Prime Minister hits back at OECD findings of NZ having most expensive housing in world relative to rents

Prime Minister hits back at OECD findings of NZ having most expensive housing in world relative to rents

The Prime Minister's denying that New Zealand has a housing affordability crisis, after a new OECD report found that on one criteria we had the most over-priced houses in the world.

He also said he didn't see a problem with the current rising immigration numbers, saying that the current migration pattern was a "a very positive story".

Labour Party leader David Cunliffe said if the Prime Minister truly believed there was no housing crisis in this country, "he is completely out of touch with reality and the New Zealand public". (Cunliffe's statement is below)

The OECD report included a table, which shows that on the basis of house prices to rent, New Zealand has the least affordable houses, while on the basis of price to income, it is second most expensive, after Belgium.

But on Radio New Zealand today, John Key denied that this constituted a crisis.

"Well, it’s not a crisis. A crisis would be one to indicate that A/ you couldn’t buy a home, well that’s not true – there are houses in quite a wide range of prices – if you go on to Trade Me now and have a look at say houses say for $350,000 or less in Auckland and quite a large number of listings will come up.

"If you look at the capacity to borrow in New Zealand – yes there’s been LVR restrictions but banks are still making loans above those and in fact interest rates are on a 50-odd year low.

"Wages are rising. They’ve been rising faster than inflation. But if you want to take a step back on the overall housing issue, the way to deal with that issue is on the supply side and the way to ensure that prices don’t continue to rise rapidly is on the supply side and that’s why the government has special housing areas – the number of consents has doubled."

Later in the interview Key said: "...With the greatest respect, I’ve lived in London, I’ve spent a lot of time in New York. I’ve lived in Sydney and I’ve been to Singapore. And if you are going to seriously start telling me that a house in Auckland is more expensive than a house in Sydney or Melbourne or Brisbane…

No bubble

"...They [the OECD] are using a particular measure, but the point here is that hasn’t changed dramatically. There’s always been an issue about price to income but the question is: Will your home collapse in value like they did in the United States, where you had a real bubble caused by the financial techniques used by bankers like sub-prime mortgages. The answer is there’s no indications to indicate that, well there’s no factors that would indicate that we have a particular bubble.

"The economy’s strong, people’s wages are strong, borrowing is reasonable and so I don’t think that foundation is going to break. I think what is absolutely necessary is 1. For us to continue to work on techniques to make sure the prices don’t gallop away on us and 2. overall actually to continue to build wage growth."       

Locked out?

Pressed on whether the situation now meant that in future people would be permanently "locked out" of the housing market, Key said: "I don’t agree with that. If you have a look at what the Government’s doing, for a start off it’s a myth that house prices are going up all of a sudden under a National Government and didn’t go up in the past.”

"House prices went up 96% under Labour.

“Under us they’ve gone up 28%."

Key said the background to New Zealand's rising prices had been the fact that the buoyant economy, with high levels of employment, was encouraging people to go into the housing market.

"There’s no signs that’s going to turn around."

Growth ahead

Key said last week's Budget had made clear there would be strong growth in the years ahead.

"So, we don’t think that’s a factor that’s going to go away."

Key said the Government was moving to address supply shortages and houses are being built.

He said he didn't have exact figures on how many houses were being built at the moment.

“I don’t know the answer but I know it’s very busy in Auckland, it’s very busy in Christchurch.”

'Huge numbers' of homes

Home builders were building “huge numbers” of homes, he said.

“If you go to my electorate in Hobsonville – a huge number of homes being built."

Asked about rising immigration, with predictions that this might top 40,000 this year, Key said: “I think if you look at migration, it’s a very positive story. I mean the reason that migration is strong is not because there’s a lot more people coming to New Zealand – there’s a lot less people leaving New Zealand.

"Again, under the previous Labour Government 35,000 people left a year. Now that number’s dwindled to about 350 a month – probably about three or four thousand a year."

Asked about the possibility of taking fewer migrants, Key said: "The Government always plays around with that kind of inflow if you like but let’s remember that over half of those people that come to New Zealand are in the skilled migrant category."

These migrants were working in new industries that were helping to boost the economy, he said.

"Of course, if you want to restrict growth, you can do that, but we are a small country – our population’s four and a half million people. We’ve got more than enough capacity to build more homes." 

This is the statement Labour Party leader David Cunliffe put out:

PM: Housing Crisis? What Housing crisis?

If John Key truly believes there is no housing crisis in this country, he is completely out of touch with reality and the New Zealand public, Labour Leader David Cunliffe says.

