New figures show the RBNZ attempts to dampen rampant housing investment have failed

I think they will go to 50%

Big Daddy is right. The boomers and X are going for it. They must think Auckland can go beyond 10 times. Brave!!!!!!

I can understand why people are buying houses for these houses based on the current mortgage rates, as the yield is approximate to the current mortgage rates, giving you reasonable net neutral cashflows.
However, if the mortgage rates go from 4% to 5.5% (not out of the realm of possibilities), you can't just raise the rent by 33% (assuming gross yields of 4.5% and 6% to cover the mortgage interest respectively) so your yield continues to approximate mortgage rates. However, people buying property will want at least 6% gross yield so the rent covers the new mortgage rate, thus house prices drop.
E.g.
3 bedroom house, weekly rent = $550
At 4.5% gross yield (to approximate 4% net) = $550 x 52 / 0.045 = $635k
When required gross yields increase to 6% (to approximate 5.5% net) = $550 x 52 / 0.06 = $480k

Lets say you borrowed at 70% LVR on your purchase at $635k, this means equity of ($635k x 30%) $190k invested
In the above scenario, the house price has dropped by $155k, thus leaving you with $45k equity, a loss of 76% of your original investment. This is with the only assumption that the required gross rate of return on a rental increases from 4.5% to 6% - not beyond the realms of possibility given historic interest rates.

Leverage is a two-way street - it increases your gains when prices go up, but amplifies your losses when they go down.

Policies to restrain bank lending most effective suggests Gould:
http://www.nzherald.co.nz/home-truths/news/article.cfm?c_id=1500914&obj…

What's the problem. Everyone is only doing their best to be "wealthy" any way they can. I thought being wealthy was the name of the game. Isn't that the human's purpose?

We all know it's not the Kiwi Investors that have pushed up house prices in Auckland. It's the Non-Resident Investors from Asia.

Has everyone already forgotten how the Auckland market almost ground to a halt when the IRD requirements came in to force last October. And there was a huge switch from Auctioned properties to 'Priced' since demand was drastically reduced.

Won't tomorrow be interesting. We will see and hear either of two things:

1: more head in sand talking points and denial
2: a new strategy that hopefully makes a real point of difference and change of direction

My bet is No:1 and I hope to lose my bet

What's funny is rents in Auckland have gone up about 5 to 10% under everyone's noses. Once we introduce all the new taxes and restrictions watch the rents go up another 10%. The reason why rents don't go up faster is that most landlords are non professionals hence to nice to put rent up say at 2.5% a year.

The problem is that the BANKS are lending - to basically anyone. As long as they are lending - the prices will go up. Investors should invest THEIR MONEY not the banks's money - 70% deposit on the investment property. Ban overseas buyers, tax heavily any other property than FAMILY HOME (1st home where you actually live).

What is happening is INSANE , out of any control - and only 3 institutions are benefiting from it: Banks - higher mortgages = more interest, INSURANCE - higher 'value' = higher insurance fees, CITY COUNCIL - higher values = higher rates.

I feel sorry for New Zealand - such an open and great country.... wasted as it was totally unsuitable for the current 'global market'.

There it goes - the NZ lifestyle and unique NZ atmosphere - now it is becoming like many other cities in the world. What a loss....

Most you out there would seem to have some sort of understanding of Demand and Supply basics. However, when I see figures quoted like only 10% it makes me wonder how far you progressed in
Economics.
The relationship between price changes and supply and demand comes down to their relative elasticities (responsiveness). Take petrol as an example. If the price of petrol were to suddenly go up, would you buy less petrol? Due to our useless public transport system, the answer is probably no.
As Auckland's housing stock (supply) is pretty constant (not helped by excessive immigration) this means that any demand increase will cause the same percentage increase in price. At the moment there are many factors increasing demand, low interest rates, no capital gains tax, favourable taxation regimes, the list goes on.
The argument that increasing supply will reduce prices is utter crap, firstly it doesn't address the other side of the equation, demand, or secondly, their relative responsiveness.

Was at the Bayleys auction room today and was just over $800,000 for this 2 bedroom unit!
https://www.bayleys.co.nz/Listing/Auckland/Auckland-City/Pt-Chevalier/1…

That's largely incorrect.
I have a Masters in Economics, and am very well read in Urban Land Economics. Supply is critical, and in particular the elasticity of supply (responsiveness of supply to jumps in demand). There's an awful lot of literature on that. You can do your own research, but I'd start with Glaeser from Harvard, Gyourko from Wharton, and Dr Paul Krugman (Nobel Laureate). OECD economics unit have also done a lot in this area.
So what do we do to make housing supply more elastic?
- Liberalise planning rules
- Streamline and de-risk planning process

If you free up the ability to build, and to build quickly, then the building sector can develop more scale and capacity with more certainty.
As I've said elsewhere on this website, you are also then more likely to get more modular/ prefab building, which further helps with cost/responsiveness.
Not rocket science!
Having said all that, I think some policy work on the demand side is also justified.

