New figures showing population growth from migration is lower than previously thought means we'll need fewer new homes, says Westpac economist

New figures showing population growth from migration is lower than previously thought means we'll need fewer new homes, says Westpac economist

The number of new dwelling consents being issued may already be keeping up with population growth, according to a report by Westpac Senior Economist Satish Ranchhod.

Ranchhod's report on the changes Statistics NZ made to the way it calculates migration flows says the new system, which is based on how long migrants actually stay in New Zealand rather than how long they intend to stay when they arrive, shows that "a much larger proportion of the people who arrived in recent years came only on a temporary basis.

"That means that the population growth rate has been lower than previously thought and is slowing more rapidly," he said.

Statistics NZ's latest estimate of how many people were settling long term in this country was around 43,000 a year, about 20,000 a year lower than estimated under the previous system it used to calculate migration flows.

"Those who enter the country on a shorter term basis (less than a year) still contribute to the economy, but the impact is likely to be smaller and less enduring," Ranchhod said.

That had particular implications for the housing market and residential construction.

"For some time, we have been highlighting that the rate of dwelling construction was catching up with population growth," Ranchhod said.

"We predicted that that as population growth slowed, housing shortages would begin to ease in the coming few years, and therefore the outlook was for moderate growth in construction activity.

"These data revisions [by Statistics NZ] reinforce that view.

"It now looks as though residential consent issuance is already at the level required to keep up with population growth," he said.

Ranchhod's full report is here.

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126 Comments

12
up

hahahaha...BLSH... i told you the so called shortage was over blown...

Not sure why we need a report to tell us that.. its not rocket science to make that observation!!!

Exactly. There's the possibility further downward revisions of past figures are pending too. It's been a baseless Spruikers fest for a while now. Doesn't bode well for rental pricing either.

Much tighter lending standards and the cashed up overseas based buyer now declared AWOL, this supposed housing shortage is revealed as nothing more than puff.

DGM's repeatedly warned of this.

Hi RP

Don't suppose you know anyone who has some Westpac shares i could borrow for a while do you?

Nope, but I'd say it won't be long before they are trading below AU$10.00. Things will then start getting interesting....

???

They are currently trading at ~$26. And you say it won't be long until they lose ~60% of their value to be trading at sub $10.

RP. You say some dumb stuff.

nymad, hardly dumb. It happened in 1992. Westpac nearly went broke. As the OZ housing market continues to tank so does the reality of bank loan losses. Share price gets hit. Your opinion suggests you lack foresight and are overweight in bank shares.

Australian banks have learnt nothing from past foolish forays.

Okay. I'll watch with baited breath.

I was working at one of Westpacs lending divisions at the time so I'm in a position to know. Lending to all in sundry one day to pulling the rug out the next. It wasn't pretty.

Westpac's share price for most of 1992 was less than $1

https://www.macrotrends.net/stocks/charts/WBK/westpac-banking/stock-pric...

Okay, RP.

1 Feb 2018 AU$31.13
1 Feb 2019 AU$24.15

Share price has been sliding all of the past year....https://au.finance.yahoo.com/quote/WBC.AX/history/

Okay, RP.

FYI - Last time it was below $10 was Oct 1999.

Please define what timescale "not too long is".

"Please define what timescale "not too long is"."
Tick....tock, tick....tock. Big claims retired poppy, all hot air

Nymad, at the rate the AU situation is developing, I'd speculate and say 2-1/2 to 3 years. Post some random trigger, might even be sooner. It's just guessing really. A repeat of past behaviours is a pretty good indicator that the same dire fallout will return to haunt the big four at some point.

Houseworks, are you happy with that answer? Did your face turn blue while wanting?

Everyone will be happy to know that "not too long" actually means a bloody long time, then.

Nymad, if your talking from a five year olds perspective then probably yes. I hadn't considered that.

More than 60% of the big 4 banks’ lending is mortgages, so yes the combined Oz and NZ housing correction is going to have a big impact on their share prices, even though they are all down more than 25% in recent times already. Would not be surprised if they dropped a great deal, not to mention at least one bailout.

Oh look: Prime Minister Scott Morrison says the Australian economy faces "significant consequences" if the banking royal commission triggers a credit crunch...
https://amp.smh.com.au/politics/federal/scott-morrison-warns-against-ras...

