Unaffordable housing markets and the next generation

Michael Reddell Uncategorized

Last week I’d been discussing house prices etc with a couple of friends whose kids are a bit older than mine, of an age where they might in years gone by (not that long ago) have been thinking of buying a house.   As one noted, they didn’t know what to advise their kids.  Another talked of the seeming inevitability of parental assistance –  which, in many families, isn’t much of an option.  I know of another friend who decided that parental assistance was probably inevitable, so bought another house himself so that at least his position was hedged –  if house prices went down, so would the needs of his kids, and if they stayed high or rose further, there would be some additional wealth in the inflated value of the additional house.   When this week’s Listener reports yet another poll suggesting housing is the most important issue going into this year’s election, we can’t be the only one having these sorts of conversations.

And then I found a Labour Party election pamphlet in my letterbox.  There was a lot of text, but on only two issues –  health and housing.

Jacinda says everywhere she goes, one topic keeps coming up: the housing crisis.  “National has failed on housing.  People are worried that they or their kids won’t ever be able to get on the property ladder.

Andrew can relate –  he’s concerned about what the future holds for his 16-year-old son, Cam. “I want Cam and his generation to have the same opportunities I had, and more.  But it’s getting so much harder for young people to buy a house. I worry that Cam and other young New Zealanders won’t ever be able to afford their own homes.”

That struck a chord with me.  Partly because my (slightly younger) son knows his son.  But also because my own first house was about 50 metres from Little’s current house which, according to a recent Herald article, is approximately valued at $920,000.  I walk past both houses most days.   It isn’t a fancy neighbourhood by any means –  pleasant, but not fancy.

I bought my own first house in December 1988 –  which I guess is almost thirty years ago, although in many ways it seems just yesterday.   I paid $152000 for it, which at the time was less than twice my income.  The Reserve Bank’s inflation calculator says that is roughly $287000 in today’s money.  I looked up the same website the Herald used to get a value for Little’s house.  It estimates –  who knows how accurately –  that my old house is now worth around $800000.        The current owners have extended it a bit, but it is still a three bedroom house, and the bottom outside walls of the garage have rusted a bit more than they had in 1988.    But then productivity has risen since then –  real GDP per hour worked is up around 35 per cent –  and with it earnings across the economy.

I’m not sure what the Reserve Bank now pays people who’ve been managers in their economics areas for just over a year (that was me in December 1988), but I’m quite sure it isn’t anything like $400000 a year –  recall that I paid less than twice my then income for the house.  In fact, in the Reserve Bank’s Annual Report last year, only four people were getting paid at least that much –  the Chief Economist looked to be receiving just over $400000 per annum.  It brings back memories of a training course I did at the Swiss National Bank in 1990, where they told us that house prices in Berne were so high that only the most senior managers could afford to purchase their own house.  I still recall the astonishment I felt, and never imagined it would be like that in New Zealand.

On Monday the Herald ran their regular supplement of QVNZ house values across all the different suburbs and localities in the North Island.    Island Bay median prices have now, apparently gone just over $800000.  No doubt that still seems quite cheap to Aucklanders –  although I did find one North Shore suburb (Birkdale) that was cheaper –  no one much else in likely to find them so.  In the whole of fast-growing Hamilton and Tauranga, only one suburb is that expensive.

Which brings me back to Andrew Little and the Labour Party.  I’m quite happy to take him at his word on his concern for his own son.   But what does it amount to?  It isn’t that long since Little told us (and here) he didn’t want house prices to fall.

But asked if he welcomed signs Auckland house prices were falling, Little said no.

and

“Having the right number of houses, or closer to it, stabilises prices, it doesn’t collapse prices.”

Labour has a list of policies on housing (I’ll come to them in a minute) but are they simply supposed to stop already unaffordable houses getting ever-more unaffordable?

As I’ve noted before, if nominal house prices stayed flat from here, then even if productivity growth picks up quite a bit, it would still be 20 years before house price to income ratios halved from here. It isn’t much of an answer for today’s generation of twenty-somethings, let alone 16 year old Cam.

