Century 21 chief says current real estate market 'completely different' to pre-1987 sharemarket: 'Auckland house prices aren't rising off the back of speculators having a bit of fun'

Century 21 chief says current real estate market 'completely different' to pre-1987 sharemarket: 'Auckland house prices aren't rising off the back of speculators having a bit of fun'

Talk of an imminent real estate crash in Auckland is irresponsible, with such a "dramatic" turn of events "unlikely" the head of a real estate firm says.

The comments from national manager of Century 21 New Zealand, Geoff Barnett come on the day the Real Estate Institute has put out new monthly figures, showing that the national median price has risen above $500,000 for the first time, although the median in Auckland dropped slightly to $805,000. But this is still up from $749,000 a year ago.

"Some commentators are now trying to compare the real estate market to the sharemarket excitement leading up to 1987," Barnett said, though without referring to who was saying this.

Auckland newspaper The New Zealand Herald ran an article on Friday quoting veteran fund manager Brian Gaynor, which referred extensively to the 1980s sharemarket. 

"It’s completely different," Barnett said.

"Auckland house prices aren’t rising off the back of speculators having a bit of fun.

"They are continuing to rise largely because there’s a shortage of supply."

Barnett said, again without stating who he was referring to, that "some commentators" seem determined to "get some people unnecessarily worried".

"Let’s not forget we have the independent Reserve Bank, Inland Revenue Department, and central Government, not to mention our rigorous retail bank sector, which are constantly investigating the different levers at their disposal as well as continually revaluating the marketplace."

Barnett said Auckland is "somewhat protected" by unrelenting population growth.

"The region grew by 43,000 people last year and is forecast to grow by another 400,000 in the next 17 years – which will no doubt be surpassed. Let’s not forget every Statistics New Zealand growth forecast for Auckland has always been well beaten.”

He said another thing to consider is the fact that it’s not unusual in a global sense for a country’s dominant and only international city to have much more expensive residential real estate than other centres in that country.

"Auckland’s effectively playing catch-up. It’s housing stock was arguably undervalued for a number of years when you consider its New Zealand’s commercial capital and largest city by far."

Barnett conceded that younger people are having to buy further out, spend more time commuting, and more people are renting.

"But for better or worse, that’s no different to what other international cities have experienced for years. I’m not saying it’s ideal, but it’s certainly not unusual in a global sense."

He said that as the world’s biggest real estate company, Century 21 has a lot of international experience with countries "that effectively deal with two real estate markets - the dominant city or cities and the rest of the country".

As well as the REINZ figures, recent statistics from the Reserve Bank have highlighted the continued strength of the housing market, with investors making up 46% of recent house buying in Auckland, while overall borrowing figures are rising sharply.

New key household financial statistics from the Reserve Bank for the three months to the end of March show that household debt is now at a record high of 163% of disposable income, up from 162% as of December.

For the year to the end of March household disposable income was $151.155 billion, versus $246.246 billion of financial liabilities.

With the RBNZ's earlier released Sector Credit figures for April showing that the the total amounts owned on housing mortgages alone rose by nearly $1.8 billion in that month, the ratio of debt to income is likely to keep blowing out in the foreseeable future.

The RBNZ is expected to announce new minimum deposit requirements for residential property investors soon, while the introduction of debt to income ratios a little later on is also under active consideration.

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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26
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someone's getting defensive

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His career, beliefs, and values are being questioned. No wonder he needs to get things off his chest.

The beauty of aucklanders taking on 800k mortgages at 4% interest rates is that this debt will act to keep ocr lower for longer as old time normal of 7% would cripple auckland families... gives real investors confidence to buy up decent yielding properties outside of auckland knowing rates will be depressed for a long time.

The limits on debt to income are the only thing that will stop the cashflow party

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Always good to get some honest, unbiased, scientific analysis of a complex issue.

Then there is this.............

Lower prices would lead to increased volumes to which , net net , would probably benefit his firm.

Not that this has occurred to him. Which is probably why he works for Century 21.

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Conflict of interest? Yeappppp

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"The housing bubble is nothing like the stock market bubble." At least he's on record saying it so he can be mocked in the future.

People need to be cautious and be careful what they are buying if a house price fall of 20-30% would be financially devastating they probably shouldn't be buying anyway.

On a side note: anyone who has worked in a corporate environment will be familiar with the shit shoveling ceo. Some fools will no doubt buy into this nonsense.

Hear hear. I'm wondering how devastating a 10% fall in prices would be. I don't have the econometric chops to work that out.

A 10% drop in values would not matter at all

Can I see your analysis that lead to that conclusion please?

10% drop wouldn't matter. Within a few years it would be back up again. There is a housing shortage in Auckland end of story. A 10% fall would mean even less houses on the market. Most people buying a house are thinking long term and are not concerned by short term falls. If you look at house prices over the last 40 years its a sure bet if you in the market for the long term. Sure a crash is always possible, but based on history you would have to say its never going to happen.