I note that the Ozzie PM is trying to blame the Royal Commission for the credit crunch. Who's fault is it? The banks who violated the banking regulations, or the Royal Commission that is reporting on the extent of these violations? Perhaps the Government is really to blame.

Yes, Oz politicians will be scrambling to not take any blame for the increasingly obvious housing bust, especially coming up to election time.

The Aussie politicians will be very worried about their free lunch. The debt growth funds GDP that funds government spending. Royal Commission exposes that the debt growth was not in the best interest of customers/ probably fraudulent which gives the Pollies a choice. Ignore it and let it carry building for a monumental bust later, or take on board the recommendations and have a pretty big recession now. What a predicament to be in. Oh yeah and we could be on the hook if an Aussie bank fails thanks to our blind faith in John Key, no-one challenged the bail-in legislation..

"Bated", unless you have some cheese in your mouth and you think RP is a mouse;)

Hah.
My bad.
Good analogy, though.

I borrowed it from Geoffrey Taylor.

http://www.worldwidewords.org/qa/qa-bai1.htm

What a lot of people aren't aware of is that the Aussie banks got assistance from the FED during the last crisis.

Nik,

What a lot of people are also unaware of is that the New Zealand banks and some non banks (when they were previously referred to as finance companies) got assistance from the NZ government during the last crisis in 2008 / 2009.

If you're interested, then go read Alan Bollard's book "Crisis" - first hand account of 2008/ 2009 by the former Governor of the RBNZ.

If the banks had not got assistance from the government to allow the banks to get funding and access to liquidity, then credit would have been even more constrained, banks would have restricted credit and house prices would likely have fallen much further than they did. And the overall economy would have taken much longer to recover.

Great book on Westpac nearly going bankrupt. 1995. Scary reading about a bunch of cowboys.
https://penguinunearthed.wordpress.com/2006/04/02/book-review-westpac-th...

"Australian banks have learnt nothing from past foolish forays."

Retired Poppy,

actually it is the management's that haven't learnt. There are a new generation of individuals who are in the senior management teams of the banks and at the boards of banks. Many, if not all, of these people may not have been around to experience the lending lessons of the late 1980's. As a result, many are ignorant about it. Few, if any have studied the lessons to be learned from history. The change in management teams is the reason that these lessons are repeated. The economic incentives to senior management also are a huge factor driving their decisions.

There seems to be some regulars that are on holiday. Yvil, Skudiv, BLSH etc. Love to hear some bullish spin on this story?

10
up

They're all on an emergency conference call with Debbie from Property Apprentice.

Lol

They are fretting. Robert Kiyosaki could never be wrong, he's God.

Haven’t you heard? Robert is pushing gold now due to the upcoming crash. To be fair, he did spruik property at the right time.

Well the January national property asking price is at record high, 8 regions are topping the list. Rents are similar. So nz property prices not yet falling, boohoo, commiserations.

you are sounding desperate. Auckland is down 3-4% overall, and 5-10% in some places, and will fall further. The regions will follow, in due course

LOL Asking prices.

Come back when they are getting prices.

I'm going to list my property tomorrow, asking price $1.2 Trillion.

Do it. Make us all rich!

I'm going to package up the loan and sell it to the RBNZ

So you think there is a shortage?

Feel free to correct me but since when have "consents" equaled construction outcomes? The system that came in is that the different known Building Companies come in, buy all the land that is freed up and then build their spec houses but that does not mean they translate to a new house sold as that can take time and they then hold back to ensure demand. Perhaps new house sales are the measure that should be used?

Corelogic have researched this. According to them, 70% of building consents result in net additional dwellings actually built. This is due to a combination of some projects not proceeding to the construction stage for whatever reason, and the fact that some existing dwellings are demolished to make way for the newly consented buildings.

Feel free to correct me but since when have "consents" equaled construction outcomes? The system that came in is that the different known Building Companies come in, buy all the land that is freed up and then build their spec houses but that does not mean they translate to a new house sold as that can take time and they then hold back to ensure demand. Perhaps new house sales are the measure that should be used?

So the immigration pillar has been kicked out, just need the economy to turn south now...

Fingers crossed.

"So the immigration pillar has been kicked out"
As has the argument "the gnats" pumped the economy through inflated immigration...what's your fake news now?

11
up

translation: "We overestimated the number of people coming in so we're actually building more houses than we need. We're giving you this warning now because there will be an oversupply of houses to flood the market soon. Don't say we didn't warn ya."

