Productivity Commission's first tasks to investigate housing affordability, international freight services. Your view?

Productivity Commission's first tasks to investigate housing affordability, international freight services. Your view?

By Alex Tarrant

Government has announced the Productivity Commission will investigate housing affordability in New Zealand, saying debt accumulation and the wealth effects of rising prices through the last decade could have made the recession worse than it otherwise might have been.

Finance Minister Bill English and Regulatory Reform Minister Rodney Hide announced the commission’s first tasks today, which will also include an investigation into international freight costs, due to the increasing importance of international trade to the New Zealand economy.

The Productivity Commission was set up by the current National-led government to look at productivity issues in the economy, and possible reforms and regulation changes that may aid productivity growth.

House price rise well above general inflation

The median house price in New Zealand has risen 102% to NZ$350,000 in the decade to February 2011, according to figures from the Real Estate Institute of New Zealand. By contrast, Statistics New Zealand's Consumer Price Index has risen about 31% over that time. It now takes around 51% of median after tax pay to afford an 80% mortgage on the median house price. See the Roost Home Loan Affordability report here on Interest.co.nz.

The average house price is now worth around 6 times the average income, more than double what it was 20 years ago.

A house price boom between 2003 and 2007 led to a large inflows of foreign debt into the country as New Zealand’s big banks lent on terms up to 100% finance to meet demand for investment in real estate due to rising price and rental returns, as well as tax breaks.

“New Zealand experienced a sharp rise in house prices over the past decade, resulting in declines in housing affordability and home-ownership rates and large increases in household debt," English said in a media release.

“That accumulation of debt has made the New Zealand economy more vulnerable to external shocks like the global financial crisis. It has also most likely contributed to higher interest and exchange rates, raising the cost of capital for businesses and reducing exporters' returns,” he said.

Debt and wealth effects, higher interest and exchange rates, may have "exacerbated" economic cycle

The government's terms of reference for the investigation said the commission should evaluate the factors influencing the affordability of housing (both rental and owner-occupied housing), and to examine potential opportunities to increase housing affordability.

"Stability of the home environment is widely considered to be important for social cohesion and family stability. Real house prices in New Zealand are markedly higher than they were a decade ago," it says in the terms of referencce.

"The rise in real house prices has been associated with general declines in housing affordability, as indicated by a number of different measures, and in the rate of home ownership. These declines have contributed to increased demand for rental accommodation and additional pressure on the social housing sector," it says.

"The debt accumulation and wealth effects associated with the rise in house prices may have also exacerbated New Zealand’s last economic cycle. Interest rates and exchange rates were arguably higher than they otherwise would have been during the upturn and there has been greater contraction in demand during the recession. Debt accumulation may also be a factor in on-going economic risks."

Announcement welcomed by, guess who...

Following the announcement from the government, Westpac sent out a release saying they welcomed the investigation into housing affordability.

"For more and more New Zealanders the option of owning a house is moving beyond reach. House prices rose faster than incomes during the 2000’s with the average house price now more than six times the average household’s annual disposable income. In 1990 the ratio was closer to three times," Westpac Institutional Bank CEO David McLean said. 

Affordable housing was also more than just about income and the ability to service debt, it was about understanding the varied needs of New Zealanders.

“Government assists those in need but a change in the current model of state housing will really make a difference. The nature and scale of the social housing problem demands we do so,” McLean said.

“New Zealand needs more houses in the right places. It is hard to build new houses when thousands and thousands of houses in the existing stock need to be rebuilt. New Zealand now has a once-in-a-generation opportunity to make a difference. There are two new ways of making this happen – public private partnerships (PPPs) and not for profit initiatives using Government capital and or stock transfers,” he said.

PPPs

"Westpac has experience in social housing PPPs through its role in the Bonnyrigg project on the outskirts of Sydney. For 25 years, Bonnyrigg was known as a troubled housing estate. In 2009, a AU$1 billion redevelopment began that was a partnership between the NSW Department of Housing, a not for profit and a group of private companies led by Westpac. The 18 stage project includes replacing over 800 existing state houses with approximately 2,500 new homes and providing on-going management, maintenance and up keep for 30 years. 

“Using the Bonnyrigg model, PPPs could be hugely beneficial in quickly addressing the issue of affordable social housing in New Zealand. The problem is significant and we welcome the Government’s focus on it,” McLean said.

Minister for Housing Phil Heatley told interest.co.nz this week he had visited the Bonnyrigg site and was impressed by what he saw.

"There's no doubt that, or a variation of that, could happen here in New Zealand," Heatley said (See Gareth Vaughan's article here).

"The government will be involved in PPPs for social housing in New Zealand. We have got large tracts of land across the country that we would like to develop with the private sector," he said.

Homeloan affordability

See here for the Roost Homeloan Affordability Report compiled by interest.co.nz (and see our interactive chart below).

See the release from Finance Minister Bill English and Regulatory Reform Minister Rodney Hide:

The new Productivity Commission's first two inquiries will be into housing affordability and international freight services – two areas that affect New Zealand's international competitiveness, Finance Minister Bill English and Regulatory Reform Minister Rodney Hide say.

The Ministers also announced the appointments of Sally Davenport and Graham Scott as commissioners, working alongside New Zealand Productivity Commission chairman Murray Sherwin.

Ministers will initially refer two topics for inquiry to the Productivity Commission:

·         Housing affordability – to be reported back by 1 February 2012.

·         International freight transport services – to be reported back by 1 April 2012.

“The Productivity Commission is another step in the Government’s programme to lift New Zealand’s economic performance in both the public and private sectors,” Mr English says.

“Both of these topics have a bearing on New Zealand's export competitiveness. That is important as we seek to rebalance our economy away from excessive borrowing, consumption and government spending towards savings, investment and exports. 

“New Zealand experienced a sharp rise in house prices over the past decade, resulting in declines in housing affordability and home-ownership rates and large increases in household debt.

“That accumulation of debt has made the New Zealand economy more vulnerable to external shocks like the global financial crisis. It has also most likely contributed to higher interest and exchange rates, raising the cost of capital for businesses and reducing exporters' returns,” Mr English says.

The inquiry into international freight transport services will look at the effectiveness and efficiency of the existing infrastructure and regulatory regimes for international freight transport services.

“International freight issues are vitally important to us as a nation of exporters, located a long way from major world markets," Mr Hide says.

“Increasing our international trade is a critical part of achieving better productivity growth andensuring New Zealanders maintain and increase their standard of living.

"The two new commissioners bring a good mixture of research and commercial skills to the commission. I’m very pleased that people of such high calibre will join Mr Sherwin and his team looking into major issues for our economy,” Mr Hide says.

The commission, which formally starts work tomorrow, has a wide-ranging brief to inquire into productivity-related matters. It is funded through reprioritised contributions from the existing budgets of 29 government agencies.

Terms of reference for its first two inquiries are available at:

www.treasury.govt.nz/publications/informationreleases/productivitycommission

(Updates with affordability chart, link to Roost Homeloan Affordability Report, Westpac response, link to Treasury documents on Productivity Commission, terms of reference, chart, intro paras)

 

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?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

155 Comments

Comment Filter

Highlight new comments in the last hr(s).

It's bullshit.

So this pointyhead commission comes up with what...the reasons why we have seriously unaffordable housing...and how that has buggered the economy...and English doesn't know all this....what the hell is the point....oh sorry....of course....it's more obfuscation smoke and mirrors BS in the lead up to the election....which means the commission can stop blathering the day after the votes are counted.

they can't just sit in their golden beehive weaving bullshit for dollars without letting folk scurry around trying to make an honest buck on the crumbs stuck to the base of their shoes. 

one thing i do like about Olly is his description of "pointy heads in wellington" that rolls off his tongue ever so smoothly.

probe spend probe spend shock probe buddy up shake hands and stab in the back probe spend halt wind up re word relax cycle up everyone happy, boom times again. 

But they already know the reasons behind our unaffordable housing...why more investigating the issue?? Do something about it. 

Bill's a politician. He need 'someone else' to blame for the "these tough, but necessary, changes that we must  make to the taxation and lending laws that are in the long term interest of your country". If he acknowledges that we have upped unaffordalitity in the last decade, then pushing up nominal rents and house prices is not going to be part of the soultion to that.

so it is not as simple as blaming the Labour Government?   They were the ones in charge for the decade he is talking about.   Or is that too old fashioned a concept these days?

This, at a time when they're downsizing government expenditure.  What an absolute waste of money.

