Westpac's David McLean says flat house prices for 20-30 years would gradually correct housing unaffordability without igniting the 'economic carnage' a big price drop would cause

Cartoon of David McLean by Jacky Carpenter

In an ideal world, the CEO of Westpac New Zealand would like to see house price growth remain on hold for the next few decades.

Speaking at a Trans-Tasman Business Circle breakfast in Auckland on Wednesday, David McLean said: “What we think New Zealand needs is a long period - maybe 20 or 30 years - of zero house price inflation, combined with steady growth in other parts of the economy.”

He said this would “gradually correct” housing unaffordability without igniting the economic carnage that a big price downturn would cause.

Furthermore, it would “gradually ween New Zealanders off the conviction - which is entirely justified because it’s been reinforced by economic evidence over the last 50 years - that investing in the housing market carries by far the best risk/reward of any asset class”.

McLean recognised achieving zero house price inflation during a sustained period of economic growth would be difficult; requiring a range of tough-to-implement measures and attitude changes from the public.

He said Europe had to some extent achieved this, but noted Europeans’ attitudes towards housing and their tenancy rules enabled them to essentially be renters for life.

He recognised it was hard to see a complete transformation in thinking and approach in New Zealand.

“What we can do is work on the obvious problems of supply and demand.”

McLean noted recent government policy changes aimed at taking the heat out of the demand side of the market, namely property investors being required to have a 40% deposit, the foreign buyer ban, and the extension of the bight-line test from two to five years.

“It’s a bit too soon to tell what long-term effect these will have,” he said.

“House price growth has definitely cooled [see graph below], but we don’t yet know whether this is a structural change or whether the market is just temporarily pausing for breath.”

McLean talked about the social impact of the median house price in Auckland being 8.8 times the median household income, noting the difficulty young people have getting on the property ladder and workers being able to afford to live in Auckland.

“It’s contributed to an increasing gap in wealth between those who own property and those who don’t.

“It also has wider distortionary economic effects. For example, by locking up a lot of the nation’s savings in housing, rather than letting it flow to other asset classes such as the stock market or funds management, where it can be recycled to businesses who need capital.”

Shared equity loans

While the government is exploring shared equity models with banks, McLean said Westpac was writing a “small but increasing number of shared equity loans for families purchasing their first homes”.

Westpac has partnered with the NZ Housing Foundation and is talking to a number of iwi about shared equity lending. 

“The shared equity is provided to the family at a level that ensures the family can afford to meet the mortgage payments at the start based on their current income," McLean said.

“We’re keen to support this concept. We think it’s got potential for further growth.”

McLean also noted the Welcome Home Loan scheme, whereby Housing New Zealand can underwrite home loans issued by selected banks so that first home buyers only need a 10% deposit.

He said draw-downs on these loans in the last summer season were up 159% from the previous year.

Turning to the supply-side, McLean said there was also much that could be done around the supply of land, the speed at which housing can be constructed, consented and built, and the need for densification.

“As a country we also need to modernise the way we build houses,” he said.

McLean noted a pilot Westpac is running whereby it’s financing the building of six prefabricated houses. He said the aim was to roll this out more widely later in the year.

Median price - REINZ

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213 Comments

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19

Who went rental..mental lending to all and sundry....on wet rot houses...crap houses, P houses......and all that Malarky......Banks. ...Now they want to..prevent Car-nage....is that when people live in cars...after Mortgagee Sales....DUH.

Ha, "Alter Ego" - you're not fooling anyone Phil.

I recently went to a mortgagee Auction. House in question had been subject to a Westpac loan. The mortgage the owners had been allowed to accumulate had risen to over $1,100,000. After final bidding finished the house was passed in with a highest offer of £725,000. It has subsequently sold to another buyer and completed at $775,000. One of many here and across the ditch where the original bank lending was never in line with the true value of the house. What's just as astonishing in my limited knowledge of financing is that the new buyer now has a Westpac loan for 100% of the £775,000 they purchased for. I thought that we were supposed to see equity requirements on lending. In my world the $775,000 is the market price irrespective of whatever the GV might be. Why else do you think the whole country has been re-rated? Its so the banks can say that they are lending in proportion to GV's.. 'What a wicked web we weave when first we practice to deceive.'

The banks lend a % typically 80% on the lower of the sale price or RV. The buyer must have had equity in another property

Who knows Evil, but the new mortgage of $775,000 correlates precisely with the sales price. How would the previous owner have had a mortgage of $1,150,000 (taken out in 2016- they had bought it previously in 2010) when the RV in 2016 was 850k and was only re-rated to $1.2 million in 2017. So many questions that I can't wait to have the opportunity to ask the banks and believe me, my research is extensive. If I get the chance I'll share some more another time. Big crash on the horizon kids, 20-30 years of flat is very wishful thinking from Aunty Westpac our most generous of Australian relatives - (Apart from uncle ANZ), more likely the flat happens after 30-50% comes off the market and people nurse their wounds for a generation.

Well, actually I know but you're not listening. You're a novice and that's fine. When I buy another property the bank lends me the whole purchase price because they look at my whole portfolio and I'm geared less than 40% overall so they have no problem lending me the lot. Is that clearer?

And that doesn't sound like a house of cards. Nuh uh.

Hi Evil. It was not my intention to touch a nerve, and I do listen to as much as I can to my staff and family. I also try to read as much as I can from all over the world. I too have been to a specu-debtors seminar, I listened to Andrew King and also to his mate Tony Alexander at BNZ and then had a look at how the system had been set up and then re-visited a bit more about the debt binge that people in the UK went on when offered 125% value and 6-8 times income on interest only mortgages pre 2007...I too have looked at the wonderful opportunity of having something you bought last year for 300k now being worth 400K (by the banks salesperson) and that I could borrow that to get into property specudebting..... never been one for the horses though so just had a solid business that returned cash, paid my staff and re-invested in the business each year... did I have a 40% covenant on something the banks told me I now had so I could borrow more money from them.. No... And it appears that Mr Westpac now holds a similar view to me.. I wish you well Mr evil and as I said before, my intention was not to touch a raw nerve, merely to explain a thought.

Complicated way of explaining a thought.

I think the point though is that no bank lends 100%. They wouldnt have lent 100% - because if they hold 2 cross-collateralised securities, the debt is across both, not just the new one. Argue about the relative risk of that (which is why the RBNZ allows, by and large, 80% on owner occupied and 65% on Non owner occupied securities.. but the 2 are blended.

I am intrigued though as to how exactly, in your research, you'd know how much the new purchaser borrowed from Westpac .. unless of course they told you. The purchase price and mortgagee are matters of public record, but loan size is not.

It's all available if you know where to look Mister B. but you do have to pay for the information of course, nothing in life is free - apart from a free lunch for a bankster!

There are hundreds and hundreds of cases of what shall we call it, 'enthusiastic lending' (often well in excess of GV's) and the guys at the top (who were asleep after eating too much for lunch the last 10 years) have now found out what was going on. (Courtesy of the Royal Commission) Hence Uncle Westpac is now trying to create a fairytale world of flat prices for 30 years. Which will happen after the crash..

Here's another one for you, house bought in 2016 for $775,000. (mortgage taken out at time of purchase for wait for it, £1,125,000.) .. Current GV. $850,000. For some reason they are struggling to sell it today. Nice boat on the drive though.

I have hundreds of them, hard hat and easy clean protective clothing required for when the 'sh...t hits the fan'

Yes, we get it. Increased lending has caused house prices to rise higher, in turn higher house prices have created more equity to allow more lending which in turn has caused house prices to go higher which in turn has created more equity which has allowed for the exciting opportunity for banks to lend more.

It's turtles all the way down. Safe as houses.

Leverage up, over leveraged and over priced land and materials and call it a bargain...plus bring in over valued, over priced USA dollars flipped from China and ya get a real bargain...if ya swallow it.

Money is not real...it is borrowed into production, flipped, flopped and sold on to the next mug.

That is why interest rates were pulled down, with prices pushed up...And then ya leverage some more...

It is all a dream an illusion now....X 14 in some fair lands...

I could explain, but ...nobody ever wonders why ya can borrow from a Bank, at multiples to income for 30 years...plus now add the poor wife into the factor...as she earns less than a man.

And they need a donation from the Bank of Ma n Pa......go figure. What are the odds.....

Plus a few derivatives naturally.....

Plus add in the American Dream...a debt clock....tick tock....ask a Trump card....