How much history do you have access to? I'd want to see centuries worth to make a statement like that to get a decent number of property cycles. 40 years doesn't even come close to giving you enough evidence. It's completely absurd to say that any future crash will necessarily be smaller than anything in the last 40 years.

The best way to increase your sample would be to include other countries, at which point you will quickly realise that significant corrections can and do happen, frequently.

There seems to be some truth in this article and I might be wrong, but any well developed cities are facing the same issues. E.g. Beijing, Shanghai, London etc

If the loan to income restriction policy is working in London, then the average house price in London wouldn't have reached 1mil pound.

Patterns that you think you can see are not necessarily some kind of natural phenomenon that explains the world.

There are a lot of people buying in London who don't need to borrow money to purchase their apartments.

You left out Hong Kong which just had a massive price crash. People are making excuses for the bubble. Whenever you hear people talking the new normal or economics has changed that's a massive warning sign. You are making broad statements about cities without examining the individual issues, and excluding a city with a major problem.

Or Tokyo, which had a massive run up on house prices, and the house prices there went down just about every year since 1991 until very recently, being an international city is just some buzz word to try to deflect from the facts.

or Singapore, but this NZ houses prices never drop so I am told daily
http://www.bloomberg.com/news/articles/2016-04-01/singapore-home-prices-...

The average property price in London is not £1m, according to the Guardian it is £470k. Looks like a bargain compared to what you get in Auckland for the same amount.

Talking his book.

Ignore anyone with coin in the game.

More than analysis it is wishful thinking as getting worried so trying to reassure speculators that do not stop doing what you are doing for if you stop the truth is it will fall.

No doubt propoerty investment id good but not when the price double in 2 years time for even if argument sake we believe that it will not bust but definitely it will slow down and will be some correction and sensible advise will be to buy than unless u are loaded and can acford to take chance.

Few years back samethjng was said about gold that it is getting extinct so plrices will keep on going up based on supply and demand but see what hapened.

Someone bought a property early lasy year for appo 900000 and sold now for 1.4million - he made money but now the person buying at 1.4 milion thinks that he too will repeat the same than god save him.

When anything moves too fast it is speculation and in anthcipation that it will keep on jumping. The moment the wheel us stuck will come down and it id always the last entrants who are the worst sufferers.

If they are reàcting means that their is some problem in the pipeline as being in business are able to sense it and trying to hold on to or influence to delay the outcome as change of scrnarion is imminent.

Has he not heard THE ONLY THING THAT IS CONSTANT IS CHANGE. Also need to learn more about ecenomy cycle.

One thing is for sure today he will be the most inteligent and likeable person in the world for our PM.

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Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned.

Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur.

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Indeed, Craig, "this time is different" , however it's actually phrased, is always a giveaway, and a red flag.

Caveat emptor, et accipit, et fenerantis......

The world financial system will have to crash before Auckland proprty can. Because, while there's cheap credit floating around the world investors will allways want to buy up all the property in big cities where people "have" to live to get a job. We are not in any regular property cycle, but a global reserve bank monetary policy experiment.

You might want to rethink your logic. You start by concluding an out come with a necessary condition and a belief. You then state that the world is going through an "experiment."

How do you think you know outcomes in the midst of an experiment?

It is a wonderful myth by the real estate profession that this is driven by immigration. If it was immigration then rentals would have increased. In fact that has only happened to a small extent. In fact 20,000 of the immigration is a net increase in students, for whom the demand is met by inner city apartments with high density occupation. The other factor to consider is if these prices are sustainable - at what point are rentals going to have to double to provide an appropriate return - and therefore what is the viability of industries in Auckland which are dependent on $18ph wages and $400 pw rentals.

The major isssue is that are we at risk of a major collapse or a slow deflate?

an excellent point - there are still a huge number of empty properties in Auckland - I have heard of estimates near 20,000 - that if they were tenanted would alleviate virtually all the pressure on housing stock for accommodation - rents may be rising but not that rapidly - and as someone who is constantly looking for staff in the $18-21ph range - its becoming increasingly difficult - and even at the next level up 50-65K we can no longer recruit out of Auckland or NZ staff due to property costs. The next answer will be people living 3 hours away - commuting in Mon - Friday and double /triple bunking for the week - 4 bed houses with 10-12 people living in them mon to Friday - $150 a week no bills !

Nahhhhhh, it'll be fine.

I haven't seen one Parabolic chart that did not correct itself in due course

Kool-aid drunk.

Isn't it cute how he's confusing mania-driven demand for speculative tokens with real demand for places to live.

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Shortage of supply. What a load of bull$**T. It's only short on the buying side because every financial nutcase is leveraging up large to play the dumbest smart game there is. There isn't a shortage of places for Kiwis to live, if the government stops money launderers and hysterical bubble chasers leaving houses to rot in situ and stops edumacation providers from bringing in barely literate suckers from the world's backwater to take up our minimum wage jobs and lower tier housing.