Have to feed the faithful Kate...it's family!

too true, Kate

it's bleeding obvious, isn't it?

we had a house price boom because we had a housing credit binge

it could never have happened if LVRs were limited to 80%

That's right, reasonable LVR limits would have avoided this quagmire we are in....Hugh Paddlesticks at Demographia goes on about restrictive planning rules, which yes has an affect on affordability, but there are enough houses to live in Auckland...and if LVR limits were in place then the banks wouldn't be farming us all like they are...Bill knew this years ago, and now another taskforce to investigate the issue...however in support of Bill, he has to educate many dumb voters about reform, if he ripped straight into reform then he would be accused of doing another Roger Douglas...so let's blame dumb voters for this new taskforce.

Mr Pavletich has stated that the difference between Houston, where house price falls were relatively modest, and Atlanta, where there was considerable over-building and consequently a house price slump, was due to the consumer protection laws in Texas that limited loan-to-value ratios.

The median multiples for Houston and Atlanta are 2.9 and 2.3 respectively, indicating that the LVR limits paradoxically resulted in slightly higher prices in Houston than in Atlanta. What both cities have in common is relaxed planning regulations that allow supply to keep up with demand rather than causing dangerous bubbles.

While LVR limits can be a useful tool, as Houston showed, they are not a silver bullet and cannot overcome the problems caused by artificial limits on the land supply. You can put the LVR limit up to 50% or even force people to buy houses outright but housing will not become truly affordable until these supply constraints are addressed.

Kleefer, what do you mean by "artificial limits" on land supply?  Are you suggesting there should be no regulaory involvement in land-use planning (i.e. zoning) at all?  And if that is your contention, then how should the infrastructure for connection to urban services (roads, water , sewerage etc.) be paid for?  Would you suggest, for example, that a regulatory authority set an urban limit and then everything the other side of such a boundary would need to provide on site water collection, sewerage disposal, rubbish collection/disposal etc. etc.?

I have trouble getting my head around this argument for "no artificial limits" - because it suggests "no land-use planning" - and I'm just curious as to how that would work in the eyes of the protagonists.

 

 

Remember 75% from the Bank on first, another 10% on second from building society and 5% from solicitors nominees mortgage company (and add in some capitalised family benefit as well). 

This was the game before banks generally across the board moved to above 75%, then 80% and then 90%, removing the need for subsequent mortgages.

High LVR lending is not something that has come into being in Bollards watch. Its been around for years in different forms.

There is plenty more to blame for high house prices than just LVR issues.

 

...  and you forgot to add that the balance of money in many cases came from family loan. Many were buying with little or no deposit. In new housing, usually no deposit outside of Family benefit capitalisation & some family money. Yes, 100% borrowing is far from new!

 LVRs would've made a difference and it shows how incompetent the RBNZ was and still is.  One of the key roles of the RBNZ is to promote financial stability.  The official line is "Assisting the functioning of a sound and efficient financial system". 

The RBNZ noted concerns over credit supply, house price inflation, debt levels, and global economic imbalances as early as Nov 2005.  They even had the trading banks perform stress tests in Oct 2004 for an IMF review.  One of the tests included the scenario of a 20% decline in house prices, unemployment rising to 9% and real disposable income falling by 4%. 

The RBNZ comments - "perhaps the most significant factor behind the difference in the stress test results compared with the late 1980s experience is that bank lending to the property sector is more conservative today".

"Even allowing for these caveats, the stress testing exercise gave us and the IMF a degree of comfort about the ability of the major New Zealand banks to withstand a range of substantial shocks without becoming distressed.  The high degree of involvement by the bankds greatly enhanced the credibility of the results".

The IMF conclusion -

"stress tests show resilience in the banking sector, consistent with the sector's high levels of capital and profits.  Significant exchange rate swings and house prices declines could be absorbed by all big banks.  Dynamic stress test scenarios involving shocks to agriculture and to external funding costs show more persistent effects on bank profits, but do not raise systematic concerns"

"non-bank financial institutions, while not systemically important, are also profitable.  Overseas regulators provide additional supervision for a handful of the largest non-bank institutions, which account for around half of the assets in the sector"

 http://rbnz.govt.nz/finstab/fsreport/fsr_oct2004.pdf

So why the bailouts?  Why aren't the stress tests performed every year?

This productivity commission inquiry is total bullshit.  A year of waffle instead of doing.  The simplest way to improve affordability is to pop the bubble.  What's the issue - the banks can absorb it - the IMF says so.

The main cause of our financial mess is that our central bank and our political parties are constantly asleep at the wheel.

Finance companies weren't part of the RBNZ oversight until September 2008 and it took 4 years of reviewing to come to that decision.

meh

Your conclusions are obvious from 2004, I am convinced, if property will be falling by 10-15%, all banks are insolvent.

My biggest disappointment is, that Kiwibank is blowing into the same horn regarding high lending ratio, so one cannot even hope, that "our own" is safe. One should really put ones savings under the mattress.

Could get 90% lending in early 1990's and wasn't seen as a problem back then????????

Could get 90% lending in early 1990's and wasn't seen as a problem back then??????? 

I get it, Bill English is rolling out a series of commissions, talk-fests and money sinks so he has something he can point to as a nice-to-have come budget time.

Updted with more from the terms of reference

So if we are going to restirict or cap, the amount we as a nation plough into property; and as some say, we have a housing shortage, then it seems to me that 'a fixed amount of credit', divided by 'more houses needed' = 'lower unit cost/price of property' ( smaller dwelling as an aside?).

Ministers will initially refer two topics for inquiry to the Productivity Commission:

·         Housing affordability – to be reported back by 1 February 2012.

·         International freight transport services – to be reported back by 1 April 2012.

A year to come back with reports?

A WHOLE YEARS WORTH OF CONSULTANCY FEES - THE REPORT WILL SAY "YES HOUSING IS EXPENSIVE"

It's not about the report, as such. It's about 'getting into the mass media'  ( which it isn't at the moment) and in front of the eyes of those who have not thought about the topic. It gives Bill a reason to make some "tough taxation choices'.

... and get past the post of another election

The funniest part of this is how this commission will be funded....and what a great payoff for the pointy heads...who can carry on with their 'normal' money making ways because all they need to do is reword the crap Bill blathered as to why housing became seriously unaffordable....he doesn't want solutions....he wants smoke blown in the eyes of the voters.....

Updated with Westpac response...they're pushing the PPP idea unsurprisingly

yes unsurprisingly

I am convinced their proposal is NOT the answer

this is bollocks

the answer is simple:

- regulate loan to value ratio

- liberalise planning / building regulation

- introduce CGT

Yes Matt but expensive bollocks and soooo rewarding for the pointy heads.

Matt in Auck, totally agree with you buddy.

Give Bill a call and say you can do the job for a free pint, and email him your 3 x bullet points. We can have the answers today instead of waiting until 2012.

Cutting costs across the board meanwhile funding year long reports.

What happened to National - the party of the free market?

Housing will cost whatever the market dictates etc.

This is also rather ironic after the Prime Minister said last week that if they introduce a CGT, or more importantly a land tax, then house values would fall and he did not want this to happen:

http://www.interest.co.nz/news/52737/imf-recommends-govt-broaden-capital-gains-tax-base-and-introduce-land-tax-your-view

Prime Minister John Key reiterated later a land tax and broader capital gains tax were still off the cards. Asked whether the implementation of one or the other could allow government to reduce income taxes to give people more income to spend, he replied:

“At the risk of repeating myself from last year, we looked at a land tax, and land taxes, one, reduce the value of land in New Zealand, by definition, and it has an impact on every single homeowner in New Zealand."

“I wouldn’t have thought we’d want to do that on the back of a very weak housing market at the moment,” Key said at his Monday media briefing in the Beehive.

Great name; Productivity Commission. Should be called by what it really is; Unproductivity Commission.

Funny how govt departments are always called the reverse of what they do, like:

Ministry of Justice = Ministry of Crime

Ministry of Health = Ministry of Accidents and Illnesses

..to name but a few.

..... don't the Nats have Hugh Pavletich's phone number ? ..... Save us all a bundle if they have a yarn with him , and get solid answers to their housing affordability quandry .

We need a spare $ 570 000 - plus for the head CEO of a new Chch Earthquake recovery board ............ And so it goes , only tax-payers munny ...... Plenty more where that came from...............

Roger - I'm sure they do. Trouble is, like others ignored by this government, Hugh says it like it is and I doubt they like that. They'd rather pay yet another working-group, taskforce thingy, while desperately hoping reality will melt away and that one of the groups will come up with a silver bullet that obviates the obvious they continue to reject. I guess it's cheaper this way? In consolation to NACT, it'd be no different if it were Labour, or at least the last Labour government.