They is playing you for a sucker.

http://www.usdebtclock.org/

This sounds like an Augustine Lau special. I would also like to know how he managed to get lending (Westpac again) on a 400% increase in the value of a property, settling a week after original sale. 43 Candia Road is a prime example.

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41

Wow, this guys attitude really made me angry. If I can summarise: ok, so I’ve sold you a whole lot of petrol and I have poured it all over you, so what I need you to do now is not go near any open flames for say.....30 years, is that ok? Because otherwise it will be “carnage”, but hey I have warned you so now over to you?

Having fueled a debt bonfire, the banks are now asking for our indulgence for 30 years to allow the flames to die down?! Nah. This guy has got the big bonuses for growing the balance sheet with residential mortgage lending, and now he is washing his hands of the consequences.

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Agree with this Bobster. There wouldn't be a housing bubble if the banks weren't funding it. How do these guys get away saying such obviously hypocritical stuff? If he has genuinely held these views privately it just shows the CEOs of NZ banks don't really have control over their lending books or are incentivised to take greater risks than they should given their tenure is so short.

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... in all fairness to the banks , they have been greatly accommodated by the NZ Reverse Bank , who've dropped the OCR to record low levels , and kept it there whilst the property bubble expanding out of sight ...

Adrian Orr sees no need to raise the OCR anytime soon ...

Yes the central banks have played a part in lowering interest rates but if the banks weren't willing to lend the money, against inflated housing values, to the punters, then it's hard to see how it would have happened.

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10

And the "punters" bear no responsibility for taking on elevated risk and leverage arguably beyond their means?

I've made the conscious decision not to leverage up.

If this goes belly up I won't have any sympathy for them and I won't blame the Banks.
People need to take responsibility for their own financial circumstances and exercise self-control - you don't go and buy up the entire chocolate biscuit aisle, gorge yourself, predictably get obese and then blame the supermarket for selling it to you.

The worst thing would be if the wheels come off, everyone blames the Banks and over-leveraged lemmings all get bailed out.

Yep, let's blame the others, always the others, the banks, the landlords, the R E agents, the government, the Economy, immigration, taxes, traffic, house prices, rents, the neighbour, the weather... as long as we don't have to take any responsibility... ever

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19

Just to be clear - I will blame over-leveraged landlords and specu-vestors if this turns to sh!te.
Because they currently think they are they smartest people in the room, when in actuality they are unsophisticated leverage mugs who will drag everyone else down with them if it hits the fan.

I'll also blame the Government for allowing "punters" to plough their KiwiSaver funds into housing. That was and still is beyond stupid. As are any of these fanciful "shared-equity" schemes.

I think the RBNZ needed to step up with DTI measures years ago to nip-this-in-the-bud before we found ourselves here.

I won't blame anyone, I take responsibility for my life, I reap the benefits for my good choices and I accept to pay the price for my bad choices

That's a lovely quaint/naive idea - when you think your destiny is solely determined by your own good/bad choices.

In reality, the economy is a mass of interdependent relationships with credit at the centre.
Others' poor / unsophisticated decisions with leverage will potentially impact you and I regardless of how prudent we are. That's what riles me.

The use of KiwiSaver only serves to push up prices for no discernable benefit, other than to artificially prolong this cycle and transfer more wealth to current owners (of which I am one).

I'm not saying my destiny is only shaped by my choices, there are certainly external factors, but they are by definition "external" so out of my control. It took me many years to be wise enough to let go of things I cannot change and to concentrate instead on what I can influence

This is what cracks me up about those who think they can 'get ahead' (of other people, or whatever demons they're trying to prove that they're are superior to and need to hold moral ground above) - but regardless, this concept of getting ahead by investing in property (if this is what you're referring to), it's impossible for you to diversify away from the systematic risk involved.....and it's almost completely assumed, for whatever reason, that there is no systematic risk associated with housing and that by making 'smart choices' you're on a winning ride regardless of the risk involved.

I'm not talking about property or any specific field, I'm talking about a mindset.

So your mindset is going to prove superior to systematic failure when you live in an interdependent society? I agree that the butterfly effect applies...what we each do has a cause/effect relationship with other people in the environment that we interact. But that is true for both positive and negative intentions/outcomes - so if we have some of the society taking advantage of other parts of the society for their own personal gain and don't want to take responsibility for that influence...what outcome do you expect to happen? Your mindset will prove greater than the systematic change that will result?

I don't think we're getting anywhere IO, we're probably better off to agree to disagree

You can try your theory out on the homeless and the poor in this country. Many of whom will be reliant on your taxes to get by week by week because our society is failing them and has become too unaffordable for them to survive. So keep working hard and getting ahead with your positive mindset - just remember that the quality of any society is judged by the way they treat their poor - this will be the anchor that will determine whether our economy will be successful in the future (t will dragged us down or it could propel us forward). We need to help those people become more self sufficient and productive - as opposed to try and trample them into the ground in our quest to do the best for no 1.

Yep, you're definitely not getting me

I've read Stephen Covey's books so I understand where you're coming from in terms of focusing energy/effort in circle of influence vs circle of concern.....but it worries me that when used with the wrong frame of mind/ethics, it can quickly turn into narcissism/self interest.

Stephen Covey is OK but he lacks compassion in my opinion. Try Louise L Hay "What we believe".
I sincerely hope you will

'Mindset' Evil. Does that mean that Andrew King has 'brainwashed' you? The Paul McKenna of the property world - as they sit in their seminar chanting at the graph on the blackboard that always goes up.
'You will buy another house, it will always go up, leverage, leverage is your friend.....'
And then the banks run out of money and 'equity' in a market with no buyers becomes an illusion.
Welcome to 1990's Japan and a re-framing of the 'mindset' dear chap.

Poor you

and keep borrowing? oops!

was that influence a decision on how much you could borrow? A question for you Evil, did you make that decision yourself given your sound understanding of economics, markets and the influence of the world historically on New Zealand's economy pre and post credit crunch or did Sheila from ANZ call you up after a NZPIF seminar, realise that you had done the work of buying a house - may have something that she could have as security against your stupidity and start lending you some more money... I may be wrong Evil, but for many specu-debt-sheeples I am spot on.. Hence the bubble that the economy can't sustain (thanks Aunty Westpac).

Yes I make my own decisions. That was the point of my previous posts, and I accept the consequences, good or bad.

What bollocks. A concept called 'antisocial behaviour' led to another called 'the legal system'. There are other people out there making bad choices that affect society. Where antisocial behaviour becomes illegal is an valid discussion that you don't dismiss with libertarian zen-master aphorisms. Or am I to understand that if a tenant of yours trashed your house, you'd walk away, chalking it up to your bad choice?

It's unfortunate that you think it's bollocks. Taking charge of your own life and letting go of things you cannot change is, in my opinion, the greatest thing you can do to lead a happy life.

Exactly Yvil, the people who have invested wisely will be just fine, the ones that got on the bandwagon and prepared to accept low rental yields will suffer when the ringfencing Of losses comes in.
There is always money to be made on property providing you are schooled up and professional and prepared to invest with upside.

That only makes sense for the last 20-30 years because of falling interest rates. But now what TM2, rates are at record lows.....I tend to agree with David McLean. He's framing the issue in the best possible way to avoid scaring the herd.

The banks have plainly been engaged in aggressive and “highly optimistic” residential mortgage lending, and have profited handsomely from it. They have shelled out 25 year debt at historic low interest rates when the prospects of some of that debt being repaid over that period is pretty close to zero. There are also lots of greedy and stupid borrowers who have loaded up on that debt for their own profit, so there’s plenty of blame to go around. Feel free to ‘fess up for your share.

People are greedy, as a species, since forever. If there are tax incentives, easy borrowing and all the psychological exuberance shenanigans, it's gonna happen.

That's why we need governments and central bankers to regulate to the extent that we can't commit economic self harm on such a monumental level. Governments are supposed to step back and look at the big picture, greater good and all that shiz. Governments shouldn't have power to regulate every aspect of life obvs, just the really important stuff, like no killing, no stealing, no NATION_SIZED_DEBT_SWOLLEN_PONZI_SCHEME_WHICH_HAS_THE_POTENTIAL_TO_SINK_THE_WHOLE_ECONOMY.

It's not as if NZ gov couldn't have looked at the GFC, and all the countries who JUST DID THIS EXACT THING and think, yeah, we should probably implement some kind of sensible DTI or suttin.