I've been saying for years that the immigration numbers are wrong.

So we don't need Kiwibuild?

Kiwibuild is an attempt to address the affordability problem. Just a poor one. So no, we don't.

That was the policy aim prior to the election, when it included some cost cuts and was going to be delivering sub-$500,000 affordability.

Post election Kiwibuild has been implemented (sans cost cut mechanisms) as a price floor to keep affordable housing at or above $600,000. A function that will probably be needed more and more if immigration falls.

we def. do, but not 60k over 10 years.. that will def. be a over supply...

If building activity slows down the tradesmen will pack up and leave resulting in shrinking demand for new housing which will result in even less building activity.

Probably happening in Australia right now.

Or much cheaper building costs as companies fight for business. Good news could be that all those tradesman flipping houses in Tauranga and Auckland may start becoming available again to sort out extensions and the very necessary rental upgrades that neglectful landlords have been too tight to pay the money to get fixed.

Bilbo, that's part of the lesson from Ireland and Spain.

There is a housing shortage?
Oh no there isn't
Oh yes there is
Oh no there isn't
oh yes there is.
Westpac now seem to have changed their mind. What do we do when the purveyors of created 'interest only' lending now tell us that we may be building too fast? Get ready for housing led recession is the answer.

But, but...... Shazza Zollner over at ANZ says its all different her in NZ..

“At the moment, the primary driver of the housing market weakness in Sydney and Melbourne is sharply reduced availability of mortgage credit, and emerging oversupply in the apartment market.

“Neither of those two things are a feature of the Auckland or the broader New Zealand housing markets. “

We are special, and different.
Don't rate her at all, just follows the herd and her paymasters.

'Ranchhod's report on the changes Statistics NZ made to the way it calculates migration flows says the new system, which is based on how long migrants actually stay in New Zealand rather than how long they intend to stay when they arrive, shows that "a much larger proportion of the people who arrived in recent years came only on a temporary basis'
Otherwise phrased;
'People have come to New Zealand, bought some land and built a house, sold it on to those New Zealanders who love a few mortgages in their lives, (oops we at Westpac funded that), before they moved home or on to Australia after residency qualificiations (rinse and repeat) and it looks like we at Westpac we may have been rinsed on both sides of the Tasman.

If you have a mortgage, hang on to it for grim death! Banks are going to start ( well, they have already) calling in debt that can be called in, and if you 'pay off your mortgage' for whatever reason getting another one at some stage might be more difficult than you imagine - if possible at all! Store your surplus cash somewhere else - another banker to your lender - and sacrifice the interest spread and tax if necessary; call it a Facility Fee if you like, but debt is going to be harder and harder to come by.....
The days of bankers shovelling debt out the door at any (bonus driven) price finished some time ago. Now....they want it back ( capital adequacy reasons for one)

Kind of ironic that if they stop shoveling debt out the door and try to pull it back in they will only make things worse for themselves.

The bankers deadly embrace!

Why would you want to hang onto a mortgage ?? And if you did need another one, not having one at all will be an indicator to the bank you are a good bet. So I think bw is scaremongering.

bw also believes all assets will become worthless soon.

This changes the fundamentals of the situation. If supply is outpacing demand then house prices will fall. Will be interesting how this translate into prices this year.

On one hand there is the guy from the bank telling us building is keeping up with population. And some common taters here saying there is no housing shortage.
And every day I deal with folk who are struggling to get housing, and what they can get they seriously can't afford. We did not have that problem before.
I believe the second lot.

KH, the dwellings that should be affordable are not in this market. There are not enough affordable places but that seems not to be an overall supply problem, it's a speculative bubble problem. Unfortunately bubbles don't tend ever to have soft landings.

The article KH is using as a source states:
"We predicted that as population growth slowed, housing
shortages would begin to ease in the coming few years,
and therefore the outlook was for moderate growth in
construction activity. These data revisions reinforce that
view. It now looks as though residential consent issuance
is already at the level required to keep up with population
growth"
It states there is an existing shortage that will begin to ease.

Agree KH - if there was no shortage then houses would be affordable.
And even if there isn't a shortage, what is the harm in building a few extra?

I can hear the chanting "Bring back JK" from the property investors..

You made a typo

can hear the chanting "Bring back DonKey" from the property investors

Could also be "Bring back Chong-kee" - Reference to JK and plus cashed up Chinese overseas buyers.