Dismal eh.

Cheers, Les.

www.mea.org.nz

 

The point is, as soon as some strength is eventually seen in the housing market, be it in 2 years or 10 years, then the govt will wack on land tax, CGT, and whatever else. 'Booms' like we have seen in property in 2000's happen once and once only, then the poor rules that allowed it to happen get fixed (already depreciation and lower top tax rate, international bank regulatory changes limiting hot money which NZ banks rely heavily on) will mean we will never see prices do what they did in 2000s again. 

Unfortunately many people got conditioned (like a pokie player who hit the jackpot that one time) to think property is where all the easy money is. These people will get burnt big time as they just cant stop buying, seeing falling prices as 'value' instead of a return to reality. 

Simon, you raise a good point...it's clear that the Govt's strategy is to not be perceived as being responsible for forcing house prices down...otherwise they will face voter backlash...which is understandable, but just so much time wasting.

Meanwhile in the land of the free !

 "Forcing banks to lend money is a piss poor idea. Piss poor loans help neither the lender nor the borrower. Yet, those who added fuel to the housing bubble have now whitewashed their role in the affair and beg for still more funds"

 http://globaleconomicanalysis.blogspot.com/

"Forcing banks to lend money is a piss poor idea. Piss poor loans help neither the lender nor the borrower.

 

Wolly about the first thing you have ever blogged which I agree with 100%. I think you are getting soft.

 

Another report. Another waste of our money.

The government thinks it has to be seen to be doing something.

Of course, they will find house prices are what people willingly pay for them. No third party is setting prices or forcing people to buy houses.

But beware the restrictions some are proposing.

Restricting Loan-to-Valuation levels will shut out many young buyers and first-time buyers (be good for me though as there will be more prople having to be a tenant).

A CGT will only cost the shorter-term property speculator. The wider damage,of course, is that if it slows down the transactions in the market people may find they are not so many houses to buy. The shortage will drive prices higher.

Liberalising planning and building laws has been tried and look at the freedom this gave to dodgy developers, architechs and builders to construct leaky homes.

Our house prices are what they are because New Zealand is such a damned attractive place for people to live. 

 

Of course, they will find house prices are what people willingly pay for them. No third party is setting prices or forcing people to buy houses. 

For the past 30 years banks have been increasing LVR's which has in fact been affecting the price.  Giving the appearance of making homes more affordable they have in fact been increasing thier balance sheet and making homes more unafordable. Sucking more and more money out of the economy with interest payments.

I can't see much benefit to the economy from unafordable house prices.  The gov't spends over $1billion a year on accomodation support.  People have less money to spend because they have huge mortgages to service, the benefit of having people's second most basic need shift from unafordable to afordable would be significant.  I think this is an important issue and if the gov't can create awarness of this and address it good on them.

"Our house prices are what they are because New Zealand is such a damned attractive place for people to live."

Have to agree 100% with this! People need to get out and have a look before they can truly appreciate NZ. It wasn't until the last 15 years or so when people have truly discovered Australia & NZ. Two of the hottest spots on earth. The market is only catching its breath.

The overseas buying power (specially from asia) is so hugh which allows those people to buy 2 houses in nz this afternoon and forget about it tonight!!  This is how fast those people are making their money, they really dont care, and theres nothing we can do.

I've had a few discussions over the last couple of days on LVRs.

The people I have spoken to had the same initial view as you with regard to restricting LVRS, in terms of making it harder for people to buy houses.

My response is that this policy would actually limit price escalation, as it takes heat out of demand. It might take longer for first home buyers to save a deposit, but in the mean time house prices won't rise much. Part of the problem between 2002 and 2007 was that people who were saving for house deposits found the value of that deposit in % terms quickly eroded, so prospective home buyers were always chasing their tails. 

In the long term the house buyers will be far better off as they will have a smaller mortgage and are far less exposed having a 75% mortgage rather than a 95% mortgage. 

I'm a BIG fan of restricting LVRs

 

Your Landlord, that's right - houses are a reflection of what people are willing to pay...our housing affordability issue is based on people paying for a house with massive amounts of debt sourced from offshore...with LVR limits then this frenzy affect will be restricted...only a good thing.

Also, the liberalising of planning & building relates more to freeing up zoning and consent processes...a separate issue to leaking homes.

Spot on, Your Landlord! "..Restricting Loan-to-Valuation levels will shut out many young buyers and first-time buyers.." So what happens when you take the first tier out of any pyramid?  Without the first time or young buyer, the whole game draws to a stop. And here's how you stop the transactional velocity from slowing down with a CGT introduction; disallow negative gearing at the  same time. Add in a Stamp Duty for good measure ( income raising, to rebuild the EQC fund, at the initiation of the transaction, not waiting for CGT at whatever time the sale is; Oh. And that gets Stamp Dutied that end as well:) and...well it looks bleak for property speculators to me.

Nick, I think you have some great suggestions.

Those would-be first-time buyers, denied by a low loan-to-valuation ratio, will become my tenants.

As to all the other regulations you propose, I am all in favour mate if you think they will hammer the speculators. They will hammer the developers too.

Because a beaten-down speculator and developer means a happy investor. I'm smiling already :))

Become? Aren't they already? They either currently rent, or pay M&D rent and stay at home or 'double up' How does 'stopping them buying; change their number?

And....'a beaten down speculator or developer ' is more supply of distressed property to the primary and secondary market. Don't believe me? Go and have a squizz at what the banks have 'in waiting' in their little 'Grey Books'. You're in the business. You must have been to the Silent Auctions they're running....just for selected clients, mind....All they need is 'another name' on the mortgage at 'outstanding value', and it's not delinquent...easy...

You still need to read the District Plans.

No matter how much stamp duty or additional taxes you add to try and decrease prices by increasing them prices are fundimentally determined by the District Plans. 

An apartment in the CBD can't be built and sold for under $500K because there is a rule against it.   http://www.aucklandcity.govt.nz/council/documents/central/pdfs/part06b.pdf  - don't forget the 50K tax in http://www.aucklandcity.govt.nz/council/documents/district/text4b.asp

Apartments cannot be built in Newmarket unless 20% of them retail for close to $1M.  It is a rule in the plan - http://www.aucklandcity.govt.nz/council/documents/district/updates/196.asp

The District Plans require low density suburban sprawl development - http://www.aucklandcity.govt.nz/council/documents/district/Part07b.pdf - which directly leads to expensive housing.  1 km from the centre of town you are typically required to have a minimum 500sqm site and parking for two cars.  If 2 houses could be on that same site (with 2 cars) the land cost (which can be 60% of total) is halved, reducing house price by 30%.

I bet that these Commissioners will only speak to economists and academics and not people who actually work to provide affordable housing and are daily twarted by the RMA district plans and Councils who are terrified of Nimby's.

Typical conversation in a council office goes:

"These are perfectly livable and pleasant houses and appreciate that you are designing something that will sell for under $400K, HOWEVER they don't comply with the density rules so we have to ask permission from all the neighbouring NIMBYS and, while we're at it we won't give them planning permission unless they incorporate the same amenity as the $800K houses in the neighbourhood (because I wouldn't be comfortable living in a house worth less than $800K) and we can require this because it's Discretionary so there's no rules.   If you just make them $800K houses everyone will be happy and you'll get RC no problem"

 

and ...

maybe, tighter LVRs for spec buys. We have different captal adequacy reqs. for different asset classes, why not vary LVRs per asset class?

and ...

maybe, ring-fencing.

and ...

surely, deconstrain land supply, appropriately. Maybe drain some dodgy marshlands and flog them - not, because we don't have to. Not short of land are we? How could a land tax be used to create better housing land supply dynamics?

Cheers, Les.

PS - c'mon Hugh, where are you?

 

Well Les I am quietly hoping that Hugh didn't lose anyone in the quake or have any hand as a professional in any of the CHCH buildings that  fell down. Being from CHCH I am sure he has his hands full at the moment and I think we should all wish him and his family well.

Land supply dynamics is Hugh's domain, but as for better housing I have a few clues there now. Top enemies are zoning laws and motor vehicles. Eliminate or minimise those and you are on the right track. Increase urban densities to 30-60 people per acre would help. There is more but addressing those will go a long way. Oh max four stories for living or working in.

Get the councils snout out of housing all together would be favourable IMHO.

The works of Christopher Alexander are a good basis to start from, particularly 'A Timeless Way of Building'. The guy is a genius at what he does, look him up on Wikepedia. Also note his contributions to computer science.