This is a very stupid country.

It is a stupid country indeed, that's why you get 19 likes on your comment

Up to 34 likes now. So basically your saying there is a shortage because the government is not sorting the problem. This however is a current situation you can do nothing about so in fact as far as everyone is concerned there IS A SHORTAGE. Also you need to understand that we can only spread out for new builds so travel times will increase and houses closer to the CBD will only continue to increase in value.

To sumup : The Housing bubble will burst WHEN is the question mark and Not IF.

And may be the extend of damage can be debated but to say that house prices will go up up and up without any correction is bluffing oneself.

I don't agree with you. Its going to take some big event OUTSIDE of New Zealand to see this happen that is outside of our control. My question is how long can you continue to call it a BUBBLE ? what will the bubble blowers be saying if this just continues unchanged for 5 to 10 years ? are you all just blowing hot air ? like someone else said to predict a crash you need to put a date on it or otherwise your sure to be correct one day. I'm predicting the end of the world as we know it now, its also going to happen, its only a question of when. What percentage decrease in prices is a crash ? its going to have to be a pretty big number because at the current rate of increase, the likes of 10% is only going to put us back to where we were a year ago.

So Barnett is a liar and should be called to verify his statements in regard to Statistics New Zealand population figures. In the census period 2001-2006 New Zealands population grew at twice the rate of the longer census period 2006-2013. Additionally Aucklands population slowed to a similar rate. By extrapolating from the earlier census data , Stats NZ actually substantially overstated the population numbers and indeed corrected the estimates, and indeed when the heralded 1.5 millionth Aucklander apparently arrived this occurred much later. More importantly households are now forming at half the rate , because for a myriad of reasons they cannot or will not purchase a home.

The World is flat
The moon is made of cheese.

Just the fact that everybody's constantly yapping on about soaring real estate prices is the dead giveaway, like baboons competing to see who has the shiniest butt. Whereas nobody gives a crap what shares you own, or what the returns are. Can just stealth along, whatever your portfolio, because if you don't bring it up, nobody else is likely to.

Open Pension Resolut earlier comment was right on the money . Unfortunately we need their money to prop up the economy. How desperate are we?????

Humm..... Lets take a leaf out of the Canadian's books; The insane expectations driving the Canadian housing market

http://www.macleans.ca/economy/economicanalysis/the-insane-expectations-...

Guys, average local income x4 is the measure of housing cost required to maintain an affordable need, such as housing/shelter, National is responsible for governing supply; tax funding infrastructure costs & high density developments is the way to go. In the meantime restricting immigration to give Aotearoa a chance to catch up makes real Economic sense:)

Stop smoking the weed mate, it has never been 4x your income and I'm now 49 years old. Had the banks never moved away from your debt to income ratio they had in place 25 years ago I would never have been able to buy a house.

In 1993 ish we had a household income of about 70k gross, we paid 123k for a 3 bedroom house in Onehunga. It has definitely been 4x and below.

If I recall correctly it was interest rates that were the main fear back then. Rent was 180 a week but interest on 100k was 250+ a week or something like that.

Bought a villa house in the late 80s for $107K. I was making an average sort of income of about 30K and the other half was probably making $20K something. So two times household income. It was a grand sort of villa, quite desirable.
Bought another house couple of years for $70K which rented at about $10K per pa. So 14% return which did not impress me at the time.

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39% of buyers are non permanent resident

Thats where the demand is coming from. In NSW these guys are now hit with a STAMP DUTY and are banned from buying existing homes.

The "do nothing say nothing" government needs to pull finger and do something .
John Key is was a crisis in 2007 when prices were 500k how is it not a crisis now with prices reaching 1m ?

http://thestandard.org.nz/keys-powerful-speech-on-the-urgent-housing-cri...
http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10455931

Cone of Silence
Nothing is going to happen
What you would like to see happen has been advocated on here for 6 years
It's not as if it's a new phenomenon. AU has had stamp duty for over 30 years
Non-permanent residents have been banned from buying existing residences for just as long
NZ has known that for over 30 years

Have you noticed that NZ is run by a gang of 4 plus a loose cannon in Bennett
Of the rest you never hear from them or their views
They are muzzled and remain silent

Please don't link to The Standard here.

It's as bad as someone making a half valid point then putting a link to WhaleOil. Credibility lost.
We're trying to have an informed debate, don't involve half-arse arguments made by political lackies.

Backroom political weasels on both side have got us into this position - vote buying policy is the name of the game. Keep house prices rising and you keep the middle happy.