*criesfutiletears*

This is why I think capitalism coupled to democracy is going to result continuous boom/bust cycles....make one part of society rich, they'll keep voting for you. But eventually only a smaller and smaller percentage of the rich continue to get rich, and those that are struggling increase. This reaches a tipping point and the people vote, change of government/sentiment/policy/(crash)....system goes bust, cycle starts over. People think they're getting rich, they back the party they think is making them rich...

Greed is the one trait that differenciates humans form all other animals. Whereas animals are happy if they have enough food (and sex when on heat), humans have, since the dawn of time, wanted "more". That is what lead humans to where we are today, for better or worse

Tell that to my fat cat. He's just gobbled all his sisters food and now comatose.

I guess as long as you remember that you can't take your capital with you to the grave and that you don't screw the small guy over too much in achieving the 'dream' of maximum greed - all is well.

Agreed and screwing anyone is absolutely not acceptable

You are completely wrong about that, plenty of other species practice greed as much as humans do; even partaking in prostitution to acquire what they want.

Or eating their young or male partners if the going gets tough...watch out everyone...

pragmatist & IO, both your comments come under food and sex, which I have explicitly mentioned as being animal instincts in my post above.

Feel free to argue with professor Nathan Lents if you want, but I'll take his statements about greed in animal species at face value.

https://www.visionlearning.com/blog/2014/12/17/wolverines-give-insight-e...

I guess this all comes back to how well developed the brain is. The more developed it is, the better it recognises the interdependent nature of society and the more likely it is to feel the need to serve others, as opposed to sabotage them or play games of oneupsmanship (which is what I feel has happened to New Zealand in the last 10 years - everyone is trying to get one up on their neighbor, which might possibly be related to our issues of depression, mental health and suicide).

I would suggest it is something other than brain development or additional to. Thinking of many people with mental disabilities who don't exhibit many negative traits and many highly intelligent people who exhibit psychopathic/sociopathic traits. Then there are those highly intelligent ones who upon recognising the interdependent nature, etc who develop issues of depression/mental health as a result of understanding but unable to comprehend/deal with it. Then there are those who exhibit positive traits, who are intelligent enough to follow the status quo to further their own self interest and yet those same actions contribute to ongoing issues.

Hmm...

This is where we need ethics....we have some highly intelligent people trying to function in a system of capitalism, which by its design put people into competition with one another. All that good potential can be used in the wrong direction without ethics.

I totally agree. The issue would be what ethics do we agree on? How do we develop an awareness of the butterfly/ripple effect globally of our actions? How do we ensure those ethics are even followed? One could argue the 10 commandments is a fairly ok list of ethics albeit limiting in some cases and look what's happened there.

This is where I believe the lack of a long term vision also comes to the fore. For 2000+ years we've been chasing this goal of individual material wealth, directly and indirectly harming others to achieve it. Money and wealth accumulation has become the end goal and we see the dysfunction of this all around us.

How do we change a couple of millennia of programming?

Greed or happiness? Do animals even consider happiness? Whereas I agree with the notion of greed and humans wanting/demanding more, what about those cultures/indigenous peoples who had more understanding of their relationship with their natural environment who didn't demand more, who weren't so fixated on material items?

If humans had their needs met would they want more? I refer to Maslow's Hierarchy of Needs as a starting point. Humans have basic physiological needs and more complex emotional/psychological/spiritual needs which we don't seem to understand very well or are currently used to manipulate/exploit others.

The question is whether our existing complex economic model, the illusion of scarcity, our belief in competition over cooperation, actually encourages greed of the individual. Of note is that society has also been taught to celebrate greed as a sign of success.

ACB - God help us for the number of people that have to blame others for their BAD decisions. If its not the central bankers, its the bankers - the number one cupruit is the borrower who decided to borrow the money - if they are financial innocents it isnt going to be their only stupid mistake in life, it might be the biggest, but unless theyre prepared to educate themselves to some extent, there is only one person to blame completely. Those who bet their livelihoods on the good or bad decisions of other people or institutions have little to complain about.

Very well said Grant A (you can generally spot the smart posts by the lack of thumbs up)

I dub this astute observation, Yvil's Law.

Well-dubbed.

Yvil, your comment speaks volumes.

You can take a view that caveat emptor prevails, that it's just greed and that everyone is smart enough to understand what they are doing and will learn by their mistakes. But, even assuming that is true, the mistakes they make in this case can impact everyone else too. And so this is where responsible lending and regulation needs to come in. Certainly I agree with you in a perfect world, well informed borrowers should take their medicine but what if they're not well informed? Unfortunately we're not all brilliant and need the banks to make sensible decisions for us.

Adrian Orr might find global oil prices make him change his tune.

And there would not be an obesity problem if KFC didn't deep fry there chicken and there would not be an alcohol problem if no one sold any booze. Or should people take responsibility for themselves rather than blaming someone else for their actions? Blaming everyone else just encourages the nanny state.

..problem richr is people do not take responsability.....and as we do have a nanny state, such as a public health sytem, we cannot ignore these matters as these peole become a cost to us all.

So we need to discourgae poor behavour. How do we do it? Tax- Sugar,fat,alcohol,plastic, tourists, petrol,carbon, water, ......the oppurtunities are endless.....

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Bobster,

Well put. The arrogance of this pr....k makes my blood boil. I am only sorry that he is able to claim a Scottish heritage. I really really hope that enough bad practice can be dug up,to roast the top brass of all the big banks over hot coals-but do our politicians have the balls to do it?

Linklater01. I claim a bit of Scottish ancestory too and sadly it was the Scottish banksters that roasted the UK in the credit crunch. What's happened in Australasia over the last decade is almost akin to the failed bankers of Northern Rock, RBS, HBOS etc all moving to the Southern hemisphere and setting up shop to have another unregulated party here. Royal Commission should have been started 10 years ago to get some rules in place. It's going to be a right mess when it comes out what they have been doing and you will hear of many many stories of lending on property beyond purchase prices. Its all been done on 'ludicrous' income ratios (up to 8 times muliples) and massive amounts of interest only debt to people who don't understand maths and finances beyond what it costs them next week. There has been no care for the actual value of the asset they were lending against. Watch and see and make sure you're carrying a hard hat when the bricks start falling down.

Nic,

I know all about the sad tale of RBS and its Scottish Accountant CEO Sir(now ex) Fred The Shred Goodwin. I would happily have left him with his knighthood,but stripped him of his entire and entirely obscene pension.

I remember when the Royal Bank and Bank of Scotland bestrode the Mound in Edinburgh-proud of their history and their 'canniness'. Hubris,greed and stupidity swept them away,but those responsible,live on in comfort.I spent most of my working life in financial services in Glasgow,before retiring to Mt. Maunganui.

Good choice. You wouldn't want to retire in Glasgow.

There are many cities overseas with incredibly low interest rates but no housing bubbles -Tokyo, Houston etc. The problem NZ has experienced is a massive increase in demand due to low interest rates, inflation, rising incomes, government subsidies etc and a highly restricted housing supply response. The obvious happened. Massive price increases -which then got further speculated on and now we are in this awful situation of massively expensive house prices which causes all sorts of negative effect on productivity and inequality.

The difficulty is finding a political and economically acceptable way out of the problem. One solution that might help (as part of a wider package) I have outlined in an article about getting the best form of intensification, that makes the most from the governments/councils investment in rapid transit.

https://medium.com/land-buildings-identity-and-values/can-great-design-h...

Demand... just don't mention immigration or foreign investors, no seriously.... They have had no impact on house, rent or lease prices, none whatsoever. Its all low interest rates, inflation, rising incomes(giggity) and government subsidies. And according to Mr McLean.. our attitudes.

I meant to add immigration/population growth and foreign investment. Sorry distracted whilst making dinner.

In my opinion demand factors are hard to control for though. Immigration for example is cyclical depending on what the Aussie economy is doing. Interest rates are influenced by global events.... We could do a 'Detroit' by slashing incomes and making our cities unattractive -but do we really want to solve the housing crisis that way?

Supply though can be as simple as -building more houses-let's do it?

Use "immigration". The term "population growth" is just a euphemism.

Thanks B, hope dinner was a winner winner… But disagree with you in that... and it is my big bug-bear.
Surely you are not suggesting it is easier and quicker to build say.. 100,000 houses and all the infrastructure and services they require, than … stop immigration and ban foreign ownership of residential properties? Which could be done tomorrow?