Flat house prices –  while better than what we’ve had –  just shouldn’t be regarded as an acceptable outcome after the house price inflation of the last 25 years.  I know people who have bought recently, taking on lots of debt to do so, get very uneasy about house prices falling but (a) that is a minority, (b) an increasing number of those buying recently have been quite tightly constrained by LVR limits, and (c) perhaps most importantly, there has never been an economic reform where there were no losers.   Yes, the more people who have entered the market on prices that assume the continuance of regulatory restrictions, the harder it is to undo those restrictions, but the restrictions themselves are pretty morally indefensible in the first place (just like those that had us assembling TVs or cars, or making kids clothes, in New Zealand at vast expense to consumers).

I suspect there is an element of the concern is a worry –  derived from, say, the US and Irish experience last decade – that any significant fall in house prices is somehow economically disastrous.   When a sharp fall in house prices results from massive over-building, and a serious misallocation of credit, that is probably a quite reasonable concern, especially when (as in Ireland) the authorities have no monetary policy leeway to offset the fall in demand associated with the housing slump.    It is a quite different prospect if the falls in house and land prices arise because regulatory restrictions are unwound –  if anything that would be likely to stimulate building activity –  in a country which has its own monetary policy and exchange rate.   That is what could, and should, be done in New Zealand.  We certainly don’t have a problem of an oversupply of new houses.

But what is Labour proposing?  After the Labour Party conference last month, I expressed concern that in a speech largely devoted to housing, Andrew Little had not mentioned at all freeing up the urban land market.  Labour’s housing spokesperson, Phil Twyford has been good on this stuff (and there is still reference to it in the policy documents on the website)

But in the entire speech –  and recall that most of it was devoted to housing –  there was not a single mention of freeing up the market in urban land, reforming the planning system etc.  Not even a hint.    I understand that giving landowners choice etc probably isn’t the sort of stuff that gets the Labour faithful to their feet with applause.   But to include not a single mention of the key distortion that has given us some of the most expensive (relative to income) house prices in the advanced world, doesn’t inspire much confidence.     Planning reform isn’t going to be easy.  Few big reforms are under MMP.  It probably isn’t something the Greens are keen on.  And if the putative Prime Minister isn’t on-board, hasn’t yet internalised (or even been willing to simply state it openly) that this is where the biggest problems lie, it is hard to believe that a new government would really be willing to spend much political capital in reforming and freeing up the system, no matter how capable, hardworking and insightful a portfolio minister might be.

So when the Labour pamphlet landed in the letterbox, I looked to see what Labour was going to do about housing.   The four point plan from Little’s speech, was now reduced to a two point plan (ok, so it is a pamphlet and there is less space)

  • building more houses themselves (“affordable” ones)
  • crack down on foreign speculators

There was also a pledge on “healthy rentals” but, whatever the merits of that, it isn’t going to make housig more affordable.

Perhaps I just don’t get out much, but I’ve seen very little talk of “foreign speculators” playing much of a role –  any in fact –  in the Island Bay market.  They explain, almost certainly, precisely nothing about why my humble first house is valued at roughly three times (in real terms) what I paid for it.

But more importantly there is nothing, not a hint, in the entire pamphlet of freeing up the urban land market.   Sure, one could mount an argument that it might be hard to put that sort of promise into catchy phrases that attract the attention of potential voters.  But that is why you employ marketing people isn’t it?  And successful political leaders find ways of putting their vision into language that resonates with ordinary people.

It all leaves me deeply discouraged about the prospects for meaningful change.  No one else seems to have managed it, and now Labour –  after toying with ideas of reform –  seems to be getting cold feet, and won’t campaign on freeing up the land market.   The outlook for 16 year old Cam isn’t great, and neither it seems is that for my kids.  As I reflected on the friend who wasn’t sure what to advise his kids, I noticed in the Herald house prices supplement that median prices in my old childhood home, Kawerau, were still only $181000.   My younger daughter wants to be a primary school teacher.   She has been hanging around me too long because when we were in the Bay of Plenty on holiday over Christmas I was reading out Kawerau house prices, and her immediate reaction was “Daddy, I want to live there when I grow up”.    Perhaps in time that’s what I’ll have to advise her –  after all, there are national salary scales for teachers.  Kawerau, for all its problems, isn’t all bad as a town, but New Zealand kids surely deserve better than that.