Mind you comrade Hulun Klurk did the sweet FA about house prices in the 9 years they were in charged. now at least Jacinda is restoring some of that reputation!

Wow, it's a loony leftie pile on. Pray tell what has the PM done to restore that reputation?

Two things come to mind:
1. Restriction on FBBs
2. The up and coming CGT

The last two govts had their heads firmly stuck in their back ends to even talk about it.

Maybe if the FBB, you know the one that was deemed impossible by National, has the desired effect then Ex Expats adult children might be able to move out and buy their own place.

I do hope this gets reported all over mainstream media, it needs to be. The sooner the better, so people realise the actual situation in regard to housing. There's an obvious problem with affordability, not supply. Continuing the building boom won't fix it, quite the opposite.

I am a bit perplexed by your comment. If houses are too expensive, then over supply of houses will have to drive the prices lower (making them more affordable). How does an oversupply of houses affects housing affordability in a negative way?

Believer1980, oh affordability will happen if there's an oversupply, but from this speculative bubble situation it will cause a bust rather than the hoped for "soft landing". Unaffordability combined with oversupply is what happened in Ireland (then credit tightened to pop the bubble), and seems to be the situation in Melbourne and Sydney. I don't know what the answer is now, because soft landings just don't happen in these bubble situations. Nobody seems to be able to point to even one in history, so I'm not optimistic about that, but yeah we'll get affordability out of it, just a lot of pain along the way.

That is because bubbles are in effect defined after the fact by the following crash. If it lands softly then no one refers to it as a bubble.

Ok, if we define it by affordability being this far out of whack (9 times income), that should make it easier to find examples. It’s so historically high. Higher than it was in Ireland before their crash.

Its a shame you probably wont see this but ill try to remember to let you know some other time: Affordability is a combination of income and interest rates. Income multiples like you are referring to need to be adjusted as interest rates do though an almost mechanical recalculation of fair value. Broadly speaking if you halve the cost of borrowing you will double the income multiple to achieve fair value on investments. The effect is blunted for home owners due to the higher proportion of P&I which shows up as declining home ownership rates as in effect investors do better from interest rate cuts than home owners.
After adjusting for interest rates prices are stretched to about the level of 2007.

Ok, if we define it by affordability being this far out of whack (9 times income), that should make it easier to find examples. It’s so historically high. Higher than it was in Ireland before their crash.

Westpac figuring out that when stupid amounts of house building finally catches up with stupid amounts of population growth, then.... House prices might fall, and the banks and economy will go into seizure.

Maybe we should have an economy based on something other than building unaffordable housing. Imagine producing goods and services that benefit people and the economy.

Much easier said than done. What are those things? NZ leads the world in dairy and primary industries (or is among the leaders) at significant environmental costs off course. What else it can do that it is not already doing?

It's more about what to do with all the real estate agents, and others that only have a job because of property speculation. I'm sure they could find gainful employment elsewhere.

There's also the misallocation of capital associated with speculation.

"I'm sure they could find gainful employment elsewhere." - planting trees perhaps.....

They could go back to school. I'm sure School C isn't that hard the second time around.

Never mind, Mr Trump's on the case, busily doing a deal with the Chinese that will keep their property markets from collapsing which will mean more emigrants from the far east for unsuspecting little democracies like us and more housing shortages in the future. Where we'll squeeze in the other 5 million people that want to come here I'm not quite sure, but hey, don't worry folks, Jacinda and her kind will have a solution because we can do this!

Food for thought from a property investor website comment:

According to the Auckland Council there is a shortage of 46,000 residential dwellings.

Look at the housing shortage in Auckland, yet property prices have languished over the last 2 years or so. There is a housing shortage in Auckland and yet there are over 11,000 properties in Auckland currently listed for sale on trademe.co.nz.

If there is a housing shortage, why are there so many properties still listed for sale?

If there is a housing shortage, why are the clearance rates at auctions so low relative to previous levels?

If there is a housing shortage, why is it taking longer to sell a house? (as indicated by days to sell).

If there is a housing shortage in Auckland, why are vendors cutting their asking prices in order to attract buyers?

If there is a housing shortage, then why were the properties at the St James development project in Queen St and Flo apartment project in Avondale not sold out? - these projects were subsequently cancelled.