Cutting immigration would be a quick fix. If the 'herd' agrees that is a good idea I am not going to strongly disagree with them because in the short term it would work. Long term housing supply issues still need to be fixed though. Next time the demand might come from something other than immigration...

He is actually talking sense . You should try and put your anger to some productive use . Being an angry looser is not a great life choice.

Bobster,

The bank CEO's would likely continue lending if they could. It was only when the adult in the room said enough is enough and forced the banks to tighten their lending criteria in March 2017 under APG223. http://www.apra.gov.au/adi/PrudentialFramework/Documents/APG-223.pdf

This affects the Australian owned banks in NZ, whilst other banks in NZ are not subject to this criteria.

Not sure how effective the RBNZ bank regulation is with respect to loan underwriting standards.

So stagnation for a generation ........

A couple if you do a bit of counting back and including all those who have been shut out for some time.

There we have it from Westpac themselves.. Guess is that at the top they had no idea what was going on via the network of 'sign em up, take the commission' brokers. Anyone think 30 year stagnation likely? Or a massive correction. And for those that bleat supply and demand because they only listened to the first lecture in economics - this is a debt crisis that we will be facing very shortly. Hold onto your hats people its going to get choppy out there when the liquidity disappears. Re-mortgaging will be fun in 12-18 months time as the banks cherry pick who they will and won't re-finance.

As someone who is in their own house at the age of 32 (Does this make me a millenial?), I was kind of annoyed at this.

However - my take on the matter.

Stagnant house prices for 30 years (Until I retire) will encourage me to take my money and invest it in better investment than just rampant capital gains from housing.

So I invest in business, I buy a rental and keep it to a good standard. I buy shares, or start my own business ...

Just because a single asset that we've come to rely on as a country as a "stable capital gains earner" starts flattening out, doesn't mean the economy needs to stagnate aswell. Far from it, it encourages for invesetment in more productive assets.

Mc Lean wanting house prices to stagnate for 30 yeras certainly doesn't mean they will

Quite right - prices could collapse.

They could

So stagnation for a generation ........

or 2

Yeh wow alright. Stop pumping this asset class then.
In such a scenario, will builders + tradies, or building material suppliers, or land suppliers, or the council consenting money printing machine take the biggest hit when it comes to zero wage/price increase for the next few decades?

... if the biggest hit came to land prices , then all would slip neatly into place for continued house construction ...

It seems to me that the grossly inflated price of sections is a big chunk of the house price equation ...

In the UK and US during the last recession, land fell first and often by up to 50% - it is usually the first to go because builders struggling to sell new builds have to dispose of their other financed purchases (land bank) to keep there businesses going when the New builds stop selling - My guess is there will be a wave of sensible developers currently sitting on the sideline (who have seen it all before) and will be happy to pick up the slack as this happens.

Well, GBH, I've always thought that a deemed-value tax on land would work wonders for the pricing thereof.

It could work a little like the FIF - establish a deemed rate of return on the value of all unimproved land, allowing an exemption at (say) the horticultural value of $50K/ha, and taxing the difference.

A thought experiment (the safest kind):

  • LandBanker is sitting on 20 ha, just inside the Awkland RUB, with a current CV of $10m or $500K/ha
  • The deemed rate of return is 15% (the expected CG over the last few years in Awkland, perhaps?)
  • This RoR is applied to $450K/ha (the remaining $50K being the hort exemption)
  • The resulting tax is 15% of $450K times 20 hectares = $1.35m

This might just induce some Un-Land-Banking, and the $1.35m could be applied to some worthy Housing cause (like buying a coupla 3-bedder KB Hooses off the plan).

But, kia kaha, land bankers, it's only a Thought Experiment.

Although, wearing my now decades-old, frayed and threadbare County Treasurer's Hat, there's Exactly this tax possibility via Rating: Schedule 2 Rating Act 2002:

Schedule 2
Matters that may be used to define categories of rateable land

1 The use to which the land is put.
2 The activities that are permitted, controlled, or discretionary for the area in which the land is situated, and the rules to which the land is subject under an operative district plan or regional plan under the Resource Management Act 1991.
3 The activities that are proposed to be permitted, controlled, or discretionary activities, and the proposed rules for the area in which the land is situated under a proposed district plan or proposed regional plan under the Resource Management Act 1991, but only if—
(a) no submissions in opposition have been made under clause 6 of Schedule 1 of that Act on those proposed activities or rules, and the time for making submissions has expired; or
(b) all submissions in opposition, and any appeals, have been determined, withdrawn, or dismissed.
4 The area of land within each rating unit.
5 The provision or availability to the land of a service provided by, or on behalf of, the local authority.
6 Where the land is situated.
7 The annual value of the land.
8 The capital value of the land.
9 The land value of the land.

But using this sort of power intelligently and sparingly requires AC to have that rare combination of cojones and economic competence. Not gonna happen.

... we could do that .. true ... yes we could ...

Or ... we could just introduce an annual land tax of 1 % of the unimproved value of every square inch of " freehold " land ... no exceptions ... no exemptions ...

Simple non-exempted solutions are always the best and cheapest in my view. It's why NZ Super scheme, for all its faults, is lauded for it's simplicity.

Your above suggestion is what Texas does I believe, and forgo state income tax. No rampant CG and nice simple system

Hahahahahahaha!!!!

Oh my. David Mclean what a comedian.

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I mean...wot?! Just such unbelievable comments from this guy. He as much as admitted that we are in a huge debt mess.

I nearly spat out my tea Bobster. The utter absurdity and sheer cray of this numpty. He must be so terrified of a correction that he has actually constructed an entire alternative universe where the current and historical economic behaviour of the world doesn't exist. In his new fantasy world, conveniently the wealth of those home owners who have made astronomic and WAY ABOVE THE HISTORICAL TREND gain on housing during this bubble are utterly protected.

This has to be one of the clearest examples of economic cognitive dissonance I have ever seen.

Maybe he’s privy to some scary details that suggest we are heading for a crash?

He certainly seems to be making a desperate attempt not to spook the herd. Which will probably have the opposite effect, because it's delusional.

Yeah, cause nothing calms the herd more than;

" NO CAPITALS GAINS FOR 30 YEARS IS THE BEST OUTCOME TO HOPE FOR"

You mean like profiling information on Westpacs customer base, bank balances, and mortgage servicing to income ratios, not to mention all the data they have on the housing market by way of mortgage applications?

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What's wrong Westpac, suffering from a phobia of valuation heights are we? David wants a Utopian style outcome with no global shocks for the next 20-30 years. Slim chance of that happening.

If speculators believed they faced stagnation for 20-30 years they would create self fulfilling carnage as this is just another reason to exit. It would not deflate in an orderly way. We are burdened with a glut of unaffordable homes pumped by massive debt to which David has publicly acknowledged the dangers ahead.

Remember ANZs boss said NZ property was cooked here; https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=116...

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'Cooked RP' doesn't even begin to describe it. The cumulative efforts of Westpac, ANZ, BNZ et al,make the Northern Rock and RBS debt party look like a kids party. in contrast the Aussie banks have been running around naked in the sea, drinking rum and smoking crack. As Warren says though 'when the tide goes out we shall soon find out who has been swimming naked.' Anyone banking on their 'equity' had best start planning for how the debt gets paid, equity disappears in a liquidity crisis. Debt however does not and rates aren't going lower this time around.

... some of us really really don't wish to see a bunch of elderly obese Australian bank managers naked .... with or without the water ...

'Cooked RP' doesn't even begin to describe it. The cumulative efforts of Westpac, ANZ, BNZ et al,make the Northern Rock and RBS debt party look like a kids party. in contrast the Aussie banks have been running around naked in the sea, drinking rum and smoking crack. As Warren says though 'when the tide goes out we shall soon find out who has been swimming naked.' Anyone banking on their 'equity' had best start planning for how the debt gets paid, equity disappears in a liquidity crisis. Debt however does not and rates aren't going lower this time around so prepare for a big re-set.

Retired Poppy,

Here is a collection of comments about Auckland residential property prices in the media from respected and informed viewpoints.

The first concern about property prices in Auckland was in August 2015. This was ignored by many given the continued upward rise in property prices at that time. Given that property prices in Auckland have declined, and transaction volumes have declines, these viewpoints are now being taken a little more seriously.