“The OECD has found New Zealand has the most over-priced housing in the Western world. This confirms what Kiwis already know: property speculators and mortgage restrictions are locking them out of the dream of home ownership.

“We have a housing crisis, yet the Prime Minister is in denial.

“John Key also claims there is more demand for houses because the economy is ‘buoyant’ and wages are growing. I’m sure the 46 per cent of Kiwis that didn’t get a pay rise last year will disagree.

“Net migration is expected to tip over 35,000 next year. Those migrants will require almost 13,000 new houses, with 6300 of those in Auckland alone. The Government’s housing accord will build 7176 new homes per year at current rates in Auckland, meaning up to 80 per cent of those homes will be needed to absorb rising immigration.

“Meanwhile, National offered nothing in this year’s Budget to address the housing crisis other than removing tariffs off building materials which accounts for less than 1 per cent of house prices and may well not be passed on to home buyers.

“Labour has the policies and willingness to tackle both the demand and supply side of the housing crisis. A Labour government will reign in rising house prices by clamping down on speculators, taxing capital gain and building 100,000 affordable houses under our KiwiBuild programme,” David Cunliffe says.

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

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Interesting video from the UK where they discuss taxing the value of land instead of goods and income.
http://topdocumentaryfilms.com/taxing-question-land/

Strange.... I also went to TradeMe, to find out how many three bedroom homes were for sale in the North Shore City part of Auckland for under $400,000.
It is regretable that folks in Auckland need to live reasonably near to work, and many of the new housing initiatives which will inevitably take time to realise are in places remote from work. Therefore the cost of living will remain high if less-expensive homes result in major transport costs.
The number of homes for sale on TradeMe..... ONE!

Key is out of touch!  Houses under $350,000?
 
Exclude leaseholds and relocatables, then in Auckland City, 1 dunger in Otahuhu. None in North Shore, about 6 in West Auckland (Ranui), and 60 odd in Manukau (mainly Otara, Clendon Park and Manurewa).
 
All out of about 6000 listings ie about 1% of the market.

To be fair, I thought he said West Auckland on the radio this morning, so the North Shore wouldn't be relevant (someone might want to check the audio). But I was still waking up so could well be wrong. If he did, he might consider 6 to be a large number of listings.

Key is right , the market is not in crisis it simply repsonded to the forces driving it , namely

  • The cheapest money in 50 years
  • Migration to NZ on a scale never seen before , not ever .
  • Migrants arriving with money to buy homes ( We have a documnented policy encouraging  wealthy migrants to come here )
  • A global financial crisis in 2008 that saw almost all housing development curtailed for 5 years
  • Auckland council incompetence restraining supply of land
  • Auckland council chaos in cobbling toeghter the Mega City meant policy was in limbo
  • The exhorbitant costs and long -winded process of subdivision restraining land supply
  • Coucils rorting land developers
  • Christchurch earthquake victims on top of new migrants arriving in Auckland

Get these right and house prices will get back to sensible levels , its that simple

Mr Key argues well, but that does not make him correct. On this topic, he reminds me of King Canute and his demonstration of his power to control the tide. 
Or is the analogy with Abe Lincoln.    '"...You can fool some all the time, and all some of the time, but you can't fool all the people all the time...."
Politicians with this approach have a limited future.

John Key is absolutely correct , there is no crisis . We have been doing the wrong things that caused us to get here , but it will sort itself out if left to free market forces  

Free market will sort it out?
1. Free market got us to where we are now, so that's a worry then.
2. No such thing as a free market without true competition - especially in NZ with too much interference by govt, big players influence and so on.

As what is internationally considered one of the most lightly regulated countries in the OECD, I'm not sure you can blame government intervention as a primary cause when comparing to other OECD countries.

Canute recognised that he had no power to control the tide - it was the sycophants who surrounded him that insisted he had such power. He was actually that most astonishing of men - a modest ruler:
 
""Let all the world know that the power of kings is empty and worthless and there is no King worthy of the name save Him by whose will heaven and earth and sea obey eternal laws," King Canute after demonstrating that he had no power over nature.
 
Today of course, centuries on, our leaders claim to have dominion over everything - even the climate - but strangely enough they can't  offer prudent controls over immigration on behalf of New Zealanders.

Yeah looks like you forgot the most important ones Boatman:
- Tax free capital gain resulting in over-investment
- Relaxed money laundering laws resulting in the proceeds from crime being laundered through New Zealand property
- Foreigners having no restrictions on purchasing NZ property and access to cheaper money than kiwis

And people voted for this guy?