Most people will continue to believe that there is a shortage of houses in Auckland (as frequently repeated in the media by economists, property mentors, property promoters, etc) , thereby this is the long term reason that property prices will continue to increase. Those using this framework to understand the property market believe that this is a short blip in prices and start buying at these price levels. These people do not understand what a credit bubble is.

Those that understand the credit bubble framework will believe that property prices can see significant further downside. A large number of property market commentators (real estate agents, property mentors, bank economists, property investors, etc) do not know or even understand what a credit bubble is.

Courtesy of Retired Poppy - re-posting here for its relevance.

"People have placed to much weight on supply and demand imbalance in Auckland. They say there's a shortage of houses so house prices can't fall – that's baloney."

That was borne out by the fact that the region with the biggest supply/demand imbalance was also the region in retreat, he said.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=121...

Hi CN

As always, insightful and considered. I think a few out there are about to get first hand experience of how a credit bubble unwinds.

Thanks

Nic,

Unfortunately there will be innocent hardworking families who will be collateral damage. Many are those owner occupiers who have bought in Auckland and taken on large amounts of debt relative to their debt servicing capacity, with little financial flexibility to absorb an economic downturn.

1) first home buyers - who took on maximum allowable debt levels when purchasing their first home
2) upgraders - who sold their house and took on maximum allowable debt levels when purchasing their next home
3) the bank of mum and dad - parents who took on a large amount of additional debt on their home to help finance the deposit for their child to purchase a house in Auckland. That adult child then took on large amounts of debt relative to their debt servicing ability, may be unable to sustain an economic downturn (e.g loss of job or one income in a household of 2 working adults). The parents who took on additional debt so that they increased their LVR (on a high property valuation under current market conditions) have risked their retirement savings as the equity in the house when they retire is significantly smaller due to the leverage they took on and the impact of a falling house price. If the adult child defaults on their house payments, they may see a significant reduction in the amount of equity and be unable to repay their parents for the "loan".

Yes, it gives me no joy to see ahead of time this is very likely going to happen. It’s going to mean a lot of people locked into mortgages that are MUCH too big that they’ll have to pay off for most of their lives, or default, while being in negative equity for a long, long time. It’s the terrible human cost. If warning people on here saves a few people from that, it’s worth the time.

There have been enough people here issuing warnings for a while. Ultimately 'caveat emptor' has been around a long time as a warning, I hope that the investigations we have afterwards lead to meaningful change in banking and politics and that some are held to account for their previous actions and neglect of New Zealanders.

Nik,

Who is responsible for this credit bubble?

1) RBNZ as regulator of the banks? - remember the Key government wouldn't allow the RBNZ to implement DTI on the banks - Bill English I recall.

2) Bank managements with loose lending standards? - the trouble is that those individuals who were senior bank executives who focused on the looser lending standards are no longer managing the banks - they have since left.

3) Others??

Many of those who might be considered responsible for the loose lending standards, loose regulation have since left the scene and are no longer around ...

Hi CN.
Left the scene of the crime perhaps but there are finger prints everywhere.

"Most people will continue to believe that there is a shortage of houses in Auckland (as frequently repeated in the media by economists, property mentors, property promoters, etc) , thereby this is the long term reason that property prices will continue to increase. Those using this framework to understand the property market believe that this is a short blip in prices and start buying at these price levels. These people do not understand what a credit bubble is."

ADDENDUM -

They don't know what a credit bubble is and many may have never heard the term credit bubble.

The simple fact is .... that these people do not know what they don't know.

Mike Hosking will say it's all about suppy and demand and how better things were under the previous govt. The fan base will nod their heads in agreement about this common snese approach.

When talking about the property market, most commentators talk about Level 1 supply and demand (aka underlying supply and demand)

Level 2 supply and demand (aka effective supply and demand) are the variables which impact market prices and very few people understand this.

The housing shortage quoted by commentators is Level 1 supply and demand. They miss looking at Level 2 supply and demand.

The difference between level 1 and level 2 demand.

A 2009 / 2010 report by the Dept of Building and Housing recognises two types of demand
1) underlying housing demand
2) effective housing demand

1) Underlying housing demand

‘Underlying demand’ refers to the number of houses needed to accommodate households in the population. Population increase in the age range of 20–40 (which is when people tend to form independent households) leads to smaller household sizes and more single-person households. Further, positive net migration increases underlying demand for housing. A ‘household’ means either one person who usually lives alone, or two or more people who usually live together and share facilities in a private dwelling.