From within the commercial banking environment

201711 Anthony Healy - former BNZ CEO - flat property prices - http://www.nzherald.co.nz/personal-finance/news/article.cfm
201607 - David Hisco - ANZ NZ CEO - http://www.nzherald.co.nz/business/news/article.cfmhttp://www.nzherald.co.nz/business/news/article.cfm
201607 - Arthur Grimes - former chairman at RBNZ - http://www.stuff.co.nz/…/auckland-home-owners-who-bought-in…
201607 - Don Brash - former governor of RBNZ - http://www.stuff.co.nz/…/Don-Brash-Auckland-house-prices-ne…
201508 - Graeme Wheeler - former governor of RBNZ - https://www.rbnz.govt.nz/research-and-pu…/…/speech2015-08-24

So slow move to self defense. .

Next step?

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So where else in the history of time has a market ever pumped itself into the startoshpere only to then level off and stagnate for 30 years? Doesn't happen and he knows it. He is effectivley saying 'the bubble has burst....but I'm too scarred to say publicly what comes next'.

Or Rastus, he is so terrified of what the bubble bursting looks like, that he can't acknowledge it happening and has instead created an completely new alternative la la universe which has never and will never exist, but he feels slightly more comforted so it's cool.

This idea is great on basically every level that matters. The baby boomers get to keep their unearned capital gains. Those whinging gen y types get deprived of that same opportunity and have to work for their money. It’s basically a win win situation.

But it’s just not going to happen, right? That’s the point. The chance of this ever so gentle real term deflation is ZERO.

Agree with you, Bobster.

And by the way, everyone, you can't blame banks for lending (supplying) money: it's equally those people/investors who borrow (demand) money.

TTP

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We are saying different things. I say there will be a reversion to mean eventually but the chance of this happening gently over 30 years is precisely zero: at some point there will be a sharp shock and a significant fall in nominal prices. Whereas you say prices will continue to subsist in excess of the mean indefinitely.

TTP, oh yes Bobster can, and does (blame the banks), see his 1st comment above (with over 20 thumbs up)

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Does show a scary level of entitlement mentality, doesn't it?

Perhaps if he begs very hard, and grovels some more, and indulges in ever-more fervent magical thinking, his wishes will come true and he won't be killed by a rampaging angry mob of over-leveraged speculators and priced-out workers who don't have 40 years to kill before they can consider starting a family.

No one has yet mentioned the inputs of the property speculator cohort ( i first wrote property speculator 'class' but decided to replace the collective word to emphasixe the fact that most of them dont have any.)

its ok Mr Orr says they can print money... if they have too.

Its more likely that we could see a big fall, and then no moment for 20-30 years aka Japan style, look at apartment prices 60km from Tokyo over last 30 years

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A long slow inflationary spiral only protects the banks and speculators. Best way to educate property speculation in NZ is an almighty reset. Lets just get on with it.

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Looks a bit like the face of the dog who's just been caught ripping up the couch.

Oh, are NZ house prices too high? Who knew?

Poor ol' David isn't making any friends here, is he. Idiot wishful thinking and pig-headed denial of the economic carnage going on how isn't going to work out too well for this dude. He should probably retire and change his name while he still can.

You may not like it however this is the agenda, it will be sticky prices and institutional support as long as possible, sure 30 years seems a stretch..I bet you it will be longer than you think thou.

David McLean can "wish" for flat house prices for 20 - 30 years, it certainly doesn't mean it will happen

No, the return to sanity in house prices will arrive a lot sooner.. and it will arrive with a wallop.

A capital gains tax and not allowing negative gearing 20 years ago was probably the answer.

Lack of DTI's.

Yup

Yup

Seriously? The CEO of one of the largest banks in the country hopes for his core business to stagnate for 30 years because the alternative would be much worse? If that's not a red flag then I don't know what is.

Luckily I'm about to move back to Switzerland soon. Hope I can sell my Coatesville home for a reasonable price still, preferably not less than I paid in 2015. And then get out of the NZD before the RBNZ will engage on a devaluation spree, hoping to inflate the debt away...

Hopp Schwiiz

Unfortunately Super Mario, I don't think the Dot Com Mansion will be worth as much as you paid for it.

Wow.. a brief but insightful look into how the banks are thinking...Just let me get my savings out, and then I say... let the carnage begin!

Massively improving how NZ Intensifies its existing low density suburbs is part of the solution to the housing crisis. Greater intensification that my following proposal enables, leads to a downward shift in land percentage values but does not affect the absolute per square metre land value. It therefore is less disruptive to the wider property market.
https://medium.com/land-buildings-identity-and-values/can-great-design-h...

An interesting concept. The only part that I don’t like is the idea of compulsion. I assume that some hold outs may not be trying for a higher pay out and then you may be in for a real fight e.g. elderly who have nowhere else to go.

I too am concerned about the compulsion, so added lots of checks and balances. In particular the entity that acts commercially i.e. does the master planning, building etc cannot be the same crown entity that assesses the greater public good and does the compulsory acquiring of property -if needed.

I believe that compulsory acquisition should be a last and very reluctant resort. I would expect in your example of the elderly with nowhere else to go -that the master planning considers their needs -actually negotiates with the person concerned to address their concerns -such things as wheelchair access, minimal disruption/maximal assistance when moving from old house to new etc.

For some elderly this scheme could be a major boon. They could effectively get a granny flat custom built for them, some equity is released to add to their retirement savings and they stay in the neighbourhood where they have a network of supports.....

Is there a word for word transcript of his speech? If this is accurate reporting in context then you have to wonder where his EQ is hiding?

Where’s Eco Burd?

Either prices need to adjust, incomes need to adjust or rates need to stay low perpetually. I would suggest that adjustments are rarely gentle, well considered and long running affairs. When people panic the exits get very narrow very rapidly.

TM2, Eco Bird, Zachary, DGZ, Houseworks, why the silence? How would Davids utopian 20-30 years of nil gains sit with you? Allegedly owning all those "positively" geared rentals means capital gains must surely be an afterthought - NOT!

The wise men talk about issues, the others talk about people

Yvil, unimaginative individuals repeatedly copy quotes made by wiser commentators.

Retired Poppy, I haven’t been on because I am in Oz spending Ozzie dollars on clothes and consumables to help the Gold Coast shops because they were very quiet during the Commonwealth Games.
The council put people off going into the CBD during the games and so they have suffered so some pretty good bargains.
NZ is a great place to live generally apart from this flip flop of a Govt.
Twyford the other day said that there would be no limit to the income for the so-called Kiwibuild and now he once again has flip flopped and has now changed his mind and hasn’t made a decision on income!
He should be nominated for NZ comedian of the year and he would win it!

I think the CoSL (coalition of sore losers) are in a committee meeting fleshing out their common talking points and phrases for the next week.

Houses are not overpriced for the buyers who can afford to pay for them!
They are unnaffordable if you have not got a deposit or sufficient income and therefore those people need professional landlords to provide their housing!
Nothing wrong with that is there?

TM2, fluff aside. How would Davids utopian 20-30 years of nil gains sit with you?

I could afford to pay $40 for an avacado, that doesn't mean that avacado isn't overpriced. Thick people will still pay for them of course.

Same goes for houses. Even those in Christchurch.

Not if there is 20 avocados and 50 buyers. I don't think even $40 would buy it as competing buyers will be happy to pay more. Growing new Avocado is also more than $40 a pop due to cost of material, labour, etc. Of course you can go out of Auckland and buy that Avocado a bit cheaper. Doesn't quite work the same with houses though as you need one located in the city where you live. Simple, supply-demand sir. Limited supply, high cost of building, demand is high even better though market is subdued currently.

An interesting analysis would be see how many people are looking to buy or plan to buy in the next year and matching to houses available, don't even bother factoring in immigration. If we have more houses than buyers why is the govt looking at building expensive new shoebox houses. Surely all those needing a home will get one, just sit out and keep wishing for prices to become affordable.

Chessmaster, major lenders are anxious about how the plane lands without crashing and you personally think it's already landed safely - right? How much do you have riding on this ponzi?

20 Avocados, 50 Buyers but none of the buyers have more than $10.

The banks have been fundamental in creating the credit bubble, making big $$ along the way. Now they preach conservative policy as an attempt to keep the bubble from bursting.