Really? Others can have a valid point too.
Those that choose to read WhaleOil or The Standard, or whatever else they like, can do so.
It's called Democracy.

the only thing you can take from the spin bloggers is what issue they are pushing on behalf of either side.
the only thing I find interesting on them is the silence in not discussing indefensible issues. i.e right staying away from housing in any meaningful way, or the left staying away from leadership.
as for the comments please they are sheeple on both sides that spend all there time slagging the opposite instead of discussing the issues and agreeing or disagreeing with possible solutions

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NSW only brought in a stamp duty on non permanent resident this week and it starts on the 21st of June.

They may have had stamp duty previously (30 years you are referring to) however the new amount is TARGETED STAMP DUTY on non permanent buyers and effective as of next Tuesday. .

In NZ's case this would amount to 39% of buyers. ie foreign Students, temp visa workers and offshore foreigner buyers. (35% + 4%)

Nice to see the Australian government looking after it's citizens it is just a shame that our government put its citizens down the priority list.

Agree nothing will happen to prices unless the investor demand is reined in. That would take Stamp Duty, Loan to income ratio (4 to 1) and banning foreign buyers (non permanent residents and offshore) from buying existing homes.

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Actually with Australia now imposing a stamp duty on non permanent Residents will this motivate more of them to invest in NZ houses instead of Australia.

NZ where non permanent residents pay ZERO stamp duty.

NZ where 39% of buyers are non permanent residents already (35% students and temp workers + 4% offshore based)

Will be interesting to see how this plays out.

Shame National govt

Yes. Although Australia has had a stamp duty on all purchasers for 30 years (including Australian owner occupier), the amounts announced recently for non-residents are additional to existing. Do not agree with the National rhetoric that stamp duty etc is not a disincentive to buy - it most certainly does dampen enthusiasm for investment property.

Finally someone who talks about population growth. An extra million people in auckland over the next 30 years. Where are the 300,000 extra homes for them

perhaps freeing up a tiny portion of the 70% of Auckland that is Rural land....

Then imposing a STAMP DUTY on investors to cover the cost of infrastructure. Ensure new homes are exempt from stamp duty to encourage new supply.

Perhaps that is where .

Maybe we should also ask a car salesman if he think car prices are going to go down in the near future.

A salesman's job is always to say that 'now is the best time to buy'. There can be no other way, that is their reason for being.

The most telling thing here, is that low wage business is only sustainable with a worker class living in substandard conditions. Comes down to what sort of country do we want, v what will a free market and movement of people impose on us. Labour got in in the 1930s in circumstances of increasing inequality, on the premise, that NZ could be different. The phrase "Gods own country", reflected aspirations. NZ could be a paradise for ordinary people. is a worldwide political phenomenon of the masses rising up against incumbents imposing a centre-right template. Look at Trump, Corbyn, Brexit.
Unfortunately, intervention is often breeds more intervention, and when the new brooms come in, they'll probably do as much harm as good. . For goodness sake, Key and co, forget GDP for a while, limit immigration, impose a non resident land tax, and take action to ensure land comes on stream so ordinary people can access the basics.

Good, sensible comment. National will retain power because people are more afraid of the new broom than they are of the status quo - and for good reason.

Selfish and greedy

So is this guy selling his own investment houses prior to the crash?

Is john key doing the same? So avge wage is 60kpa (forget median of 40k lol). Its a multiple of 13 for auckland and a multiple of 8 for rest of nz.

Longterm multiple is 3.

I have been looking at Australia. Saw an article aired on nationwide tv 2mths ago. It says aus has highest house prices in the workd. 1.9trillion housing debt. Twice as large as the us subprime debt of 1trillion. One guy is certain a 50% fall will hit. He is shorting the aus housing market.

The fact is i think nz is worse than aus.

So, ask yourself this question, you want to buy a house. But you have to compete with someone in china who doesnt live here and doesn't even have residency. So how many years of extra work do you need to do just because of that? And isnt Chinese cash outflow from their economy a sign of much larger problems in china?

Prudent people will be selling now and getting their wealth well outside of both aus and nz economy.

Longterm multiple is 3.

Is that written in stone somewhere?

That would be ridiculously cheap. Mortgage interest would be like $145 a week for an average home you could rent out for $500 a week.
A couple, both on good incomes, could buy a house outright every three years or one every year with a mortgage. Soon, after five years, they could just give up their jobs and live on the rent.

Edit: My hypothetical couple could buy two houses a year with 20% deposit. Let's say they rent them out at $350 a week. After five years they have ten houses bringing in around $3500 a week with mortgage interest of $1450 (rough figures!), already giving them one person's salary. Five years is but a short time in Landlord Land though. Imagine after 10 years or 20 years?

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No, the long term multiple of 3x is not "written in stone" anywhere. But it is still widely accepted by most researchers as a sensible marker for housing equity and affordability. But it is only a top-level indicator. Those accepting it include the UN housing section, the World Bank researchers.

And in the western world there are hundreds of cities that still meet the criteria; the ones that don't are the exception.

