

I mean, we had no issue bailing out the grey haired brigade that invested in various finance companies to the tune of $2b back in 2010.  

Why can't we do that again this time for recent FHB?  That would be $100k each for 20,000 borrowers.  Oh wait, moral hazard only applies to boomers.  

Of course if they want the government (aka the Taxpayer) to wear the cost of the bad housing loans they'll also want the government to not raise taxes to pay for it.

What we're seeing here is doublespeak for "I want someone else to pay for my own poor financial decisions".

Don't forget a revival of their smug attitude

Exactly. Very reductive. It was significant, but one of many significant factors.

I think the high immigration in the 2000’s was massive, especially as much of it was high wealth immigration (compared to the lower skill profile of immigrants from 2010 onwards). 

And also as you say the very restrictive planning régime (that coincided with that high immigration).

not to mention demographics (the baby boomer ‘bulge’), structural changes re: bank lending and interest rates etc etc.

So David, if the replacement value is it's true value, and the used market has fallen well below that, what happens next? New construction plummets? The price of used houses rises? What's your view? 

As a generalization, the replacement value/cost to build value is the minimum a property is worth. Because if it was with less than this then there is no incentive to build.

But the real question is, "what is the true cost to build?" For example for development land, the raw land value should be the same or only slightly more than its next-best-use economic value.

So in a truly free market, if a developer was buying land that was being used for dairy farming, they would and could buy that at approx. $50,000 per ha. However, due to poor Govt. land use policies with how they zone, they create an artificial next-best use economic value called land banking. This enables the land available to build on now to be deliberately limited ie a monopoly restriction, and now the land is artificially inflated up in value to extract as much value out of it as the market can bear, ie $2,000,000 plus per ha. And cannot be bought for less than this.

For the buyers of the end house product, to afford this unnecessary extra coat they have to take it from the future in carrying extra debt, or other more immediate funds they would have spent on health, education, savings, and/or working extra hours.

The only way developers can 'help' with this is to build smaller lower quality houses to 'fit' within the maximum value that can be extracted. But in doing this, any saving is within one build cycle captured by the regulations that are the most restrictive, namely land, and consenting costs.

Thus it is a rinse and repeat; the costs of which go up greater than any pay increase you get, until the day no more can be extracted, and the market crashes.

Any guesses about where we are in that cycle?

Depends if your suburb is a central leafy green one.

This is also a good bit from the article and is completely relevant for NZ:



"Businesses that bet aggressively on the property sector by buying more land than they need for their operations, or that gear their operations to serving an ever-expanding property sector, will also outperform their competitors.

Households who borrow aggressively to buy the largest – and most – flats they can afford become rich far more quickly. Property developers who invent new ways to leverage their land purchases grow faster than their more prudent competitors. Even local governments learn to speculate on ever-rising land sale revenues for their funding, and will reorient their spending to fund projects designed to fuel further rising land sale revenues.

Over time, as the more “prudent” banks, businesses, households and local governments fall behind their competitors, the economy shifts its operations and balance sheets in ways that become increasingly speculative and dependent on rising real estate prices. At some point, which China reached around a decade ago, their speculative behaviour itself becomes a main driver of continued rising prices."