If the next 30 years General CPI match the last 30, freezing nominal house prices that long would about halve them in real terms which is what is needed. Alas, not much chance the world QEconomy will stay level for 5 more years much less 30. Nothing NZ/AU people and bankers can do about that but whistle.

Yeah, his 20 - 30 year period of stagnation about ties in with the 30 - 50% fall required to bring prices into line with long term averages

Bobster - is it best to pull off a bandaid slowly or to rip it off quickly?

Kahneman did some interesting research into this:

https://en.wikipedia.org/wiki/Duration_neglect

With all these views coming out and changes in policy as well as sentiment, I can't help but start to find similarities between property bulls and flat earthers

Time for me to weigh in. I think most people have misunderstood what Mr McLean is really saying here. He is saying, look, in a Utopian fantasy world we would see no real house price gains for ten or twenty years as we waited for wages to catch up, however, LOL, that's not going to happen. A transformation in thinking and approach in New Zealand to real estate is impossible after fifty years of consistent gains, just forget about it. The best we can do is improve the supply and demand situation a little. Maybe we can get involved in shared equity lending in a lame token effort to show we care about alternative solutions.

Essentially people who think that things are going to return to historical means are dreaming.

Shared equity is not the solution. It's just kicking the can down the road.

And the president of the flat earth society arrives...

No, he is acknowledging that his own business is now in an unsustainable position and he is expressing the hope that the climb down from the debt mountain is done slowly and gently and without any sudden drops. He knows his banks balance sheet needs to shrink and that it will shrink, he can see the writing on the wall in Australia. But I agree his hope is utopian, there is zero chance of that gentle deflation happening.

He is also issuing a veiled warning not to try to do too much to improve affordability (ie reduce prices) or otherwise “rock the boat”, lest there be “carnage”. Or rather, lest the house of cards built with the encouragement of the banks fall over.

And his call for “shared equity” is a hope that new debtors will contribute further capital into the market which is subordinated to lenders and which will improve leverage and thus enhance available lending levels while at the same time allowing the banks to further distance themselves from the residual risk of a market correction. It is totally self serving.

This kind of makes me think of an Alan Greenspan irrational exuberance moment, but in a slightly more subtle form.

'But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?'

For the flat earthers - this comment was made prior to the dotcom bubble.

We shall find out Zach. There are a lot of people who have bet the farm on a promise but I feel that the stomach of others to continue the madness 9ponzi) may well be waning. And the banks are about to be exposed on an enormous scale.. Good luck dear boy and make sure you keep your house clean and tidy when the buyers come to visit.

"While the government is exploring shared equity models with banks, McLean said Westpac was writing a “small but increasing number of shared equity loans for families purchasing their first homes”.

"“The shared equity is provided to the family at a level that ensures the family can afford to meet the mortgage payments at the start based on their current income," McLean said."

“We’re keen to support this concept. We think it’s got potential for further growth.”

Said the Crack Cocaine dealer to the crack addicts. Soon he will want to setup crack cocaine dens and buy a house with other crack addicts that cant afford there own crack by themselves when the prices get to high.

Your just better off having a correction going cold turkey. Best way to get off Crack.

"Furthermore, it would “gradually ween New Zealanders off the conviction - which is entirely justified because it’s been reinforced by economic evidence over the last 50 years - that investing in the housing market carries by far the best risk/reward of any asset class”.

First he says Crack is bad, but as a true dealer, he then says hey its the best crack in town. Get some more. We loan at 100 years now, sign the debt over to your kids and their kids. House prices at 50 times income no biggie, we will lend on a new model.

Retired Poppy, wouldn’t worry me one iota if there was no capital gains in the next 20 years!
We buy property under true market value anyway and do t sell as we are investors and returns are always positive which is what gives us our lifestyle.
No gains would be advantageous for true investors and not for negatively geared investors.
Too many on here talk about the housing market as being Auckland solely.
Spoken to several people in the last week or so in Oz that say they love NZ but didn’t like Auckland at all!
Loved Chch and South Island So There you go, Auckland is not as flash as you may like to think!

Agree with you there on the last bit TM2. Out of interest, how do you go about determining what properties are undervalued/overvalued? Is it a matter of a ratio, some form of analysis or gut instinct?

Well IO, what is it that you do day in day out? I bet you're a lot better at it than I am or TM2. Same for any field including property, choose a location, a property type and keep looking day in, day out, soon enough you will get an idea what is value and what is not. Even better over time you will learn how to add value. See I would never count on the market "to go up" to make money. I will only buy a property If I can make min 20% on it the first year and if I can't find one... I keep looking

But its impossible to diversify/hedge away from the systematic risk associated with having all your eggs in one basket. Do you buy houses in other countries so that you have a currency hedge? How do you deal with interest rate risk? How do you tell if the market overall is over priced and that any home that you buy is overvalued? Is it yield that you use?

For starter I own commercial & residential properties. Next you're right you can never completely hedge all risk but without some risk you're bound to be limited by a salary for life. Lastly I've been investing in NZ properties for 25 years and there was exactly the same talk back then, that houses were getting way overpriced and in 2007 everyone knew for sure that house prices were so inflated that they could not possibly go higher. You make a good point about yield, I would never buy a property that is negatively geared, which is getting very difficult to do. I have my own way to get yields of 8-10% in locations where houses typically return 3-4% but I'm not prepare to publicize what I do

Yvil, come on, the circumstances are very different now to 2007 and NZ was not as impacted by the GFC as other countries for several reasons.

If you've been investing for 25 years across commercial and residential, and aren't leveraged up to your eyeballs, then i'm sure you will be more than fine, even if house prices do correct. But the last 25 years is not necessarily a good indicator for the next 25 based on the post-GFC credit boom which is utterly unprecedented.

"For starter I own commercial & residential properties" Ones a Op Shop in Putaruru, the other a two bedroom house in Tokoroa. The secret is that yields are in the regions.

Why do you so often try to put other people down RP? What pleasure do you get out of belittling others? Can you not use this site to discuss issues instead?

Big difference between liking visiting a place and the reality of living there. A bit like women.. plenty that would great fun for a fling.. but marriage is a different game.

Amen brother, I lived with a Labour Party Member for a short while in my 20s, it would have been a marriage made in hell. You shouldn’t marry outside your tribe.

One and a half million people might just disagree with you The Boy. You need to buy cheap in Christchurch with its house prices and rents dropping. If you are in fact in Australia on holiday I don’t blame you. I would leave Christchurch during winter also. People who live in Auckland don’t need to leave it to keep warm.

Geez Gordon, I never lie about anything.
For the umpteenth time our rents haven’t dropped overall at all but our interest bill has, so investors are better off.

Rents have not increased in Christchurch since 2013. You are a mug being in the game The Boy. You let your family down by being in it. You should take some good advice and get into something better. I have a feeling you will not do that as you do not have the courage or the nous.

Your the mug Gordon, headline stats never tell the entire stories for all aspects of a market and and you appear obsessed in trying to get at one poster which comes across as pathetic.

Sorry Gordon but don’t know anything that will return me approx. 10 Per cent guaranteed.
As for courage take me up on my challenge to you if you are the one with courage!

Wow this article really touched a nerve with folks....The biggest issue I see coming soon that will stagnate house prices is an increase in interest rates. Inflation is coming on the back of increasing oil prices which will force interest rates up. You only have to read the daily Herald article on petrol prices. This will also cut into people’s disposable income leaving less leftover for mortgage payments. Some pain is on the horizon me thinks....

It would have to be a very slow increase in interest rates to manage to keep things stagnant.. interest rates going up at any pace would push the housing market into sharp decline.

I’m sure this scenario is on the Reserve Bank’s mind. Auckland home owners with 8x debt to income ratios as mentioned in several articles are highly at risk in this case.

Read today's (24/05) article on this site about the RBNZ 5 options... they seem determined to keep NZ interest rates low

I pray today that houses do tank...Though I own one....it is my Home...have owned it for 40 years...no debt.

Don't matter.

If they tank, all Parliamentarians will lose their shirts and knickers......as that is all THEY...invested in..and kept the Country ...House Proud...but poor as. ..

(I thought ..vested interests...and insider trading was illegal....and were immoral. but then..poll-lies speak for themselves...as I have stated many times before).

Worse than car dealers and Solicitors....and real real estate agents.....always want a piece of you....at any cost.

How can you tell they are lying.....(You know the rest)..

4 beds 3 bathrooms....how smart and smug am I..they think....and they own....debt..... Yours.