Even in New Zealand we have six towns less than 4x and another seven less than 5x. It certainly isn't written in stone that Auckland's 9x is anywhere near normal. Just because we have bubble conditions is no reason to change a sensible benchmark.

Your rental expectations only apply when there is housing stress. With normal build rates you would not have tax-advantaged housing gains as we have now, nor elevated rents as the 'norm'. Sadly, I don't see normal build rates returning for a while yet, especially in Auckland.

Would not benchmark multiples have to be applied across large regions? It would not be sensible to claim that the multiple would apply to the best suburbs. In a country like NZ it would only be meaningful if averaged out over the whole place as our entire population is that of a large city. It is still high when done like that I will concede.
However my whole theory is that NZ itself has become a prime location for large groups of people who have money. Prime locations will always attract a premium. In a sense the whole of NZ is now Auckland and Auckland itself is Epsom because the world has got smaller.

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Housing affordability stress is only an issue for people on median incomes and lower. No-one should care about house-price-to-income ratios in Remuera / Kandallah / Fendalton - or even Epsom - and the people who live there. What matters is housing availability and home ownership options for people on low to middle incomes.

It is a serious social problem when only the well-off can afford to buy, and that when that includes 'investors' who expect to rent the property, they screw the scrum to their advantage to meet the high prices they paid.

Home ownership may not be a goal for everyone, but when the option gets closed for most, in the end voters will revolt and in that case "investors" will lose, and substantially, as the situation is rebalanced. Initially, you should expect new laws and regulation limiting landlord unfettered freedoms to price and select tenants, imposing minimum quality standards, and giving tenants long-term occupancy rights - all as a result of unfair tenant stress and unusual capturing of gains by a few (landlord 'investors'). The current landlord/tenant relationship won't survive much longer and changes won't be resolved in landlords favour.

Personally, I think the current laws and regulation of the landlord-tenant balance are sensible - but only in an ideal world where the multiple is 5x or less. But they are now far out of balance and need changing when they are 5x and above.

Exactly. Further I can't see how this silly game can carry on much longer before we reach the point when normal people can afford to live in Auckland. Then how will the wealthy folk of Remurea etc get the services that they expect;- teachers, police, nurses, trades staff, refuse collection, etc etc. (work camps full of temporary Filipino workers. Is this really what we want to degenerate to) It is not sustainable.

Sensible analysis, David.

Any talk of a crash in Auckland house prices is very premature. Houses are not tulip bulbs; there is a very clear demand and necessity for this particular asset. And, as I often say, it's a no-brainer to arbitrage the gap between supply & demand on this.

On the other hand any talk that current prices reflect fair value is also complete rubbish.While Auckland, indeed the whole of New Zealand may be nice it's not in any way a step up from most other developed countries especially the ones in the northern hemisphere. We are just not getting plane loads of people turning up here because this is the ideal location for a global business.

Michael Reddell is doing an excellent job of documenting New Zealand's economic decline over the last 110 years. Despite all the good news ("everyone wants to live in Auckland!") our GDP per capita is still declining. And that grisly news is masked behind the sugar rush we get from importing replacements for our young who continue to leave NZ permanently and often in their droves.

If the current central government inertia continues we can only look forward to being the world elite's holiday home. And New Zealanders will sink below being 'tenants in their own land' to 'servants in their own home'.

Well said. The relationship I've had with landlords has often been quite adversarial. Their attitude, or the property managers attitude, is that I am a renting peasant and they need not bother providing good service. I had to send them legal notices to get things fixed in the past.

Even some owner occupiers are complaining that rentals are more common now and bringing down their living standards. There is no care put into these properties. I can't even add a picture hook for example and can get kicked out at short notice.

Sadly due to expensive building materials, immigration and land hoarding it's expensive to buy. The property market is not something I want to bet several times my life savings on.

Great comment.

Zachary,

Have you researched what the medium multiple is in the usa? I think you will find it is near 2.5x

You see not every country and its prime minister believes the best way to create wealth is via a ponzi scheme.

Usa population has not recovered from the gfc. Many cities are on the verge of bankruptcy. But thats another bubble aka the bond market.

I suggest you rework your "house every 3yrs" based on 10% mortgages, low migration and high unemployment. $500pw rent will be unrealistic in such an environment.

It never ceases to amaze me how many idiots out there think this sham will just keep on going. Nz banks are owned by Australian banks who in turn hold 1.9trillion mortgages in australia. Anz has derivative exposure. Hmmm this will end bad for both banks and borrowers. Smart people will see a sharp fall in the nz and aus currencies coming will look to profit from it. Others will deleverage now. Most are too ignorant to understand and others like our pm are outright liars.

But Zach. Your math might be correct but your business sense is wrong here. Because your tenants would depart en mass, you wouldn't have any. They would be living in houses they bought from you because you could not rent them out.