Justice, due to Auckland's brilliant public transport system I can either drive to work, 20 minutes, or take two buses 90 minutes, what would you do?

Fritz, I also have a Masters in Economics (big deal) what we are talking about here is two different markets. Home Owner and Investor. Investors have been convinced by NZ Invest etc, to use their equity in their home to leverage up into rental properties, deduct expenses, reduce their income tax bill, utilize working for families to help pay their accomodation. The hard sell about this is incessant, media , marketing, blah,blah. The fact that you can buy a house and claim expenses etc, and call it a LAQC when it wasn't set up to generate an income is insanity.

Fritz, I also have a Masters in Economics (big deal) what we are talking about here is two different markets. Home Owner and Investor. Investors have been convinced by NZ Invest etc, to use their equity in their home to leverage up into rental properties, deduct expenses, reduce their income tax bill, utilize working for families to help pay their accomodation. The hard sell about this is incessant, media , marketing, blah,blah. The fact that you can buy a house and claim expenses etc, and call it a LAQC when it wasn't set up to generate an income is insanity.

Surely, one would not set up any type of entity to generate an income less than its expenses?

ZS, I get your point, sales maximisation, market share etc,. But not if the business is set up to make a loss so as to benefit from the taxation system. With a rental property you are not creating jobs, not creating anything of benefit (besides add on selling industries, eg, stagers) that is, you are not increasing the income producing capacity of NZ. I understand what you are saying from an individual viewpoint, not from the point of view of benefiting the NZ Economy.

Here in the South Island it's not impossible to get +8% gross yield on plain-jane multis and student houses, giving strong positive cashflow from day one. Capital gain although icing on the cake is not essential with this much cash coming off the property, although in fact there is that too. Times have never been better in this space where the yield is twice the mortgage rate. I recall Bob Jones mentioned in one of his early books starting out in the '60's buying office buildings returning 10% and borrowing the money at 5%. He couldn't believe this was happening, but it was. Just like now down here, in NZ's second biggest city and probably other places too. I have always remembered that little snippet.

If you are investing in Auckland for the long term, have a good amount of equity behind you, can service the repayments and can ride out the cycles then you can't really go wrong. Unless Rangitoto erupts, our water supply gets tainted, we get nuked or some other catastrophic event happens, Auckland will always go up. We may have another drop if another GFC happens or if migration slows and interest rates go up, but give it time and prices will boom even higher. Look at how Polluted China is now, look at the state of Africa and the Middle East, the last Terrorist attack in Paris saw over 10,000 millionaires leave to other countries. I could be here all day. NZ is a reasonably safe, beautiful country with a plentiful supply of food, rain water, good soil, schools etc etc. Now wonder so many people are wanting to invest into this amazing place.

Not sure how many of you commenting on here have traveled around the world or not but if you have you would realise how much of an amazing place Auckland and NZ is to live in and how valuable our property really is. Auckland is now an international city, it is consistently voted as one of the best places to live in the world and we pretty much have everything down here. Look at the prices in London, New York, Hong Kong in comparison? With so many other countries in the world turning to crap, Auckland and NZ will continue to become more popular.

Someone needs to need to look at negative gearing. We have a situation where property investors are getting a tax benefit from investing in a cash flow negative asset, and paying no tax on capital gains from that same asset. Combine this with the fact that benefits like accommodation supplements and working for families are being passed straight through to (some) property investors to support rent prices. Property investors are a very large beneficiary group. Us PAYE tax payers are being treated like mugs.

I think David has missed seeing the elephant in the room. Of course investors will have borrowed 35% of the total money borrowed. I am surprised it is not actually more. Why do you ask. What is the significance of 35%. Well actually this is the percentage of all dwellings in New Zealand that are rentals. So on David's figures it looks like owner occupiers are buying at an identical rate per dwelling as the investors. The ratio of rentals / Owner occupiers is going up so the borrowing indicates that the rental supply is falling behind demand. Perhaps the banks need to lower the interest rate for investors in order to encourage more rental stock creation. Like building more rentals. Come on everyone just get over it. Some people produce products and need to be rewarded for doing so.