Houses are not an investment...they are a liability, some suckers will realise that one day....ain't nuffin like being be-holden to an Aussie Westpac piece of work....for the next 30 years.

As a final statement ...on this auspicious day.....I closed Westpac account down...years ago.....who needs em...Oh..you do.

Got to go bury my Father-in-law today...he was a builder in the 70s and 80s and 90s...died at 95. last week.

Never owned luxury houses ever.....made a fortune. Go figure. Plus the Bank made him pay 35% on overdraft...in the 87 crash...

So I bailed him out......

He was family...after all.

I Sold his 3 show homes....He then retired...for 35 years....get out while the going is good...just shows you....

Learn from your mistakes.....debt before dishonor.

Rest in peace....Haydn.

Well I'm interested in hearing Mr McLean's growth strategy going forward if Westpac are no longer going to participate in mortgage acceleration. It's been the central strategy for the banking industry for the last 3 or 4 decades.

Very good point, missed by all

I have had another thought.. A spark of inspiration...

Perhaps all Banks and Politicians involved in this Housing Fiasco, should repay all Commissions and Profits and Wages generated.. to the cause.

(And any Profits Laundered to Hawaii, Caymans etc..).

Because they were the "Cause"

Nothing surer.

20 - 30 years and we are supposed to be under water. The globalists want there cake and eat it. This is a classic !!! https://www.youtube.com/watch?v=NjlC02NsIt0

Self-interest much?
People locked into a mortgage without the opportunity to sell and paid down debt via capital gain. I can see the bank's interest income profits soaring.

With all due respect to Mr McLean, we can't deny the cyclical nature of property markets for long any more than we can deny the concept of the cycle of a day/night for long.

You could say when the sun sets tonight that the sun will not rise in the morning and it would appear you would be right for quite some time... until the inevitable sunrise the next morning. The property cycle will turn as sure as day follows night as it has for over the last hundred years in NZ and several hundreds in other countries.

It's only because we are in the Slump of this cycle that we see such views about house prices being shared by 'concerned' industry participants.

In respect of Mr McLeans wish for 20 years of flat house prices... sorry that's an impossibility given the current economic structure we operate within. Auckland property prices will most likely double in the next decade yet again in spite of all of the reasons cited that just can't happen.

Recently I met up with a senior executive of an Auckland real estate company who I've known for over 20 years and they reminded me of an article in the media 9 years ago where I was quoted adamantly that property prices would double in the next decade ( I was referring specifically to Auckland). They said "you were proved correct" and indeed checking Auckland's median price since the article in January 2009 and April 2018 which is just shy of 10 years the median price has in fact doubled from $424,000 to $850,000.

In the article a financial advisor and a senior Bank economist were highly skeptical of the claim and insisted there were many sound reasons as to why property prices could not possibly double in the next decade.

The rest is as they say is history.
Here's that article http://www.stuff.co.nz/business/9595/Property-will-double-in-price-in-de...

Having been away from the property market for nearly a decade, for various reasons, it's no co-incidence that just yesterday I bought the first rental property I have bought in a decade.

History again indicates growth of between 80-100% in values in Auckland in the next decade.
No Banks are going to stop that from happening.

IMO (for the commenters in this column) there's inadequate evidence of any 'debt fuelled implosion', in particular driven by interest rate rises, on the horizon. Interest rates in NZ have little upward headroom to move due to the potential of catastrophic consequences on the economy, Banks and lets not forget the politicians. The Banks have a very strong influence on the RBNZ's interest rate movements. i.e If RBNZ is seriously considering moving the OCR (and hence influencing interest rates) do you not think the Banks might provide the RBNZ with a plethora of statistically based evidence to show the RBNZ the precise economic implications of such a move? Equally if theres room to move interest rates up without significant economic consequences do you not think the Banks would give the green light to the RBNZ to raise rates?

The Banks have decades of precise data, analysis and research capacity, to identify precisely how many loan defaults will occur at any given level of interest rate rises. They know because they have decades of experience of seeing interest rate movements and measuring the outcomes.

The RBNZ have not been in the sole drivers seat of interest rates for decades even though it's looked like they have been. Who is actually primarily determining interest rate movements is more like an aeroplane with two pilots at the wheel, RBNZ is now the co-pilot, the Banks have been primarily driving the plane as the Chief pilot for decades. In the event the co-pilot gives a suggestion of moving the plane off it's course to another direction the chief pilot simply explains the major consequences of such an action, if there are any.
The co-pilot will act according to the Chiefs instructions for fear of causing major issues.

It's looking highly likely the flight from here will be steady as she goes with a period of some flatlining for house prices and the odd bit of turbulence from time to time to buckle up for but no major catastrophe nor any remote chance for house prices to be flat for 10 years let alone 20 or 30 years.

Kieran Trass
Property Cycle Analyst

Bit early with that purchase Mr Trass. You appear very confident in the banks, but this is a debt super cycle we are in and the clock is yet to strike 12.

When it does the overleveraged will get smashed like pumpkins in a liquidity trap. And trust me the banks don't think beyond next years bonus round, they really aren't as clever as you give them credit for.

It's never too early to buy a property that pays for itself.

Kjfreeman, where can we hear more about your genius?Do you perchance have books that can be purchased? Seminars we can buy tickets for? Advise to sell?

Gosh, I would hate anyone to think that you had an invested interest.

No, not at this time.

Unfortunately you may prove to be correct again, with median prices rising to $1,700,000 or there abouts. Meanwhile effectively stagnant wages and ever increasing tax burden will create some truly eye watering DTI's. Why, because sometime in the next couple of years there will be a recession or financial crisis and the governments and reserve banks of the world with do whatever it takes, eg neg interest rates, bond buying, depositor bank bailouts, QE, helicopter money, government supplied deposits...there is no limit to what they will do to save asset prices and try to keep economies from failing. Of course the social and political impacts are the part they cannot control and that is where the system will eventually break down, as more people suffer from asset prices and less and less benefit. You cannot have you cake and eat it too. Perhaps in hindsight a Japan scenario will seem like it would have been the better outcome.

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Gingerninja, I thought you were better than that and more open minded. Kieran Trass' 10 year prediction of house values doubling and his comment below has to be some of the most accurate forecasting ever made.

"What you will find is a small group of people who are very wealthy owning the majority of the property and most other people will not be able to afford to own," says property author and founder of the Hybrid property services group, Kieran Trass.

Sweet, I wonder what mechanism is going to enable house prices to experience 100% growth in a decade?

A reduction in interest rates? This one enabled the last decade of house price growth.
100% wage inflation to lead the charge on 100% house price growth in a decade?
Wealthy Foreign Buyers?

We can throw analogies around all day, however people continue to claim that house prices will once again double in a decade without explaining what they believe will drive this growth except for "it has always happened".

It's not that it's a matter of "it's always happened" even though that is a valid observation it cannot be taken in isolation of course.

The mechanism that will enable house prices to rise is the Key Drivers of the Property Cycle.
From research that dates back to the 1930's by Professor Homer Hoyt in his book "100 years of Land Values in Chicago" and more recently in my own research of the NZ and several international markets) the Key Drivers have revealed a consistent collective pattern that drives up property values cyclically albeit not to the values people think property is worth at the end of a Boom.

These Key Drivers include but are not limited to the level and trends of Net Migration, Employment levels, Construction levels, Property vacancy rates, number of people per household, Wages, Rents, Return on investment, Finance availability, GDP, Property affordability, number of days to sell, level of gentrification, Property listings, Property sales volumes.

It's not just a big Ponzi scheme where values senselessly rise like a pyramid scheme based on the next person buying but most of the time is driven by these Demographic, Economic and Emotional Key Drivers until the Boom really takes hold and then yes there are many people who "jump on the bandwagon" because it looks like rises will continue. These late entrants traditionally don't understand what's driving the cycle or their need to add value to property they purchase to increase the rent and make the property as close to self funding as possible.

Of course there's always an overhang at the end of a Boom where values traditionally get too high in terms of the fundamental value based on the numbers (which is inevitably accompanied by media views that property can never rise again or that values will crash. Sometimes they do, this time looks soft based on the state of the collective Key Drivers. Theres always an undershoot at the bottom of the Slump and properties become 'relatively' affordable compared to renting just as the Key Drivers build a collective head of steam which drives prices up yet again.