Ah, you obviously believe all people will be sensible about these things. People still rented when multiples were much lower.Of course things will work themselves out and prices will reach a balance where it becomes hard to work out whether it is best to rent or buy and Landlords will have to work harder and make less as things are currently.
My comment was really just illustrating the absurdity of thinking that prices should be three times income in the current environment. If it was like that then nearly all housing stock would be "foreign" owned as they hoovered it up. Forces would soon change it back to the status quo.

No Zach. Them foreigners would not be 'hoovering'. The only reason they do now is that there is a buck to be made in rapidly changing price levels. When prices are stable foreigners and local speculators alike will 'hoover' no more. Half the comments on this site in the last few years are the debate about if/when that might happen
Yes. There will be a balance reached, nowhere near your math above. That math is fantasy.

Your Hypothetical would be better if with that extra cash, Ken Public realised there were other places to put his money and bought shares, a business, any investment except housing.
Ken realises that housing produces nothing, and as a country having strong innovative industry is what will drive us forward, not expensive housing.

I agree with this article that Auckland prices won't crash as long as there is population growth pressure.
National isn't going to turn off the tap of immigrants and I don't think Labor will either. When we have trashed our quality of life and are no longer an attractive immigrant destination we will decline into the mother of recessions as growth of population without growth of productivity can only end badly.

You could probably switch off immigration today and not necessarily get a significant drop in prices straight away.

It is worth noting that back in 2011 when NZ had net population loss property prices still increased in Auckland (slowly compared to now). Given that internal migration has been out of Auckland to other parts of the country for some time now other factors must be at play.

One of those is the relative over-crowding in Auckland houses. There will continue to be demand propping up prices from those who wouldn't mind a place of their own once the price is right.

Which means Migration isnt the issue - supply is ok, rather its a demand issue.

Don't really get your argument.

It's not that migration isn't an issue it is the rate of migration that matters. Take a peek at Bernard's recent epistle on immigration where he charts a couple of decades of net migration figures. NZ has always had whip-saw net migration - mostly in, sometimes out. But we don't have a housing supply system that can go up and down with demand. Look at any of Auckland Council's publications on housing they only talk about a steady supply of housing at an even rate over decades.

It positively begs for speculation.

I call Auckland Council's PAUP, Ten Year Plan and Infrastructure Strategy documents the Treasure Maps(TM).

"Kiwi households now carrying debt equal to 162% of their annual disposable income."

"In the last 5 years alone household debt has risen 23% while incomes have risen by just 11.5%."

"Simple volatility in the currency can cause risk premiums to rise as offshore lenders hedge this volatility risk but most Kiwis don’t seem to understand this risk."

https://capitalistexploits.at/2016/06/new-zealand-real-estate-bubble/

While the data you quote may be true, it is also true that ...

- Kiwi households are holding record levels of cash in bank accounts

- Kiwi household net worth is the highest ever

- Kiwi households non real estate investments are growing quickly

- NZ banks are borrowing less from offshore to fund mortgages because local savings are strong

- the household debt you quote is 'only' mortgage debt. Kiwis have been very restrained about any other debt (credit card, personal loans, margin loans, etc), far more restrained than people in other countries, which causes outside reporters to misunderstand the mix, the stress, and the risks.

Anecdotally, the growth in cash deposits at banks is dominated by mature people putting capital aside for retirement. I imagine the same applies to other investments, apart from kiwi saver. Oldies as a general rule (the mythical boomer property speculator aside) will not have significant debt, especially in housing. So when considering risk vulnerability of indebted households, I suggest that quoting average indebtedness and savings rates does not paint the full picture.

Kiwi households are holding record levels of cash in bank accounts

NZ banks are borrowing less from offshore to fund mortgages because local savings are strong

Yes indeed. An incontrovertible balance sheet liability offset to exploding bank assets in the form of residential mortgage debt.

More importantly, the banking system does not simply transfer real resources, more or less efficiently, from one sector to another; it generates (nominal) purchasing power. Deposits are not endowments that precede loan formation; it is loans that create deposits. . Borio Page 17 of 38 Read more

An axiom publicly reinforced by the Bank of England - "Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits" Read more

"Kiwi households are holding record levels of cash in bank accounts"

Which is being largely eroded daily, monthly.. in tangible value via the ever increasing requirements & costs of applying and servicing a new mortgage EVEN with record lows interest rates!

As for "Kiwis have been very restrained about any other debt (credit card, personal loans, margin loans," I really don't believe thats' the case. Debt collectors and "Need cash now?!" businesses are very busy.

And "Kiwi household net worth is the highest ever" Based on what? Better not be a mortgaged fund asset!

It is difficult to get a man to understand something, when his salary depends upon his not understanding it.

Follow the money...
The regulator's probe of mortgage broker pay is putting bank payments to lawyers, accountants and real estate agents who help lenders find customers under the microscope, amid claims these fees may not serve the interests of consumers.