 

44 thoughts on “Unaffordable housing markets and the next generation”

  1. I think what is lost on most politicians is that the price of old houses is determined only by the cost of new houses. So when land supply is restricted, and onerous “quality-seeking” regulations imposed on new housing – then the new house will cost more therefore the old house will as well.

    When you bought you Island Bay house – the price of that was set by Fletchers etc building thousands of cheap houses in Newlands and Whitby. But “Smart Growth” planners decided this was undesirable urban sprawl – so there is no equivalent areas now to set the prices. The whole affordability problem and the misery associated with it are the result of misguided regulation – and as you point out none of the political parties will be doing anything about it.

    The absolute tragedy is with today’s low interest rates it would actually have been a great time for first home buyers to get a house and pay it off. This has been totally squandered by our politicians.

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    • First thing you have to ask yourself before you blame the government is.

      1. Will you allow the thousands of Kauri trees to be cut down in the Waitakere Ranges to build houses. Afterall it is cheap building material when its free.
      2. Will you level the 57 sacred mounts, Mt Eden, Mt Albert, Mt Smart, One Tree Hill etc etc to allow for 50 to 60 level apartment towers?

      If not then you are one of those Nimby groups that is causing houses prices to escalate because you would not allow highrise where housing is needed in Central Auckland.

      The rest of the country? Just get rid of those tourists paying through their nose for travel accommodation through Air BnB. Ban residential property from offering hotel and motel services and without the rental yield from tourists, those property prices will fall as no one wants to live in the regions anyway.

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      • If the Kauri trees and sacred mounts are privately owned then the owner deserves the opportunity to develop as they like. If owned by the state then it is up to the electorate to decide (effectively the joint owners).
        If I owned a vineyard why not cut down the vines and build houses?

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  2. The other day I was trying to think about the clearest public policy parallel to this mess of a transitional gains trap – and I think the closest is what happened with the onset of Uber and the crash in taxi monopoly license prices. That’s not very encouraging here: reform only happened when States were forced by Uber’s existence, and the compensation packages offered by States to license holders were typically a pittance compared to license holders had lost. And worst of all, the sheer size of the housing market and the scarcity rent in NZ or Australia is so large that any meaningful land reform and compensation package would bankrupt the nation fast.

    Think on this: if housing is twice as expensive as it should be, and land reform could correct this, then the transitional gain to existing landowners which would need to be compensated to get them on board any serious reforms is worth about half the total market cap of housing assets – or around 3 trillion dollars for Australia of a 1 trillion dollar GDP economy. If NZ has housing assets of $900b, then the transitional gain is around $450b, or around 2-3x GDP. So the old “reform the economy and compensate special interests with the economic gains” combo just isn’t going to work. And even then, you still need to win the argument against the army of urban planners and their sympathisers who made the mess in the first place.

    My only encouraging thought is that some thirty years ago, NZ Labour pitched the most ambitious reform program seen in generations, and people bought it. Perhaps things just have to get a lot worse first.

    As a corollary; there’s no reason why land reform needs to happen nationally. This sounds like room for one city to take on substantive reform by itself – if it works, then the rest of Au/NZ could unravel fast. I wonder why no city has any appetite for it?

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  3. Phil Twyford last month had an extensive interview (10 minutes) with property developer Don Ha where removing supply restrictions was an important element in driving down costs for building new homes. You can check it out here.

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    • I wonder if Phil Twyford mentioned to Don Ha that “Ha” is on Labour’s hit list of Chinese sounding names buying up property.

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    • Don Ha is in Vietnam today presenting to Vietnam foreign buyers.

      “Good morning Viet Nam getting ready for my high net worth client presentation in the Intercontinental Hotel Ho Chi Minh city .Looking forward to speak my motherland language for the first time in 37 years .”

      I wonder what Phil Twyford has to say to Don Ha on the next video session with Don?

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      • Maybe Don Ha being well informed is telling Vietnam a future Labour led government would only be interested in foreign property investors who build new houses not foreign investors who only buy existing houses…..

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  4. I was wondering whether a lack of reform is the real source of the problem – high prices for houses in New Zealand. Michael, as an economist that you are, what do you think about the fact that in NZ you can buy a second property based on the mortgage that you have on the first property? And then a third and so on…?