The collective force of the Key Drivers are whats going to drive prices up in the next decade.
This time we have an added market pressure due to the expected lack of 'new' property investors to invest in rental properties because they don't know how to get the numbers to work now that there is going to be tax loss ring fencing phased in. Then there's the 5 year bright line test which will do nothing to stop speculators who buy to resell at a quick profit but will reduce the amount of people investing in short term rental property. Rents will also rise due to landlord compliance cost increases. I'm not saying rents will double, nor do they have to for property prices to rise significantly, however they are set to rise due to the cocktail of pressure on the rental property market now. Net migration looks set to remain positive in the medium term, replacement build and compliance costs for new builds look set to rise which traditionally lifts the value of existing houses. It's not getting any cheaper to build nor looking likely to.

These opinions are not guesswork or based on any emotive basis, they are based on factual data and cyclical trends considered in light of the current climate, regulations and market influencers surrounding the property market.

Hope that sheds some light on the topic.

Thanks for taking the time to reply. I think you’re over complicating things. Really the only thing that will continue to push prices up is the ability to pay.

How many migrants are cash buyers?

If house prices are to double in the next 10 years either mortgage interest rates drop, mortgage loan terms are extended, or we totally change the home ownership mindset by having “group” mortgages.

All 3 things I mentioned above have happened (record low interest rates, longer mortgage terms and change from average income to average household income (2 adults).

Kjfreeman, WELCOME TO THE DISCUSSION PANEL, it's great to have someone who understands property well. You will find a lot of adversity on this site (sadly some being rude), I hope it won't put you off to keep posting knowledgeble comments

NZdan, I think you've answered your own question, IF house prices double in the next 10 years it will be because of reducing interest rates.
(keep in mind that if retail interest rates of about 5% now reduce to 2.5% (like found in many other countries now, that represents a halving of the servicing costs)

The principal has to be repaid. It's not as rosy as you make out.

That link is an an amazingly accurate prediction 10 years out, well done! I remember 2008, everyone knew for sure, more than now, that house prices were much too high and could not possibly get any higher...

Just to clarify, Kjfreeman, are you Kieran Trass?

So how do we define economic carnage? How about ruining housing affordability to such a degree, that most of the fertile population can't breed until they're all but infertile. And don't just do it for 20 years - do it for another 20 or 30 years too.

Experts can be very good at thinking in intellectual bubbles. Back in the real world, the disaster is clearly already with us.

There would in fact be no economic carnage of the type to fear if house prices collapsed, unless the government moved in the direction of wage/price controls which threatens to stop the productive machinery working. The continued generation of abundance is ultimately the only thing that really matters - not paper-money "carnage"....

So who cares if the market value of certain assets collapses, and we end up with a storm of new share-market winners and losers? People will still eat, even if they've been made bankrupt. Protectionism is a far more toxic disease and a corrupt one at that.

As for bubbled-up prices remaining stable....good luck! This will only happen if all those mum and dad investors out there hold onto their housing asset because they [bizarrely] believe housing is a great investment, even if the yield is an enduring joke. Though I suppose I can't rule that out.

In respect of affordability it's typically very difficult buying your first home.

I remember when my parents bought their first home.
We had to get a live in boarder for the income and I shared a bedroom with my 2 brothers. My mother had to work full time and father had to work 2 jobs (1 in day and 1 at night) plus he went to Unitec to upskill himself for 3 years. The year was 1967...

When I decided to take the plunge and buy my first property in 1987 I got a part time job 5 nights a week and on Saturdays in addition to my 5 day a week full time job plus I got 2 flatmates and only then could I afford the mortgage because I actually borrowed pretty much the entire purchase price (from various loans).
Funny thing was it only had 2 bedrooms and a basement so I converted the basement cheaply into my own makeshift bedroom and for the next 2 years slept in the basement whilst working day and night 6 days a week. The year was 1987, interest rates were in the double digits and I had some loans at more than 25% p.a.
The property cost about 4x my annual income at the time but interest rates were a multiple of 4x higher than they are now (yes 1st mortgage rates were 20%) so thats equivalent to about 16x annual income at todays interest rates.Money was so tight that one month I literally had pretty much only rice to eat for a week to get through to the next pay day. Holidays were spent at home, no money to have any.

Imo not much has changed. If you want to buy a home you still have to put in a huge effort of your resources to maximise the return on them, we all have the same amount of time, it's not the lack of resources stopping many people from owning their own home imo, it's a lack of knowledge and understanding of how to make it work for them and that usually takes a mammoth commitment at first from my experience and from watching other family members and friends also make huge sacrifices in the early years of owning that first property.

First step is to consider what level of commitment you are prepared to make ie a second job and/or other income from flatmates etc and then write up an income/outgoings budget and assess how much money you can pay towards the financial commitments to potentially make it happen.

I'm not saying everyone can achieve their own home, just that many can but probably can't see how yet.

Then again perhaps the Labour government will deliver on their promises to provide "affordable homes" and such sacrifices a made by many former first home buyers may not have to be made. I hope so!

I disagree entirely that kind of belittles how hard it is now for people. Avocados are 5 bucks, lettuce is 5 bucks, beer is way over priced. Crates were only 15 bucks when I was starting to work.

The huge amount of money that has piled into NZ in the last 4 years has blown all things out of proportion for new home buyers. In 4 years a house that was worth 600,000 is worth over 400,000 more in Auckland.

In my home town when I was on $35,000 you could buy a house for $120,000 basically 3.5 DTI now the same house is worth $800K, if your on a wage of $90,000 which is above average then that's about 9 DTI. To be honest 9 DTI is absolutely ridiculous.

You cant just say its always been hard, it was much easier in the old days, as someone who also ate noodles back then. Life seemed much simpler, did I say crates were 15 bucks.

It seems like the more I earn now the more it feels as if I'm going backwards.

First home buyers aren’t complaining about the cost of servicing a mortgage. It’s the deposit requirements that are locking them out of ownership.

Did you have to save a minimum of a years salary? In some cases 2 - 3 years salary. Not everyone can live at home to do this either.

Up until a year ago house prices were going up faster than people could save their deposit for. They were told to stop splashing out on take out coffees and avocado.

Thanks NZDan, I borrowed 96% (from various sources) so thats all but 4% of the purchase price which took about 6 months to save by working two jobs and boarding at a lowish rent whilst saving.

Kjfreeman, you make a really outstanding point in comparing income with house price and INTEREST COST rather than just house value when you say:
"The property cost about 4x my annual income at the time but interest rates were a multiple of 4x higher than they are now (yes 1st mortgage rates were 20%) so thats equivalent to about 16x annual income at todays interest rates"
It does make absolute sense to compare income with expenses rather than income with asset price. Any accountant would agree you should not mix cashflow with financial position (assets/Liabilities).

It's so pertinent that I suggest Interest.co.nz should use both house prices AND interest rates when comparing with income to complile their "Affordability reports" from now on

*It's so pertinent that I suggest Interest.co.nz should use both house prices AND interest rates when comparing with income to complile their "Affordability reports" from now on*

You mean like they always have? The affordability measure is the cost to service the mortgage as a percentage of take home pay.

"McLean recognised achieving zero house price inflation during a sustained period of economic growth would be difficult; requiring a range of tough-to-implement measures and attitude changes from the public."

Its impossible.

1) We don't control world interest rates which are prime driver of asset valuation.
2) The government hasn't shown any leadership towards managing the immigration rate
3) The government hasn't shown any leadership towards making urban land supply more elastic

And by the way, why should banks have the right to have recourse mortgages ??? Its time they were outlawed & banks faced commercial reality like everyone else.
This would increase the risk of lending on housing and decrease the relative risk on business lending, thus potentially increasing productive use of capital.
Its not like term depositers with banks get the right to have a recourse mortgage over the term deposit.

"Flat Prices" for that period of time ? about as much chance as there being a "Flat Earth"

In an economic recession when unemployment rises, what happens to property prices in Auckland?

He might just get his wish, housing prices in NZ are 20 years in the future paid at present value. Look to other parts of the world people especially other commonwealth nations as a prediction of what could/will happen to NZ. I'm almost always amazed how we think that our economy is different from the rest of the world and it won't happen here....yet we are so dependent on the rest of the world to fuel our economy.

I just love Bwankers...Aussie Rules...or otherwise...or other-wise..

They will drive you to drink....Then charge you a few Million for the pleasure.

Stay away from em.. A turn for the worse.....or better...want their 2million pound of flesh...

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=120...