As a little-known way of drumming up business, banks pay a type of spotter's fee to people who are likely to come into contact with home buyers, and send these customers to the bank.

http://m.smh.com.au/business/banking-and-finance/bank-commissions-for-mo...

"Let’s not forget we have the independent Reserve Bank, Inland Revenue Department, and central Government, not to mention our rigorous retail bank sector, which are constantly investigating the different levers at their disposal as well as continually revaluating the marketplace."

Tell him he's Dreamin

"Kiwi household net worth is the highest ever"

Of course it is with house prices so high. What you are forgetting is that 90% of household wealth is tied up in housing.

All your eggs in one basket ? Sensible economics ?

Actually, that is not correct. The RBNZ publishes the data. Total household 'net worth' was NZ$1.145 trillion with $524 bln being housing equity as at December 2015. So that means that 46% of Kiwi household wealth "is tied up in housing", about half the urban myth level.

If you said a third of that housing equity is 'bubble" (just a stab on my part), then the underlying housing equity to total net worth is 36%.

(March 2016 data won't be published until early September.) (And this link gives more detail on the components of household net worth.)

Interesting viewing the Link , I wonder what % od Kiwis hold equities, which are the next biggest asset category

Can we have some figures that include actual current principal + .......interest still owed as a grand total of this speculative asset class?

Then subtract .

Quoth the Real estate agent:

"The region grew by 43,000 people last year and is forecast to grow by another 400,000 in the next 17 years – which will no doubt be surpassed. Let’s not forget every Statistics New Zealand growth forecast for Auckland has always been well beaten.”

So no chance that immigration policy will be changed in the next 6 elections then?

Maybe a correction could be confined to just Auckland. Auckland used to be the fastest building city in New Zealand, now it is one of the slowest.

The provinces build houses quicker in response to price increases than Auckland, because their land costs are several $100,000 per unit lower. As the prices are rising fastest in the provinces, then the rate of construction will quickly increase as well. NZ's property boom moving out of the anaemic growth conditions of Auckland will turn from being a speculation boom into a construction boom.

As construction rates increase it will put pressure on our construction industry and drive up construction costs. We will likely see upward movement in wages and some higher inflation. Higher wages will mean even slower growth in Auckland and higher inflation will see higher ocr - again bad news mostly for Auckland where debt levels are highest.

Tenants currently living in Auckland will be offered higher wages and lower rents in the provinces.

The introduction of debt to income ratios scares me and I believe it to be the worst possible solution. The introduction of this type of restriction will work against first home buyers and will essentially mean that only the super wealthy can buy property in NZ. The entire working class population will at the most be able to secure a family home if they are lucky. I am disgusted that this is being considered.

The banks used to have this but even then I couldn't afford to buy a house. the rule was that all you could repay was 33% of your week income MAX on a Mortgage. I remember this distinctly when I was in my early 20's and looking at buying my first house on a single income. Yes well what a joke that was, $32K a year salary was actually very good back then but still it couldn't get me an apartment. The banks then at some point went the other way and didn't care what your borrowed as long as you made the weekly mortgage repayments. I was even unemployed for a while but didn't let the bank know, they don't care until you miss a payment.

Then you miss the point entirely. Debt to income ratios could be applied to investors only, as an "average" investor with 10 houses is going to have a similar "average" income as an investor with 50 houses for example, except the latter would have a ridiculous debt to income ratio, especially if mainly in Auckland at the moment. Also, debt to income ratios are harder for people to "get around" I assume, than LVR's, as you can't just buy a house in someone else's name if they have no income, and combined with banks being more prudent about accepting overseas income as a given for mortgages. All of this may be sufficient to bring real house prices down in bubble areas, which any first home buyer would be ecstatic about. And possibly the entire working class population will be able to secure a family home, as opposed to currently where most will not be able to secure any home in Auckland or some of the provincial centers. So it can work very nicely for first home buyers. Are you perhaps disgusted your portfolio may shrink as families can buy their own home instead of having to rent from you?

No, I think you miss the point midget. The super wealthy will be able to buy as much property as they like because the debt to income restrictions will not be of concern to them. They will just pay cash.
You say the ratios could be applied to investors only, but there is no firm proposal at this stage for how such a policy would work, and there is every danger that it could apply to everyone.
Re securing family home - what I meant is that at the very most that is all anyone will be able to hope for, as even without a debt income ratio in place the average working class person is not able to afford to buy a house. How on earth you jumped to the conclusion that I might be disgusted that people could have their own home beats me, as my post was very clear that I am concerned that the introduction of a debt to income ratio would only allow super wealthy to buy property... and that was phrased as a negative. Sounds like you're of a one track mind to introduce a debt income ration with no regard for others opinions even when it appears that opinion ie to allow first home buyers into the market, is the same preference you have. Very worrying and the type of attitude that results in stupid policies being introduced that haven't been properly thought through.