    I had never seen that in Europe and when I relocated to NZ I was surprised to see it. It sounds to me like something similar to a Ponzi scheme. I wonder who is the most valuable: the one that has a gain on his mortgage of $500K or the one that actually has $500K in a bank account?

    I think it should be only the real money that should be allowed to “play” in this market.

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    • Daniel

      I’m pretty sure it is a standard feature of housing finance markets in Anglo countries. It might help exacerbate pressures at times in supply-constrained markets, but if the land use regulation was sorted out and supply was as elastic as (say) Weetbix, I’m not sure I see any particular problem.

      But perhaps I’m just an unreconstructed Anglo!

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  5. Don’t Labour also have a policy to ring fence losses on residential rental property businesses? If so, this will have a good (downwards) impact on prices, as many rental property owners are accepting losses (negative yields) for the income tax adjustment.

    For all those doing that (and IRD reporting tells us that there is a greater proportion of rental properties making losses than those turning profits), the rational response would be to sell the asset and take the (tax free) capital gain.

    I suspect prices, particularly for FHB type properties, will come down considerably (10-20%) if ring fencing is brought in. It (as a policy measure) would likely be more effective (and more rapid) at bringing prices down than would the freeing up of land. The thing about the latter is that owners of large tracts of vacant land will still need to provide the infrastructure for that development (and that is a high cost) and hence, are likely to release vacant sections in a staged/drip feed manner. It’s what they do now. And they are likely to place restrictive covenants on those vacant sections that are released to ensure the land retains a reasonably high market value. It’s what they do now.

    Hence, freeing up more land for residential development by private landowners doesn’t get over the fact that such private landowners will take measures to maximise their profits – and there are a number of ways they do that presently, These mechanisms to maximise profit will not go away (although government could regulate to introduce rules restricting restrictive covenants – but that’s another issue).

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    • I’d be surprised if ring-fencing made that much difference, but (perhaps) time will tell. In a way I’d like to be proved wrong. I discussed ring-fencing in the post on Little’s conference speech (link above)

      Land liberalisation is partly about taking away free options from land owners and developers. Adopt a policy like “build anywhere in a 100km circle from Queen St”, and owners will be falling over themselves to develop land and get it to market before someone else does. Drip-feed release is made possible by govt-facilitated rationing. restrictive covenants would be less of an issue if any owner could develop land more or less anywhere – eg new satellite towns.

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      • Yes, I read your earlier paper on it when at RBNZ and yes, it will be very interesting to see if it makes much of a difference to investor behaviour and hence market supply/pricing.

        It’s worth noting that “nearly two-thirds of lending to investors is interest-only”

        http://www.stuff.co.nz/manawatu-standard/opinion/82875257/shamubeel-eaqub-time-to-bring-in-ringfencing-of-tax-losses

        and ” in response to an OIA request, Inland Revenue confirmed that in the 2014 tax year, rental property owners claimed about $780m in tax losses. That could amount to a tax subsidy of up to $250m.”

        http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=11670381

        That I assume has grown since 2014 (and hence the RBNZs more recent actions).

        So, regardless of the impact on house prices, there will certainly be a benefit in terms of tax revenue. That said though, I can’t see the rational in retaining a loss making asset if there is no ability to offset those losses against other income. Sure, you could hold it for the gamble of ongoing capital gains as an offset to those annual losses, but that’s becoming a bigger gamble as time goes on and as governments of every colour + the RBNZ continue to chip away at runaway prices. Some negatively geared property owners might try and increase rental prices, but again, that risks loss of income if the market can’t support such price rises..

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      • I think 1000km from Queen St would be better. I think the zoning experiment has been a total failure for the last 50 or so years. Houses used to be built just wherever they were needed – why would a change back to that be so radical?

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    • RIng Fencing has very little impact in the current interest rate environment. You are more likely to have tax to pay on your investment property than any losses to claim. The largest loss impact used to be depreciation on building where you do not have to pay $1 to get back 33c. When that was removed it slowed down prices for a few months. It helps as a 33% buffer against future interest rate rises. But in most cases the effect is mainly to newby investors rather than longer term investors that have rent rises over the years to buffer interest rate rises.