Despite my current direction I agree with this:

 Reasoning that users know more about the buildings they need than any architect could, he produced and validated (in collaboration with Sarah Ishikawa and Murray Silverstein) a "pattern language" designed to empower anyone to design and build at any scale. Alexander is often overlooked by texts in the history and theory of Architecture because his work intentionally disregarded contemporary Architecture discourse, appealing more through methods consistent with his theories than through established practices.

Scarfie - I think he's fine. Useful response. Cheers, Les.

It is almost as though these commissions were coming up with jobs for themselves, so that their staff aren't cut back with the state sector job cuts. The question needs to be asked why this wasn't looked at a decade ago when house prices started to take off. The reason why house prices took off were due to a number of factors which BH has highlighted a lot, , and we don't need some commission to tell us what we already know.

Can the country really afford all these commissions and investigations, and at the end of the day do they mean anything or solve problems?

It's pretty obvious isn't it Rob...there is a real need for the govt to set up a Commission into the productivity of working groups and commissions...how else are we to learn all about the ways idiot govts waste our money.

This is a question and task that is way too bloody hard for the hundreds at Treasury to answer.....they have far more important crap to waste their time on.

The commissioners would be well advised to start their enquiry by reading the reports and replies in these forums. I bet they will adopt many of the suggestions anyway.

National can do what they like at the moment, lots of talking so they seem to be doing something,  they know they will be in for another term and with a majority to do what ever they like. Labour is a cross between dead duck and headless chicken at the moment, and National know it.

Over 7 months to the election.  That's a long time, plenty of opportunity to show how they have stuffed up ChCh with their incompetence.

This inquiry will do squat!  Bring down the cost of housing by reducing the costs building permit and compliance (may be land holding levies).  Remember building a house in Aus will cost 50% less than NZ, why's that????

This could be a softening up for the type of solution the Property Council want which is full steam ahead with immigration and letting go urban limits while relaxing red tape (build what you like, where you like). I think they are trying to head off a potential political movement developing based around quality of life, foriegn ownership and homeaffordibility.

If the market received a signal that LVRs could not exceed 80%, section prices would start to fall because holders of land would no longer sit tight in the hope that the previous normal conditions would resume. House builders would also start marketing houses that people could actually afford. Buyers' expectations of what they could afford would also adjust.

It would take a bit of time, but it would happen.

Lending over 80% is nothing new, Banks like Countrywide were doing it in early 1990's and before that you could get 2nd and 3rd mortgages which pushed total LVR well over 80%.

I recall doing a 100% deal for doctor client who was down to 80% within 3 years. This is when credit assessment was not all based on credit scoring like today but you actually assessed a persons character.

Easist way to bring down land prices is to allow town boundries to expand i.e. increase supply.

 

 

 

Phase out fixed rate mortgages. Decorrupt the price signal of debt the OCR is meant to be. That way the OCR regime would be more effective in dealing with non-tradeables/housing inflation. (Let free market price signals be free of interference.)

No? Ok, well limit and vary the maximum proportion of a loan that can be on fixed terms.

No?, Ok, allow RB to vary the principle repayment rate of fixed rate loans - monies held on account and available at roll-over. Folk would be hedged from money market aberrations, but not NZ's monetary policy objectives.

Cheers, Les.

www.mea.org.nz

Les,

You dont have to get rid of fixed rate mortgages....IMHO in fact thats I think a bad idea....it alloows someone in the first few years when money is often tight to remove risk if they so choose.  Who are we trying to hit here? genuine first time buyers who want a place to live or the PIs?  I'd suggest its the PIs....The biggest thing is just lock max mortgage to 80% of the value of the property...or better allow the RB to cary that rate as well as the OCR.   I mean a fixed mortgage is after all a hedge...Im sure, Les if we started saying to you, sorry exporters can no longer hedge against currency fluctuations you would scream blue murder.

regards

steven - removing risk in the first few years could be done another way - take on less debt. You know what that means across the market, plus interest rates would not have to go so high. It'd be the same for PIs too, although I agree with you distortions are in their favour and could be dealt with further.

On LVRs and varying them, yep, all for that. Did you clock that Int.co article about Alan Bollard's speech to a Basel conf. in Sydney? (Last Friday I think.) Methinks RB have buried TINA now.

Your point of hedging, sure, I think cost per $ is greater by comparison and some exporters - the acorns - don't have the balance sheet strength to get much on, especially say in comparsion $per$ with a house buyer.  Then there is the strategic judgement aspect in regard to NZ's economic future, what do we want to strengthen export trade or property trading? What makes the country as a whole richer?

Cheers, Les.

Les, they're hardly free market price signals in the presence of price fixing (the OCR) by a central planner (The Reserve Bank). A government ban on fixed mortgages would mean people have no way of hedging against the market meddling of Dr Bollard and company. Less freedom and more power to central planners is not a recipe for a free market.

Kleefer - RB's meddling would be a lot less pronounced if the OCR price signal was decorrupted, see reply to steven. People would manage risk by taking on less debt. I think that's a good thing.

Cheers, Les. 

Quote Bill: "saying debt accumulation and wealth effects of the last decade through rising prices could have made the recession worse than it otherwise might have been."  - well d'uh...

You sure earn your pay-cheque don't cha?

what's the pay rate for the pointy heads who go on these enquiries?

do they do it for free? i bet they do. civic minded fellows they are......

ps saw in interesting line in a james woolcott pice online about the level of debate in america, but it can apply here too:

As America enters the downward slope of empire—its debt mounting, the disparity between wealthy and poor continuing to chasm, the environmental ravages becoming irreversible, high unemployment becoming the cruel norm—the Richie Riches have a vested interest in misdirecting people by blaming the powerless for the sins of the powerful.

One thing promising about this probe..is that National are setting their sights on some proper reforms that will address housing affordability...I've always said their 1st term is a 'steady as she goes" strategy particularly with the GFC playing out...but expect to see some proper fireworks in their 2nd term...they're doing a 10 x better job than what Labour could do.

Except that they took office in the face of huge global recession, and the 'steady as she goes' approach (or in this context the "smile-and-wave' approach) was not what we needed to tackle the GFC. The crime is that these 'proper reforms' should have been ready to put into place when they took office. Instead we have had three years of a government using training wheels.

And Cullen would never had given out the tax cuts that Bill English did, which have effectively delievered us to our current crisis of huge government borrowing.

Basically, NZ needed a man of action, and it got John Key...

 

PPPs.....so 2 options...

a) the govn borrows capital via teh bond market and buys it at 2~4% interest and can tie it down for say 10 years....it then uses the capital to build...

or,

b) It goes out to private companies who use their capital, which is really goingto be borrowed at a higher rate than the Govn can get, say 5%+   and then builds in its profit margin which has to be a decent %.....then the Govn pays that....which is obvioulsy more expensive longer term....so instaed of cheap debt, we take on expensive debt at probably 2 or 3 ties the rate of bond debt....

Im not sure if Im correct here? but if so this seems a stupid idea....

regards

If the Govn wants this then Im sure the "enquiry" will give them the answers they want....someone is either in the firing line for a shafting OR a fat cheque for low risk....

regards

What is the point of having working groups, task forces and commisions if their recommendations cannot be implemented. 

Just an ongoing waste of taxpayer money

Pathetic.  12 months to prepare "waffle".

We already know why housing is unaffordable.

 "median house price in New Zealand has risen 102% to NZ$350,000 in the decade to February 2011"

 "Consumer Price Index has risen about 31% over that time. It now takes around 51% of median after tax pay to afford an 80% mortgage on the median house price" - slowly coming down but still too high.

 "The average house price is now worth around 6 times the average income, more than double what it was 20 years ago" - actually only 10 years ago.

We know the causes:

Central bank and politicians asleep at the wheel (see earlier comment above), immigration policies, tax policies and lack of enforcement, 100% finance (at least on investment properties), speculators, greed, development costs, planning restrictions, excess credit supply, low interest rates, valuation methods, mcmansions (houses twice the size of what we need), supply/demand caused by the above.

There are approx. 12,500 properties listed on the real estate website in the Auckland market not to mention private sellers.  Is supply really an issue?

How do we fix it.

Pop the bubble for starters and deal with the causes above.

There you go Bill. Ist half of the report done in less than a day.  Now tell your cronies in the Productivity Commission that they have a month to write the rest of the report or they're out of a job.  The information is already out there and it shouldn't take more than a few days to track it down.