Get over it ... we are all going the vote for him again .The alternatives are too ghastly to contemplate , and he is doing a good job managing the economy.
A Greenlabourfirstmanadotcom government is a potential nightmare and unthinkable

If it goes to standard pattern the next 2 weekly Roy Morgan poll will be out in a few days, covering the post-Williamson pre-budget period. It is going to be a really interesting poll on the mood of the country. It may indicate a lot of voters are contemplating their options.

Options , what options mate ?. There are none , its John Key or a maladministration made up of  :-

  • A dysfunctional unco-ordinated bunch of leftwing rabble rousers who cannot agree between themselves who their  leader should be.
  • A racist Maori
  • A German fugitive 
  • Dr Russel Norman who certainly is not a Doctor of Economics ,
  • And the evergreen Winston Peters who gets his  votes from old folk who are frightened of the changing order of things .

John Key is vitually gaurenteed another term against this mob of hapless  losers

Of all the things in Key's comments in this that made me wonder where his media advisor's were, the thing that most irritated me was the thing a general reporter won't call him on. He is taking total percentages ffrom different time periods. That is like saying NZ's population went up 370% in the 20th century, but has only gone up 12% in the 21st century. As someone who works with numbers, I find that fingernails down a blackboard stuff.

we are becoming slaves to debt, 11 billion of new household debt in the last 12 months. What resources are they intending to use to pay the interest?

Yours...AJ.
 

LOL,  chokes 

Conclusion is wrong.

Price to rent versus historical ratio for this measure is where we are leading.

Nz yields still compare favorably on international basis.

Basically says that nz rental yields have fallen by most.

This is a result of nz being more attractive to foreign capital and considered less risky now than it used to be.

Correct ! The comparative measure is flawed , most Kiwis ( and Migrants)  dont want to rent anyway , so they hock themsleves to the hilt to buy instead

Thats good for those like me with no debt , its the remaining 2/3rds which is a problem

It is a shame that poor people will have to spend hours sitting on motorways in clogged traffic to get to their call centre jobs.
In Holland I lived in a million euro canal side apartment next to a social housing block - simpler in design with no view - but still good quality and central. They legislate to avoid ghettoisation.
Smart people those Dutch.
 

It's also John Key the prevents avoiding ghettos, first thing he did as prime-minister is cancel the social housing planed for his electorate at Hobsonville Point.

Numbers number numbers...........
33% debt free, of whom 80% own nothing and owe nothing??????????
66% owe something, but own something
Everybody who owns something and owes nothings is over the age of sixty.
Anyone can say anything really. 

yet more greed leading to yet more fear and pain.
oh boy
regards

Keep it in the sand mate . The NZ POPULATION GREW BY 50% over that time
Population 1991 :- 3.000.000.
Population 2014 :-  4,500,000.
Thats mostly migration , and a lack of sufficient new building compoundedd the issue

Are you asleep when you read this forum Kimy, as I have been pointing out for some time the World population growth has been slowing since 1961 and is likely below 1% now given statistics are published in retrospect. The trend is downwards and could turn negative any time, a foregone conclusion they will within a generation.

This is a world that needs LESS people not more, and we need to get used to making things work with less of us. It would therefore be utterly stupid for us to expand our population Grow grow grow is unsustainable and the sooner we get our heads around it the better
It is estimated that for everyone in the world to be able to live the rough equivalent of a European lifestyle, there is only enough resource for about 3 billion, all up.
We may seem to have a small population, but already we are experiencing issues with water. If you live in Auckland, much of your water comes from the Waikato River, increasing that is not sustainable.

or drinkable ?

"utterly stupid", well quite frankly I have come to expect that from Kimy and his inane, illogical babble is one of the reason I can't be bothered to post around here anymore. Put it this way, I used to be able to come here for intelligent conversation but that can no longer be relied upon. I look elsewhere now.

Factually incorrect.
 
Auckland sources about 8% of its water needs from the Waikato River, although there are consent applications pending seeking to increase this. At the peak offtake, and when the river was at low flow, the actual offtake was less way than 1% of the river flow, taken from about the closest practical point to where it outflows to the sea (ie after all other uses).
 
80% of Aucklands water supply comes from its own dams, more than 10+% from groundwater supplies. The dams are currently 59% full following maximum summer use.