Natural population growth rates, internal migration, housing preferences and household formation rates all tend to change relatively slowly, and therefore changes in underlying demand caused by these factors are reasonably predictable. By contrast, the level of external migration depends on policy rules and incentives, as well as on wider domestic and international economic conditions, and it therefore tends to have a more volatile, less predictable impact on underlying housing demand

2) Effective housing demand

Effective housing demand is the combined effect of both 1) the desire to rent or buy a house, and 2) the financial ability to rent or buy a house. This aspect of demand is what shows up in the housing market statistics for sales, prices and construction. It also largely accounts for the changes in housing and tenure choices over time.

The New Zealand housing market has not only experienced increased underlying demand from population growth and higher net immigration; it has also (until the recent global financial crisis) experienced an increase in effective demand as a result of higher incomes, lower unemployment, cheaper and easier access to credit, and the preference of New Zealanders, for various reasons, to invest in housing over other forms of investment.

The difference between underlying and effective demand is a function of:
• buyer wealth and income
• the cost and availability of finance
• the state of the economy
• individual consumer preferences (for example, location, or between renting and owning)
• the attractiveness of housing as an investment good.

This is an example of how Level 2 demand gets affected. Level 1 demand ignores the dynamics in the market place.

Previously active property buyers step aside from the property market and decide to hold off and wait for lower prices or until prices stabilise.

https://www.9news.com.au/2018/09/16/03/13/60-minutes-housing-market-pric...

Now imagine there is a recession and unemployment is rising and people are getting laid off - these people who previously may be looking to buy a house are no longer active buyers in the property market - they are in cost cutting mode and the last thing they want is to take on the costs of a large mortgage when they don't know when they can find a new job. That is reflected in Level 2 demand, not Level 1 demand.

Also in a recession, banks tighten lending criteria, and availability of credit - that is reflected in Level 2 demand and not Level 1 demand.

Quite right

This is how level 2 supply gets impact and is not reflected in level 1 supply.

Some anecdotal evidence - just saw a property investor with properties in Auckland enquiring about listing all of their investment properties for sale. They had at least 3 in Auckland.

Now if there are a large number of properties listed for sale (an increase in level 2 supply), and level 2 demand has dropped off, these properties could take longer to sell at the vendor asking price. If the time period is very long, then the vendor may choose to take them off the market if there is no urgency. If there is some time or financial constraint, then the vendor may be willing to consider accepting a lower price offer.

At some point we're all going to have to stop conflating demand for accommodation with demand for speculative tokens.

As I have been saying for many months, the under supply reports were garbage. Kiwibuild is a white elephant, and should be scrapped now. This will be Twitfords only saving grace. And it will be a get out of jail free card for Labour, and the 100,000 houses promised. (With 300 delivered)

Slow down there champ. There's a lot more cars on the motorway; a lot more truck miles being driven. Those cars and trucks aren't driving themselves just yet, so it's pretty good indicator that the population in Auckland continues to grow. Remember that's Net Migration, the bulk of new immigrants will be coming to Auckland and on top of that, there's significant internal migration to factor in too. If there wasn't a shortage, the wheels would be falling off way quicker than they are now.

There is a measurable shortage, or else prices would be in free-fall. Do you think the people in cars adding to congestion and people in the CBD just fly to another country at the end of each day?

No, let's take the word of bank economists at face value. Do the BNZ even think houses are over-priced or unaffordable? I suspect what we're seeing here is "please don't remedy housing supply issues because it will tank our balance sheet".

Have you been to the US and seen how many homeless people there are? It’s not a housing shortage, it’s an inequality/affordability issue, and it’ll be much worse here after the bust unfortunately.

We sort of have that though; I'd wager we have far more people living in State Houses than HNZ realises (or probably wants to know about for plausible deniability). We've also stopped building houses with things like granny flats, which I suspect is also playing a part - where there used to be 1.5 houses, there's now 1 really big house, but still only the same number of well-off people living in it.

Italy in recession, who's next

If you have future house price expectations of houses in Auckland, which number(s) do you consider to be the most relevant and place the highest importance? (and hence are the most influential in determining your future house price expectations). Here are some numbers that others may focus on:

A) 46,000 - the number of residential dwellings that Auckland is short for the current population size, as per the Auckland Council. As Auckland has a housing shortage, property prices will not fall by much as there is pent up demand for housing. The housing shortage is driven by population growth, organic population growth vs the shortage of supply of new houses coming on board.