Ah ha, but they need to stall till after the election and give the sheepl enough time to be hearded into the shed of realisation.

Although they say things may still be going along in Auckland real estate,out here in the provinces things have been slowly and surely sliding back over the last year and in particular in my area over the last month or so there have been some considerable price reductions?/adjustments as reality bites.

I believe by the time this commission reports most of this problem will have been corrected by the market itself.

Speculators/Developers have dissapeared and most councils are seriously reconsidering development levies,consent fees etc to encourage industry back to the provinces.

As we say out here GOOD THINGS TAKE TIME.

 

I wouldn't be surprised to see a "luxury tax"  being recommended in their report as the use of the word "CGT" is taboo.

'Transactional velocity' - churn (must get a better term for this St Nick).  High real estate commissions for 'listing' properties (provided that they sell). Don't forget whose commission was best served by the churn. A bit for the lawyer - none for the property inspection (just get a mate in eh!)... who is left?  The most expensive bill you ever pay?

Whilst the banks were keen to give the credit, someone else was also 'indecently motivated' to help spread the largesse.

   

Churn , it will be from now on :)

What a thucking pointless exercise! We already know why. These commissions are just ridiculous. Lets pay some jumped up self righteous suits hundreds of thousand of dollars too tell us what we already know.

Bill, If you don't know why then you have NO right to be called a finance minister.

This surely is a game of charades?

You know what the outcome will be, Justice; it's already been decided. And 'that houses here are overpriced' is not it!

This could be a time bomb if the Commission reports that a CGT or Land Tax etc is 'desirable' and the new government of Labour- Greens (the real reds), may be NZ First, plus  Mr Hone and a few other malcontents, latch on to it and actually action such recommendations. Then beware of unintended consequences.

No problems there, muzza. CGT, Land Tax and whatever, have been suggested umpteen times, and John will just do what he alwyas does...ignore the report he's commissioned. You don't really think National will loose do you?! Certainly not to that 'rag tag' collection you post......

What you proles don't understand with your archaic attitudes ..cue dinosaur Wolly...is that this is all a soften up for a Capital Gains Tax on 2nd homes and more, in this coming May budget...read my lips..it is coming.!!!

What is a second home? The bach? Homes in the kinders name? The Trust?  Too hard to police....better to tax the whole lot ( using whatever words are politically acceptable) and move on.....

apparently, the defintion will " the family home " will be exempt...all else taxed !

is Hugh Pavelitcititchtsk hiding out in Texas?

he's been awfully quiet of late?

Next up ... a commission to investigate where the sun goes at night.

i thought it went to the dark side of the moon?

Now Billy Bob..................you really are taking the piss......you think this is funny..?......well do ya punk...!

The only reason you would commission this probe is to distract people from some kind of knobbling excercise you are about to implement.....cheeses your an arogant SOB.

what a crock o sh*t.......food for the gormless....good to see your cutting back on wasteful excercises...............................not.

Go ahead, Stove ..make my day...what ya gotta ask yourself is this... " do you feel lucky?"...waaal, do ya , punk?

O.K..I'll tell you what's really going down !

"Since our last report, #15, this information has become available. Obama has determined to start operating his own high yield plan with a portion of the funds stolen from Falcone. Obama now has five hundred million dollars ($500,000,000) with Josef Ackermann, the Chairman of the Board of Directors, of Deutsche Bank. Obama indicated he is not paying his previous associates, the Bush Family, from his new plan, but obviously Josef Ackermann feels that Bush Senior deserves a broker’s fee, finder’s fee or payoff from the profits. The majority of the profits are being sent to Obama's benefit at HSBC with a lesser amount being sent to Barclay Bank.

Remember this is the same type of high yield investment previously reported that Obama has received the two billion dollar ($2,000,000,000) payoff from the Bush Sr. and associates.

What a waste of time.....I can just see the next thing they are going to tell people is how the house price is justified and people should live with it and work hard if they want to own their own home.

But I also can't stand everytime i read about someone saying house prices are now x times of average income...etc. I mean come on...do people really think houses should be as affordable like you can pick up a loaf of bread from the supermarket?

The property "boom" which took place between 2003-2007 was really just a property price "catch up" , compare with many other country, NZ is still pretty cheap. You want to own a piece of property in a nice country like NZ, you’d need to sacrifice and pay the price, peoples been living here too cheaply for too long.

Maybe i am dumb but why would a productivity commission  chose as its first task the price of property - Surely the issue is not that property has risen faster than wages but that wages have risen slower that property!

Improved Wages - are the result of improved productivity in the workplace which in turn leads to higher outputs / goods/ products and services sold in order to produce greater revenues  profits often from overseas- This is wealth production and income generation

Higher Property Prices are a result of speculation and gained by higher borrowing and debt leading to greater interests payments going offseas and therfore wealth is lost and squandered

Perhaps they should look at workplaces - employee outputs - research training and development and not simply play to the fixation with property

 

 

Here are some other great National Party ideas.... 

1. A cycle highway

2. A financial hub

3. A "Jobs Summit"

4. The 2025 Taskforce headed by Don Brash to close the Gap with Australia.

5. The implementation of the Marine and Coastal Bill. (Pushed through under urgency). 

If there was a surplus of housing prices would be dropping (as they are in oversupplied parts of the States) and this discussion would not be happening.  There is not an oversupply of houses.

Adding a taxes of any sort will not make houses cheaper when there is an undersupply.  Any extra costs are passed on to the purchaser (plus the margins).  When Auckland City increased development levies (tax) nothing got cheaper - it got more expenive by the value of the extra tax plus margin.  I do hundreds of feasibilities on development projects and see this daily.  Density = cheaper housing.  Extra costs = more expensive housing.  When there is an undersupply of houses making them more expensive does not make them cheaper.  How come Australia which has stamp duty, CGT etc. has an even worse housing affordability problem than NZ?

The govt has at it's disposal ways to control house prices.

#1 Get rid of all the numbnuts at QV for starters - I have seen some absolutely appalling ill reasoned valuations and get the distinct impression that the logic and modelling employed by QV is not much more than dart board mathematics, if the dart hits the right spot that price will do.

#2 CGT - just do it - not on the family home if has been owned for more than 3 years (same as Australia)

#3 Open up city boundaries and free up more land

Could it possibly be that they want to conclude: 'House prices in NZ are reasonable by world standards, but due to cock-ups by previous govts, ppl are not productive enough to earn enough to afford them.'

Not in so many words of course.

oh...wasted energy and you can't have the time back....

time to build and build and rent out and rent out, oh the money, money, money! Pant, pant, pant! Oh, it's so good to be a property investor, pant, pant, pant!

Lend me money, give me money! I want to bulid, build, build and rent, rent, rent!

Sigh!

 

Oh yeah! I won't read your vitriol! :~)

 

have a nice day!

 

remember, build, build, build! You have been warned!

Has April the first come early? Even National cant get the joke day right!!!!!!

Nicholas, yes I expect National to win the most votes, but  not get much more than 45%; come the crunch at election time, it's virtually impossible in a multi-party situation to get much more.

Who will be National's allies, if ACT gets a caning and the Maori Party loses out from votes to Labour in one direction and to Mr Hone on the other? Mr Hone, Winston and the Greens will side with Labour if they have a chance of forming a coalition government (God help us). Then it's populism unleashed, including hitting anyone perceived as being a bit of a tall poppy, and that will include 'greedy'  PI's. And there could be plenty of sad sorts angry with their life out there, who will say 'good job' and support such a rag-bag bunch.

FYI It's interesting that one of the unions has come out in favour of a capital gains tax

Statement below

Political parties need to bite the bullet on capital gains taxes, the National Distribution Union said today, as the new Productivity Commission gears up to review housing affordability.

 

Finance Minister Bill English has today announced the Productivity Commission's first two inquiries, one of which is housing affordability.

 

NDU General Secretary Robert Reid said the country needed a frank discussion on the implementation of a capital gains tax.

 

“There is something fundamentally wrong with a housing market that is structured to deliver untaxed capital gains to those who have capital, at the same time as denying the dream of home ownership to the upcoming generation,” he said.

 

“There are many options available to make housing more affordable both for renters and home owners, including an enhanced state housing programme, greater facilitation of housing intensification and a return to a shared equity programme, not to mention lifting wages.”

 

“But any serious discussion on housing affordability must include a debate on a capital gains tax on all properties except the family home.”

 

“Although the impact of a capital gains tax is likely to be more in the medium to long term, as investors redirect their capital into more productive assets, the NDU still believes this move is a necessary one.”