The Waikato is about the only place you are going to get MORE water from and if you have more people you will need more water, quite simple really

Agree, we have 6% un-employed, no wage rises for many and a housing affordability issue and still ppl are allowed in.
Its crazy.
regards

There are of course a few around here that I admire for their endurance and tolerance :-)

There isnt the energy to support much anyway....
regards

So roughly we are growing at 2%, which means a doubling time of 35 years. So in 35years we will be 9million.
Have you considered what the impact is of that is a resource starved country/world?
More services jobs? that produce nothing real?
Pretty bad I think.
regards

A leader needs top lead. Keys efforts here are the same as when he had the BBC interview regarding river pollution in NZ. He completely ignored tops scientist findings and said "Not a problem."
Turning a blind eye to bad news is not what we need.
Regarding immigration can anyone tell me what it brings to existing Kiwis? A smalltown friend said that Nationals position is that they can help build housing for all the immigrants but surely someone here must be taking the piss - I hope they are. Immigrants effect on health, education and traffic congestion is also not to be desired either. Someone is going to say that we need skilled immigration to cover specialities such as medicine and engineering but the folk I see in $2 shops and cafes won't know too much about brain surgery.
NZ might be in a sweet spot at the moment but when the tide turns how accommodating will we be of all the jobs that have been taken by immigrants. As a friend in Oz said - "bringing in the worlds gypsies is all well and good but who is going to pay for my hip replacement."

John Key is totally wrong that net-migration is down to less people leaving.  Yes people heading to Oz is down, but inward migration is up way more.  The bulk of the issue is that more people are arriving.

"Unadjusted figures showed 98,000 migrants arrived in the March 2014 year, up 14 percent from the March 2013 year (86,000)."
http://www.stats.govt.nz/browse_for_stats/population/Migration/IntTravel...
Can't remember where i read that arrivals was the bigger issue, increased arrivals is certainly a big component of increased net-migration, it's not just less people leaving, much as the government might like to spin it that way.
 
 

Meanwhile, uncle Len is sitting pretty on his new salary.  He has done squat about making it easier to get building permits, sub-division or more land available for developers
The old Manukau City and Waitakere are well known to be one of the biggest land banker. 

Stupid politics by Key. If you are on the fence politically, struggling to save for an over priced house, having Key tell you "suck it up princess, nothing to see here" will hardly win any votes. And for those with concern for economic stability he is pretty much saying "I'm a bubble spotting guru, don't worry about it" hardly endears any confidence.
I have voted National all of my short voting life, but not this time, they have lost the plot.

What frightens me (irrespective of irrational Boatman descriptions of opponents of Key) is a combination of the worst do-nothing attitudes (including housing and immigration) with arrogance in a third term similar to that displayed by Clark & co in 2006-2008.
So my vote cannot go to the Key cohort. The problems is how to get the least damaging alternative.

I notice National have backed off on the North Korea/ Stalin rhetoric they were trying out a few months ago. I suspect focus groups told them it was just making them look stupid.

They seem to open mouth and look stupid....LOL.
Roll on the election...
regards

Agreed - I know people who have previously voted National but will not this year on housing affordability alone.
 
And their head in the sand approach isn't working as it's an issue that directly affects people, not like the corruption allegations.  This could be the deciding factor in the election...

Actually from last opinion poll on the topic most people are happy with rising house prices.  I.e most people own some real estate in new zealand.
The squeaky wheel is coming from those that missed out on the price rises, maybe because they couldnt afford to get onto the ladder, or more likely because they thought they were smarter than everyone else and thought nz property was going to crash 30%. It didnt happen, they now see the need to pay 200k more for the same place they turned down in 2009 after telling the real estate agent they're dreaming and that prices are falling... Yes the opportunity cost for missing the boat is painful and real.  Buying now instead of 2009 is effectively costing you 200k give or take. I have said it before and I will say it again; having no exposure to nz real estate is risky.
What will happen on this front? Prior to election something to help fhb's will be announced.  Owners will be happy as this provides a back stop on already stretched house prices in auckland, and needed stimulus for lower house prices outside of auckland.  FHBs will be happy and can tell their mrs 'see it was smart of us to wait this long'.

"most people are happy with rising house prices"
When you say the last opinion poll, are you talking about the BNZ confidence survey (the last I know to measure it) of the 550 odd people who chose to reply to Tony Alexander's newsletter? Of these a substantial proportion, judging from the number of comments, were real estate agents.
I wouldn't interpret that as representing the mood of the electorate.
"Prior to election something to help fhb's will be announced"
Possibly if it was anything significant they could have, I don't know, included in the budget or something like that. Unless they are going to claim a budget surplus then add a bunch of additional spending.
 

They are already claiming a budget surplus that ignores a bunch of additional debt financed motorway spending.  
If the motorway spending was paid out of the budget, the budget would be in deficit.  Instead the government gives a 'loan' to NZTA, and majically 375M of new debt turns into a 375M 'surplus'.