I don't see how it would be any worse than the current situation. The super weather can already buy as much as they like, if anything any restrictions will reduce their ability to do so. The most important thing to do to allow first home buyers a chance is to get house prices under control, giving them a chance to leverage up to the hilt allowing no financial wiggle room for 20-30 years is not a good solution. This is the kind of policy that will hopefully help control prices, which will ultimately help first time buyers. The other way would be subsidies for first time buyers (already done through kiwisaver), but my suspicion is that this quickly ramps up prices even further and does not benefit the buyers.

Agree with MFD.
Super wealthy people, if buying with cash (not including funny munny from overseas) will always be able to buy houses no matter what rules are in place. Also, it does not destabilise the monetary system as they are not leveraged debt positions. However, the majority of investors in NZ would not be purchasing with cash, but with a mortgage, and I imagine a fair number would be interest-only mortgages. Hence debt to income ratios, people buying with cash are few and are free to do what they want with their cash. Not sure why u brought up cash purchases.

I did say the ratio could be applied to investors only. No, there is no firm proposal of anything at this stage, but based on the precedent of LVR's at a different level which are specific to investors only, it is common sense that this would be an equitable option. Of course there is a danger it could apply to everyone, but most first home buyers are being screwed anyway.

I apologize unreservedly for the presumption that you are a property spruiker, if u are in fact not. I wrongly assumed someone against a measure to curb overall speculation and insanity would have vested fingers in the bubble pie. Hope my reply makes sense, and happy to learn from a different viewpoint.

Can you please run a few numbers to highlight your point? Show us an example.

Whatever anyone say - bubble has to burst. Can check ecenomy history of past.

All arguments will fail and than blame game will start and topic will be how much will it fall. That time all news and data will be bad

I would love to believe Geoff Barnett but his logic is a little flawed. I wonder why he has not compared Auckland with Santiago of Chile. Here we have a city just like Auckland where one third of the countries population lives there. Its property fortunes are not that great. I have a good litmus test of all self declared property commentators. I pop their name into the Terranet to check what properties they own. I also pop it into the companies office just in case they hold their properties in their company name. Sorry folks he is a non starter. If you are not a property investor of some decent capacity you are not qualified to tell me about my industry.

While that might be an insider's view, when it comes to public policy settings (the law, regulation, tax, "planning", etc), insiders are conflicted and are probably not qualified to tell the rest of us about where those settings should be. Especially because there are significant social equity questions involved. "Property investors" only tend to look at their own narrow focus, which is usually about the returns to them. Those wider issues are for voters and their representatives, and "property investors" need to respond to those concerns rather than try to pretend others don't know what they are talking about. People outside this "industry" tend to look at the wider picture, a bit more holistically.

Well said, David, thank you.

Too often honest and productive discussion is stifled by dismissal by the side who are benefiting by keeping things as they are.

David, Most people in the world live in apartments or less. Aucklanders just have to suck up to the fact that we have been the lucky country until 3 years ago until AKL freestanding homes took off to be out of reach of 1st home buyers (even that is a myth as you can live in the outer outer suburbs still). 3 bedroom terrace homes are still in the $600k range in the inner / outer suburbs, so I think those that want to bring down the property prices need to re-align their expectations. Or we do the alternative and destroy the countries and citizens equity by making a tax grab on those that own property so we can line the coffers of a government who don't need or want the money as they are in surplus. Unfortunately this website has been hijacked by the anti-property brigade (journalists and economists included - who have made horrible calls on property and in my opinion caused real damage to kiwi's who listened to their advice in 2012 and rented or moved to Wellington). I have to say I did like your comment about less than 1% of the readership are commenting on the articles so really this supposed rush of anti property is really just a minority. One more thing: I have rented for twenty years but I have a substantial property portfolio, my point is you don't need to live in the house you own - that is also a myth that perpetuates this website. Live in Auckland and own in Hamilton.

Mercer have compared Santiago with 221 other cities:
Mercer Quality of Living Survey
In 2012 Santiago ranked 91 - Auckland 4.
In 2015 Santiago ranked 93 - Auckland 3.
Auckland not only has an extremely high ranking but has even improved while Santiago has gone down.

This suggests to me that Auckland is the better business bet.

In Hongkong downturn has started. Builder offering 20% discount and when it was in boom everyone was taliking about limited supply. Vested interest block the thinking process of government and many so called experts that supply though is important but so is DEMAND specially when fuelled by speculator.

National party will never take any action as are not working for NZ but for self interest only like businessmen and not like leaders infact they are worried thst the bubble should not burst till next election so will be trying everthing possible for not omly to runbut help in running.

Can they deny anything mentioned in comments.Let them have open interaction with public to see the response instead of comments on TV, which are too soft on them and works/ help them in false propoganda of their motives.