 

“Other countries have faced up to this problem.  And despite frequent comments from politicians, introducing a capital gains tax is not always an unpopular move. 

 

“It’s time New Zealand bites this particular policy bullet as well,” Robert Reid said.

50% tax on people from overseas buying houses

CGT on all secondary homes, baches included (no loop holes).

Or a stamp duty on 2nd, 3rd.... hand houses (where a house wasn't built in the first place, stops all the demo and rebuild. This will increase the housing supply

Lower council charges on new builds

Somehow drop the fees for new builds. (no land rates for 3 years???)

Release land at urban limits around key public transport routes.

How come the same people who have been telling us for years that house prices are plumeting, are plumeting now and will plumet in the future are the same people also demanding that there should be CGT.

If you really think house prices are or are about to plummet why would you be so desperate for the govt to spend 10's of millions setting up a whole new tax regeime to collect $$0.

 

Are you conceding that you've been completely wrong in all your predictions and have opinions that should not be trusted OR are you just dumb enough to want a tax system set up to collect revenue where you think there will be no revenue to collect?

 

Increasing GST on construction recently did not make housing cheaper - it made housing more expensive.  Is CGT a 'magic' tax that makes houses cheaper or was the GST increase not enough to make houses cheaper?  How about a 30% increase in GST?  would that make houses cheaper or would it only make them cheaper if it's called CGT not GST?

 

If you want cheaper houses you should be campaigning for increased supply of houses, not less houses.

 

 

Well expressed bob. A wonderful irony about what some are saying will happen and at the same time are asking for.

Seems to me the people asking for the CGT are implying that what they really think is house prices will start rising again. Hence the need for the tax.

Can one of the anti-PI brigade explain this to us?

 

Easy. The profit to any transaction is at the time of buying, right? (Realisation of that profit only coming at the point o f sale). So buying an asset that you know has a fixed new penalty  ( especially if it new to the market, and you will be the first one to bear it!) at the sale-time, has to be accounted for at the time of purchase. ie: a buyer has to put aside what they will' loose at the end', when they buy, as part of the economic reason to go ahead with the purchase in the first place. ie: the total paid will be % to the vendor + CGT to the Government = available capital. Any new component to the left of the '= sign', lowers the '% available to the vendor' amount. That's lower property prices for the vendor.

 Further. There are really only 4 sources  to alter the ‘available capital’ amount, that total costs add up to ~ (1) wages (2) borrowing capacity (3) capital released from a previous sale and (4) winning Lotto. I don’t see wages rising with unemployment looking nasty. I see the banks less enthusiastic about lending. The amount of any residual capital from a previous sale will also be reduced by a CGT or like; but I’d guess a lot of people bought a  Lotto ticket this week.

Thanks Nick. I disagree with the old property guru saw that "you make your profit at the time you buy".

But putting that aside, the CGT is too easy to avoid. Don't sell.

Oi...you haven't addressed bob's point: why are the people who say house prices are going to collapse so keen to see a CGT.

Aren't house prices about to collapse?

In fact your posts suggests to me you think house prices are going to rise!

 

When, Your Landlord, is the best time to impliment any tax? When no one has to pay it! It's  CGT tax, with the emphasis on the G. It won't be applicable to any L. When property falls, there is no G to pay tax on! So It does two things, by bringing it in now. (1) It doesn't effect many people ( depending on whether it's retrosprctive or not I suppose!) and (2) it 'put a lid on' the future sales. And, Yes! House prices are about to collapse. And as I posted to you yesterday. Bring in the CGT with other 'incentives' and that will put paid to the idea of 'not selling' now....

The issue is why house prices are high.

You obviously have all sorts of bizarre reasonings for why you think making them cheaper by making them more expensive is a wonderful idea (we could be like Australia, extreme affordabilty crisis in housing market - HAS stamp duty, CGT).

However I can't see why a simple correction of the supply/demand equation is such anathema (think Florida, ultra cheap housing due to oversupply - nothing to do with CGT).

Are you some sort of elderly NIMBY who is determined that nothing will change in the next 10 years 'till you die, because Auckland must stay looking like a provincial town 'cos that's what it was when you were a kid in the 1930's?  Do you hate apartments and think everyone should live in a freestanding suburban house with 2 cars because that's how you like to live and diversity in living styles scares you?

This is how 'more costs' makes houses cheaper....it stops people buying them as an 'investment. It returns them to  a still  relatively expensive asset that is apired to...a home. People would go back to having one house/one home, and when they wanted to move/upgrade, they would have to sell that one home to buy another, as there would be a disincentive to own more than one . I guess that's where the ' except the family home'  arguement comes in; and it won't suprise you to hear I have concerns over doing that, as well! But, hey, I'm flexible....:)

Oh, And if as you point out, it makes no difference whether we have CGT or Stamp Duty or Land Tax, as "Aussie has a bubble as well", and it didn't stop that, well then let's just bring them all in....after all...it makes no difference, why not? (NB: I actually live in an apartment in Auckalnd...)

Bob,

A CGT is considered by some to take some of the top off overipricing....the opposite happens to what you consider happens ppl cant afford that hit so wont pay the extra, result the seller has to come down to what the buyer can pay...That then is less money for the second party to take and leverage into a bigger and/or better house so it works up the tree....the OZ first time buyer grant works the other way....

So you need to compare apples with apples....OZ with its first time buyer grant which has been done for 5 or 6 times is regarded by some Steve Keen etc as one (if not the main one) of the reasons the OZ housing market is so over-priced....

So when you compare make sure you are considering all factors and the net effect....

It was also thrown into the GFC as one of the ways to try and avoid a meltdown in OZ, generally it seems to have sort of succeeded short term, however its now looking as you say that OZ has an affordability crisis and a very probale property burst...maybe (probably) one of the worst...so it may only have delayed the in-evitable and encouraged first time buyers to jump in and buy what they couldnt really afford and which is probably going to wipe them out soon....not nice...will those voters forgive the Govn of that? prob not....

The problem with a corrction as you see it is the degree of hit, crashing property value in America have wiped families dreams out...the lsot asset value is pulling down the banks with huge losses which they are hiding........the idea is to avoid that/this mess again.

Last para, I think ppl should live as they please...

regards

 

Not that easy.

You are saying that if you can afford a $1M house and there was say 20% capital gains tax then you would rock up to a vendor with a $1M house and say "now that there's a 20% CGT I'll give you 833K for your house, because all I can afford is 833K for you and 166K for the govt".  The vendor would tell to to sod off because they know there's a housing shortage and soon enough someone will turn up willing to pay them $1M+$200K for the govt.

By your warped logic the bigger the CGT the cheaper houses and bigger tax take - what rubbish.  You can prove your point right now - go to a vendor with a house worth 2 x your 'available capital' and demand they sell it to you for your 'available capital'?  According to your logic they'll go "oh well if that's all YOU can afford that's what it's worth."  You could make a fortune.

 

 

...and by the way if it's "new to the market" do you seriously think developers would go "oh there's another 20% cost - we could either wait for prices to rise enough to absorb this additional cost (plus our margin on it), or, here's a better idea why don't we just reduce the purchase price by the extra cost and build the project knowing we'll lose money on it."

 

 

Capital Gains Tax is on the increase in value less the CPI, so even 20% ,CGT in a market that's not moving, or falling is  ... nil. But if someone has $1mio to pay for a house, and that's all they have, then it matter not a jot if someone else comes along and want to pay more. At the individual level, we all have a ceiling, either through savings, wages or borrowing capacity. My point is, that if a vendor tries to recoup whatever CGT he may be liable for by adding it to the price, there will be a group of buyers that today could afford that price, that tomorrow will not be able to. So the seller has that choice you outline. Sell for less or wait. And as CGT will disadvantage more sellers a time goes on, they will drop their prices to move their sticky properties. It doesn't affect the price of a new property, by the way. That way it actually encourages new builds, over old stock. Isn't that what we want? More new houses...

Bob,

You are making all sorts of wrong assumptions IMHO....you need to read up on how it works...

To start with the house isnt worth 1million....its worth what someone will pay for it.

We are talking about where it really matters before the chain kicksoff....which is the first buyer...we have some examples of this first time buyers are simply constrained by a ceiling so if the max they can pay is say $250k the vendor either has to sell for that or not sell....at 80% deposit that means the vendor can only buy a house at that.

A converse action aka OZ is where the first time buyer gets handed an $8k lump sum, now the vendor can charge $258k.....and that extra $8k is leveraged into a still arger house or the vendor pays a third lot of ppl more for the house they now want....