"most people are happy with rising house prices"
Funny thing is, prior to buying the first home people are concerned about high prices. Once they have bought, those same folk are concerned about prices reducing and leaving them underwater.
Human nature...
 

unless you want to upgrade when the family gets bigger, rising house prices make the gap to the next rung on the ladder to big to jump.

by "most people" you mean rich people, after all those are the only ones that count... 'cause I'm pretty the poor people aren't too keen...

Obvious one is open up welcome home loans and deposit subsidy for more people (like they did last year).  Increase income caps (120k for a couple will be ruling a lot of people out).

"120k for a couple will be ruling a lot of people out"
As of the 2012 Household Economic Survey Income bands, the divider between the bottom 80% of the household  income and the top 20% of household income was 119.5k. So at present only around the top 20% of households are excluded. The threshold for the top 10% of household incomes is at 157k.
I have no idea about how many First Home Buyers might be in the top 20%/ top 10% of earning households.
 

What annoys me about John Keys radio interview about housing was his 'denial' approach to what he has said previously all the way back to the 2008 election, what his Finance Minister has said. What government initiated investigations have said. What major private investigations and surveys such as Hugh Pavletiches Demographia surveys have said. What Reserve Bank governors have said all the way back to Brash.
 
He tries to use 'newby' tactics of dodgy statistics and examples. This might fool a few people who haven't been following the housing debate but for everyone else it is extremely painful....

Factually incorrect.
 
Auckland Council is an area of 4,894 km2 and within it the Auckland urban city is 1,086 km2.
 
Harris County, TX is an area of 4,605 km2 and within it Houston city occupies 1,625 km2.
 
Both cities have very large hinterlands. Don't cherry-pick.

Stop posting this misleading claim about Houston.  A quick look at a map shows the Greater Houston metropolitan area includes massive tracts of non-urban land, just like the wider Auckland region.  Auckland itself is 530 sq km.
The largest urban area in the world is New York, which stretches across 11,000 sq km.  Houston is denser than a number of major US cities including Atlanta and Boston, and is similar in density to Portland, which like Auckland employs strict urban growth boundaries.  

If you said "Auckland sprawls over 4800 sq km" it would be nonsense, just as it's nonsense to say Houston "sprawls over 26,000 sq km" when about 80% of that area is empty land.    

We are talking afforability of countries with this report, not particular cities. Though Japan is the most affordable country, I would guess Tokyo is still more expensive than Nightcaps.

John Key never used the narrow geography of Auckland as an excuse and he certainly did not propose a solution. John Key is in denial and is not 'absolutely correct' re housing. The geography argument doesn't explain the high house prices in other parts of the country like Christchurch.

I am interested to know what the other parties are proposing to address this housing issue other than CGT?  Surely, there must be some labour/Green/NZF mouthpiece in this forum !

Good question re infrastructureand what other political parties are proposing.  $15 billion is only $1.5 billion a year for ten years so if you use the proceeds from the asset sales and the budgeted surpluses on new infrastructure instead of tax cuts it is possible.

Labour are also proposing to redirect some of the RoNS spending away from motorways with poor returns towards urban transport projects such as Aucklands central rail link.
 
This would make it feasible to have more growth in the southern corridor around Takanini and Pukehoe, as you only need a couple more train sets to handle the transport needs.

What will be the cost to home buyers for those 100,000 houses?  I read somewhere that the cost would be between $300,000 - $500,000 (correct me if I am wrong).  If it's true then the missing bit of information is the location.  Land price alone anywhere within 25km of Auckland wouldn't be that cheap.

I am no left wing mouthpiece but having closely watched the left and reading some history I can speculate that they will compulsory purchase land at rural prices ($50K or less per hectare) near a new public transport hub -google "Chris Harris: Forgotten plans for an alternative Auckland". Or something like Houten in the Netherlands. In Auckland and Wellington this might be difficult to do within 25km but for other 'attractor' residential markets such as Christchurch, Tauranga, Central lakes this is not a problem.

I wonder how the rent to house price matrix is affected by the massive subsidy we provide to landlords via the accommodation supplement? $1.1 billion dollars in the recent budget.
 
Most certainly house prices would lower significantly if we didn't subsidise rents. 

Only way they could do that would be to ramp up state housing.  And in most parts of the country they are infact selling them off.  So the accomodation allowance is here to stay

The real ironic thing about all this is the media hype around house prices is providing a level of marketing that no real estate agent would ever dream of.
Immigration in the news + house prices surging.  Joe Blogg was happy renting, now hes worried.  Should I be buying a house now he wonders?  Everyone else seems to be. Better get in quick before these immigrants arrive and snap them all up.

silly people...he obviously just didn't remember his earlier comma...

"No Housing , Crisis! "