B) 7.2 - the average annual percentage growth of property prices in Auckland over the past 50 years (also known as the house price doubling every ten years)

C) 0.233 - the percentage price change in the median house price in the last year. (or alternatively the percentage price change in the median house price in your suburb). Recent property price changes influence your expectation of future house prices.

D) 8-10 - the percentage price drop in average house prices during the GFC in 2008. This gives comfort to property owners that property prices do not decline by much.

E) 9.1 - the current median house price to income ratio of Auckland house prices

F) 3.3 - the current rental yield of a median priced property in Auckland (in percentage terms)

G) 92.6 - the current ratio of household debt to GDP percentage in New Zealand

H) 166 - the current ratio of household debt to gross income percentage in New Zealand

I) others - such as
i) guidance from what high profile property market commentators are saying such as Tony Alexander, Ashley Church, etc ….
ii) the percentage price change of property prices in the major cities in Australia (such as Sydney and Melbourne) - believing that this could have flow on effects in the Auckland residential property market

Depending on which number you place the highest importance and relevance will affect your expectations of future property prices in Auckland. Some will be property price bulls, whilst some may be property price bears ….

House prices doubled every ten years because a) inflation was high so incomes doubled every ten years and then b) interest rates were dropped increasing purchasing power for borrowers.

What do you think will drive a doubling of house prices over the next 10 years? Wage inflation could happen I suppose? Minimum wage is going up big time....

I think you have to separate houses from their function as houses - the prices mirror what has happened with asset bubbles in things like classic cars. People stopped buying them to drive and enjoy and started buying them as an investment; and once that happened, they started performing like investments. This shift in perception of what a house is was something we didn't top up with new supply.

Okay. Do you think house prices in New Zealand will continue to double every 10 years without a doubling of wages or negative interest rates because “classic house collectors” will sell houses to each other?

They are likely to double every twenty years now however the values are so high making the investment more than worthwhile. Consider a 200k house doubling in ten years makes 20k a year while a 1000K house doubling in twenty years goes up 50k a year. Even doubling every 30 years (33k per anum) ain't too bad now for your typical Auckland house and that can easily be achieved with 2-3% inflation.

Fair enough. A 3.8% term deposit will double in value over 20 years if reinvested so you’re saying that houses will perform the same (or worse over 30 years) as a term deposit.

But yes, I agree house prices will double in x years but I don’t think those rises will outperform average incomes or inflation anymore. Unless someone can provide a logical reason why.

No, a 3.8% term deposit wont double your money. A 3.8% PIE deposit (slightly lower tax than a term deposit,assuming you are in the top tax bracket) will return 72% gains over 20years after tax.
Need closer to 5% (at 5% $100k become $205k in 20 years after tax)

True I didn’t factor in tax, there is a lot of talk about CGT at the moment so houses too may very well be subject to some form of taxation in 20 years.

Yep, this is precisely why we need some sort of taxation change on houses. Far better to have money being invested in productive business. Not convinced a cgt is the best option.

Potentially; will people still buy houses as investments (even if empty) as a means of hedging against inflation? In the absence of a land tax, or competitive returns on other types of investments which will also be subjected to a CGT at the same rates? Absolutely.

I think D) is irrelevant as we were saved by the RB lowering interest rates, can they do that now?

“This gives comfort to property owners that property prices do not decline by much” tell that to Sham Eaquab for example who’s property has already tanked more than 18% since he bought it in mid 2017 with the real downside yet to come.

Well from my position on the housing ladder, post first home buyer, I see the big issues as lack of affordability and lvrs kneecapping anyone trying to get into their own place. The ridiculous price rises of property since I first purchased in 2005 can only be blamed on an asset bubble fueled by cheap credit post gfc. Stamp out the bubble and prices become more affordable. Lvrs, disgraceful and looks to have been done to deliberately keep NZrs out of the market while Chinese investors had a free for all in our property market courtesy of the John Key government.

https://i.stuff.co.nz/business/110330385/oops-maybe-we-havent-got-as-man...

Both nzh and stuff have published it.. housing market to defrost even more

Should not be hard. How many people got off an international flight yesterday. And how many folk got on. You should be able to see that printed in the paper each day over your coffee.
Truth would become clear quite soon.