"You could make a fortune"....no because if you bought it for $200k then you could only seel it for $200k because the next person could only afford that much....basically you have an over-inflated view of what property is worth...

"New to market" indeed when you look at taxes applicable to anew build etc then new builds are hard to justify...

The CGT is a tax on the Gain ie profit....so if I buy for $200k and sell for a 5k profit (after inflation I assume is removed), I pay say 2% tax on the $5k....not 2% tax on the 205k....

regards

Thanks for the link - I couldn't understand what a 'Productivity' commission was doing investigating housing affordability.

The language gets very confused sometimes.

e.g. Productivity. - How much is produced per unit of input.

So why would a  Productivity Commission be investigating 'housing affordability'?

Small kev nailed it:
"I can just see the next thing they are going to tell people is how the house price is justified and people should live with it and work hard if they want to own their own home."

i.e. 'housing affordable' if we are more 'productive'  - clever eh!

The real estate industry had better  hope to be better represented than Fed farmers during a probe..............Connor...looked like low rent estate agent ...talked like a lame horse trader.....come to think of it ....he could cover for both probes.

Are we now paying international prices for our houses....?

Gold makes history - in the near future.

Interesting that on the one hand you talk about debt de-leveraging which is saving and this means less spending which is deflationary, indeed the only reason that our economy has grown by a few % over the last several decades is we have taken on debt at that same %....so say 2% GDP growth per annum has only occured because debt has grown at (say) 2% per annum....

So now we lose that 2% stimulus to GDP plus we have to deleverage so GDP is going to shirnk by what ever rate we now pay down debt or save at, if thats 10% then GDP will drop a proportional amount plus the loss from taking on less debt.....so in this instance that could be 12%...

So this is how I see it for the next decade, deflation and depression....housing prices collapsed....

As a seller of gold thats your salesman's job....to sell gold.....lets not bother with correctness or any sort of economic sense just as long as nzgold sells gold makes a profit.... Forsen and planned....yeah right, so little man by gold and be safe....

ie you are not a dis-interested party...

So, Weimar, hmmm thats a very extreme and odd example....Great Depression, yes IMHO....

Now as we come out of the GD mk2 inflation is a huge risk, I agree, the problem is the timeline....the GD took WW2 armaments build up ie huge Govn spending...and a decade....and the resources to do it...ie cheap oil....

regards

Well if what you say is true I better stick to my properties, as my "nominal" mortgage stays as is and my "nominal" house price explodes.

Property owners were one of the few survivors of the Weimar inflation.

Your nominal mortgage at what interest rate 500,000 % p.a.. See if you can service that! "Oh. But I'd borrow long, before interest rates take off". Really? Most won't. They will still be stuck in the floating arena. Are they fixing @ 8%+ for 5 years, today? No. And when 'they' go down, they drag all other property owners down with them.

Yes you are correct that a high interest rate can cause mortgage holders difficulties. I think it is wise to manage debts very closely and keep debt levels low as a percentage of the asset's worth and the asset's income. One needs to have scope to handle cost increases.

Slight hyperbole there Nick to suggest interest rates going to 500,000%, but I take your point and would urge people plan for higher rates and also the higher rents that will come from hyperinflation, eventually.

Just because others have to sell their houses doesn't mean all PIs are finished as well though.

In an inflationary environment time is the saviour and eventually a money-maker for a PI.

It's mad to buy and sell houses when inflation is rampant...just sit tight.

Okay. Well good luck with your million 'dollars house' if others have had to prgressively sell theirs for less over time. You may hang in there. But for what reason, I'm not sure. If it's asset price inflation you are after ~ that's already come, and gone.  Prices are where they are today because of past 'inflation' not because 'it's coming'. Ask yourself. What is the scarsest of commodities in the world, right now? My answer is: Cash - or it's underlying quality - credit. It's immediately availabe for deployment, and  the owners do not have to ask anyone for it, or permisson to use it. Debt is awash in our societies. And what should one always have, to make a profit? What others do not have. I can step outside my door this very instant and see 'invetment property' galore, and most at a negative ROA. I'd be hard push to come across too many with no debt.

Just one of the reasons I "hang in there" Nick...

In the 1980s people were telling me house prices had risen but no more. In the 1990s people were telling me house prices had risen but no more. Ditto the mid 90s and early 2000s.

And again today.

When I was a kid in the 1970s I remember adults going on about house prices and how they were way too expensive and couldn't go higher.

I very recently, as part of unrelated research, saw newspaper articles from 1946, describing the house market in New Zealand. The writer was commenting that despite the house-building boom of the late 1920s, the depression and the war, houses were selling for 1800 pounds in 1946 that had sold 8 years previously for 600 pounds. He had a graph to back up the figures of building consents and values. He wrote that that there were not enough houses and families were tenanting houses by the room, at 2 pounds a week, just to have somewhere to stay. The papers were full of articles about what the government was/should do to fix the accommodation shortage.

My point? Eventually everything moves on, so I hang in there.

 

Don't you get it ,  do you,Your Landlord? I  was one of those buying in the70's and 80's and 90's and even until the mid naughties. Don't you think that I would have hung in there "if I thought they were going higher?" I and my like, are selling because 'property has done what it had to' for us. Lots of us. Who do you think is going to buy from you (I was lucky enough that you bought from me!). Will it be my 22 y.o. stepdaughter who has $60k of student related debt at an age when I was already buying my first home? Or those older people who have lost their savings through all sorts of financial calamities? Not only are they no longer buyers from you, but are sellers against you from hereon in. Perhaps it's the 'overseas rich people"? In which case, where are New Zealanders going to live? Because New Zealand has lost massive disposable wealth over the last 3 years. The capacity to 'keep the game going' has gone. Now it's a 'make do and mend', and save, and hope we get though sort of environment....

Remember to 1987 crash, that was the beginning of the end, then the Asian crisis, that also was the beginning of the end, then the Dot-Com crash, another beginning of the end, then the Asian Bird Flu, more beginning of the end and the list goes on.

If you buy and hold you are more likely to get through the troughs rather than trying to second guess every possible probability of what might happen.

More about time in any market rather than timing any market.

 

@MoneyMan: In 87' those worst affected we were ~ 35.y.o. Asian Crisis ~ 40, Dot Com ~ 45, Bird Flu ~ 50, Lehmans ~ 55.....not only did many of us not recover from each of those, but as a group, we don't have time to do it 'one more time' with whatever we have left. We are on the verge of 'whatever we have, is it", and if that icludes property, it's going to be cashed up. Becasue we don't have it in us to take one more thrashing....

So normal boom & bust cycles then?  Previous booms were in specific sectors - stockmarkets, technology, and housing tagged along as people felt wealthier and upgraded or bought their first home.  Problem with current boom is that it targeted property and was more extreme than previous property booms.  There are a hell of a lot more people caught up in this one as well.  Assuming it follows previous cycles then a crash is still on the way - a 5% reduction does not constitute a crash.  Problem is, because it was more extreme and more people are involved, a hell of a lot more hurt will happen if the normal boom/bust cycle eventuates.  An additional issue is the commodity boom has already started before the property one has crashed.  Is that because property is being artificially prevented from deflating according to normal cycles?

Time in the market is correct if you're an investor and I understand why everybody got into property.  What about the average consumer though who just wants their own home?  Booms in the stockmarket and technology don't affect the whole of society, housing affordability does.  Booms in commodities can't be sustainable as 90% of the world population won't be able to afford to live.

interesting view point....actually the opposite, timing moves between markets is what makes a lot of money from what Ive read.  The real money is made when you jump between asset classes....if you stick to just one long term you do little better than bonds...and some do worse.

regards

Steven

 

I do get it Nick. That's why when you ask "who is going to buy from me?" I say "No one. I'm not going to sell."

Ever.

Ps; Bet you wish you still owned those houses you bought in the 1970s (for $10k to $30k depending on what years) :)

Golly! Never is a very long time, Your Landlord. It includes all sorts of things like divorce; sickness; job loss; children and a myriad of things I can't even begin to remember. And as for 'that house from the 70's"? ( Yep @ $38k) I didn't have a choice. In those days, we weren't allowed to borrow beyond 33% of our household income ( which was deemed to be the man's income) and had to have 30% deposit to buy the next house. Otherwise the lender was a 'predatory lender' and was at risk of the whole amount of the loan if a borrower defaulted. Retaining the old house you had wasn't an option is you wanted to 'upgrade'. So we all pretty much had just the one house as a home each, untill 'the rules' change sometime in the 80's. You see those rules from the 70's? Guess what...they're on their way back in spirit......

For anyone interested in gold and the issues surrounding its use as a key part of monetary policy, read "Lords of Finance" by Liaquat Ahamed.

The chaos caused in the inter-war years by "gold standards" is well described.

Has nzgold man or woman read this book?

 Domestic Housing is a scarce resource- so why should people who don’t live here be allowed to buy.  In Nelson we have whole streets that have every second house a holiday home for someone off-shore.

We simply cannot have people continuing making huge money off domestic housing at the same time young people, families being able to afford them.

This inquiry is years overdue as well as a waste. The problem is well known, the various solutions well known- but no political will. Housing will be an election issue this election, and the following election- it might be the only isssue!

Any CGT exempting owneroccupied houses not only cuts out a huge tax base but simply compounds the problem of people spending too much on housing.  In such a scenario, people will build/develop CGT exempt Mc Mansions.  There will still be a need for rentals, yet more and more people will give purchasing investment properties a miss.

But because the catch cry for CG,T except for owner occupied properties, is really politically driven, those who advocate the measure will still press for it regardless of the consequences.   

Stamp Duty catches that. We all sell at some stage or other....unless you are Your Landlord, who will keep his McMansion till he dies. ( What for I ask. Trust me. At some stage you only use four rooms..!)

Nick, I don't think I own a McMansion. The most expensive property I have is 4 bedrooms in Rodney with GV of $620k.  The house I live in has a GV of $320k and 3 bedrooms.

I agree with you that four rooms suffice, although I have two school-age children and a bit more space to "get away" would be nice!  Also, I love the kind of music others find unlistenable.

How's this for an irony: the most expensive, 4 bedroom, house is tenanted by a single mum, her son and a dog.

So if you deem that a McMansion I would have to say "Bloody tenants and their McMansions!"

 

Kris Sayce (Money Morning) Has a pretty persuasive piece on the beginning of the 

Aussie housing crash. He cites some recent sales and credits the internet with being an antidote to the mindless spruiking of economists and the Real Estate spokespeople.

If the Australian housing market crashes what hope for NZ?

 

To quote a bit from today's article....

"But the idea that a crash would be bad is – in our opinion – incorrect.  A crash is what’s needed after every bubble.

The key to prevent the pain of popping bubbles isn’t to try and create a soft landing after a bubble, but rather to stop doing things that create bubbles in the first place.

The fact is, bubbles can’t be deflated slowly for the reason that markets are made up of individuals acting – rightly – in their own interest.

The idea the bubble should be allowed to deflate slowly simply argues for the socialisation of losses.  That losses should be spread across many people rather than the few.

It’s saying that because some have chosen to fall for the false promises of property investing and overextended themselves, others should be encouraged to also pay inflated prices just to cushion the blow.

That individuals should be encouraged to buy into slowly devaluing property just to help reduce the losses of those that bought into the peak of the bubble.

Make no mistake, the housing bubble is a housing Ponzi scheme.  And potential buyers today should stay well clear."

jeez propero you're waaaaaaaaaay behind dude. 

Asb say the markets bottomed out today!

 

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10716447

 

talk about friday funnies

Is that the same Kris Sayce who advocates  buying into his get rich share market programmes?  His self- promotion is a worthy rival to the efforts of the Reader's Digest.

Sayce may be right about the Aussy housing market being over-valued, because since NZ's started correcting years ago now, Australian property just carried on up and up regardless.  However in Australia it is known that Sayce has his own agenda for quick get-rich schemes.

LVR is a poor instrument for controlling house prices. My wife comes from a Latin American country where the typical banks LVR is 30% and guess what? All the rich have property and the middle and lower classes rent, rent, rent! When an affluent couple buys their first home they are usually given 70% of the value of the property by their parents. As you can imagine social mobility there is next to zero.

Some huge portion of Germans rent too. But not because they are poor. They see their capital as better empolyed in something other than a house. Wherever you go in the world, there are German tourists enjoying their wealth, living, so to speak. Odds on, they go home to their rented accommodation.

So who provides the rental properties: State or Private.  If State then they are prepared to accept a lower return on capital but if private why would they accept a lower return by having their capital tied up in housing?

On what it is today, I would swear. But from ages ago it was a mixture of both ( Esp. after reunification brought a swag of 'state' into the pool). But they gist was, renting was more than the cost of ownership, to compensate the owner ( who often granted 5year+ leases) for the commersial risk. It should be that way here as well. That's the clue that we are out of kilter. When the cost of renting is lower than the cost of buying, there must be an expected offset. In our case, it was capital gains.

In my experience you are quite correct Nicholas. The big difference I have noticed is that in the eurozone, and before the euro, interest rates have been low, say 3% roi and 4% on mortgages. This means that a landlord can maybe make a profit at a rent of around 6% of value. No hope of doing that here most of the time.

Nicholas, think you will find the people with serious wealth in Germany are the ones who own all the proprty they rent out to the others

Is that a problem? Rent is rent. It doesn't matter who the landlord is. I wouldn't have a clue who my landlord is, other than that he lives in Singapore! It leaves 'the poor' ( and they aren't our kind of poor in Germany) to use their funds in other ways, rather than being transfixed with the price of property.

I think the class system has something to do with it, the wealthy class get pasive income to live the life of Riley, the renting class continue to work until they can get state pensions

Ah but there's the difference, Luxemburger.

 I don't get excited when an economist suggests something "may" happen. As Kris Sayce says the internet has changed things and we can now access information for ourselves and not have to rely on

" lazy mainstream journalism based on information from lazy mainstream economists"

Well recently my lawyer said that Westpac has started a LVR of 95% again....oh brother!!!!

Me, you are spot on with your comment. about CGT.  Agree it will only be for political show purposes if any government brings it in (to appease those with a grievance against PI's) as exempting owner occupied houses will make a distortion of the property market and of course a lot of any potential tax base missed.

I have been reading for quite some time here and find some articles quite interesting.

I have, as you can imagine, a slightly different view being Austrian.

I find the housing affordability debate at times amusing. We don't have these issues back home.

There are a few reasons for this. One being an extremly efficient building industry and building materials of the highest standards at low prices due to compertition across Europe.

The other being land release policies. I pay in Austria 30% of a section price that I pay here eg in Queenstown. I compare of course with a similar area in Austria.

400000 NZD gets you a house that if it is of the same standard as a place in excess of 1000000NZD if you are lucky. But you never get the craftmanship anyway. No debate about this please.

You will never get cheaper sections in NZ since it is a money maker. You must not forget that the marginal cost of land determines the price of a house. If section prices drop by 150000, new housprices will drop by 150000NZD on average. This puts pressure on existing homes since the alternative became 150000NZD cheaper.

An investor told me once that an efficient building industry would reduce houseprices since they become chepaer to built. NZ must be the only country where efficiency improvements are seen as destroying wealth. It is absurd.

NZ will fall further and further behind if it does not stop the false economy.

A country is rich if you get goods and services at a low price due to economics of scale productivity and efficiency. 

Again if you ever hope you get a better deal in the future you may wait forever.

Too many vested interests.

However, these vested interests have cause NZ falling behing Slovenia in the GDP pecking order...............an ex socialist country.......these are facts and not opinions.

 

Cheers

Amadeus

 

So you are saying that Austria is a better place to live in than N.Z?  Do you drink Tui?

International surveys of most desirable places to live, taking into account housing, life-style etc feature NZ high up the stakes, don't recall Austria. Australia is usually up there , too.

Give me a break, house prices have doubled every decade in NZ for as long as records go back and I see no reason why this is going to change anytime soon.

Everyone loves to point the finger for inflated house prices, when the majority of the problem arises simply because money continues to devalue which is largely a Government responsibility.

Basiclly you need more of a deflated dollor to buy a house.

Waiting for house prices to fall? You might be waiting a while as they continue to pour billions and trillions into currencies to prop things up.

Muzza, I was saying that Austria has higher quality housing at a lower price.

If it makes a better place, that is a personal opinion and is different subject altogether.

What I know is, that if a nation builds houses that often last only 10 years [leaky homes] you have to rebuilt and can't built hospitals and infrastructure etc

Even you can understand it. Efficiency and productivity creates the wealth of a nation among some other things.

BTW, in one survey Vienna was considerred number one in the world, never mind about that.

But surveys dont matter if your house rots and you earn relative little money.

I am sure you agree here.

I have not drunken Tui, but you should travel the world to see how things can be done differently and what sort of prosperity it creates.

Visit Salzburg and then compare with Dunedin [same size]. It will be an interesting experience for you.