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      • See above – 2/3rds of the loans to residential rental investors are interest only (so we can safely assume the majority of those are negatively geared) – and we understand that investors make up 1/3rd of all sales nationwide. It’s a significant chunk of the overall housing market. You’re right it might not make much difference but there is no downside I can see to doing it. If investors divest the assets, the assets still remain ‘in stock’ and won’t sit empty.

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      • I guess from preference – good tax policy – I’d rather limit the tax deductibility of (all) interest, to the real portion (ie excluding inflation). It would go in a similar direction to ringfencing, only could (and should) be applied more broadly.

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      • Interest only loans last for only 5 years. After that it is principle and interest. You can swap banks to get another 5 years but most investors do not bother changing otherwise HSBC with its 4.09% offering would see more owners flock there.

        Negative gearing affects mainly newby investors less than 7 years. Beyond that rents have risen sufficiently to usually cover losses.

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      • Investment property debt is usually maximised because it has rental income to offset. If there is a tax refund then of course it works out better. But a large chunk of the losses disappeared with depreciation on building was taken away by the National government. At the time a $500k property would have $25k in depreciation but thats gone now. What’s left over is hardly much to talk about anyway. Any spare cash would always firstly go against your own home mortgage first as there is no income to offset. Tax refunds are quite minimal in the current low interest rate environment. When I speak to my tax clients I even have to have a proviso that losses and tax refunds may not be available as rents keep rising and interest rates keep falling.

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      • Yes, I’ve heard of the purported 5 year rule for interest only loans, but value-wise there is $65 billion in interest-only loans against a total of $231 billion in mortgage lending (nearly 30% of all lending);

        http://www.rbnz.govt.nz/statistics/c32

        DTIs would I assume par that right back – which is why I assume RBNZ are thinking on them.

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      • Yep, much harder to pay tax when interest rates are north of 7%. Not hard to get around ring fencing.
        The obvious point is also that if rentals remain scare rents will surely rise.

        A question for Micheal.
        Now I know that houses in Island Bay are mostly old and that there main advantage is actually being close to the action, i.e. schools which everyone wants their kids to go to, CBD because its the place of work and everything fun happens there.
        If you had to rebuild that house to similar dimensions and with today’s building code you likely would get very little change from 550-600k. The upside of that would be that your house would have more amenities, would be double glazed and so on. Perhaps even withstand the next floor lift from the next earthquake better than your old house.

        Bob Jones said many years ago when running a property seminar the ” new buildings will only get built when the value of the old one approaches replacement value” i.e. commercial incentives are what drive building whether that is rents in the case of commercial or someone needs a place to live.

        Blaming landlords for the countries ills and wanting to fleece them until they all quit is embarrassing for any Govt., driving the property owner out of that business can only be a greater disaster for those that will never, and often don’t want to, own a house.

        Germany is often quoted as the socialists there have done what they always do and overrun the rental housing to the point where many Germans don’t own any property.

        If you are wondering why Mama Merkyl wanted refugees there are two reasons, apart from her natural socialist behavoir that is.

        Germany needed more workers. One of the top brass at Mercedes stated at the beginning that’s why they wanted refugees. No one to do any work.( If you think that the manufacturing elite don’t pull mama’s curlies then think again).
        The second reason is that Germany had a huge excess of houses in a number of places. They were unable to sell their properties so they lay empty. Immigrants help fill these places.
        So why has Germany got this problem.
        Well its like Japan (which also has these problems) the oldies who owned the land and worked in the factories are all either in rest homes or already dead. The next generation is smaller in numbers than the last.

        Now I may be wrong (it happens), but I predict that before long we will have houses for Africa. Lots of new ones around that no one can sell or will rent. The signs are already there and despite all the noise often the issue with people not getting houses to rent is their past bad record. So let them sleep in their cars or under a hedge for a while Might just smarten up some attitudes towards others rental houses.
        Sounds tough but it ain’t knew and after having tenants for nearly 20 years there are some that do not deserve to even have a tent.

        Which of course is why the Banks are being fussy about their lending. And many will remember that 60% was the norm in the 60’s and then money was hard to get. No fancy Kiwisaver etc to play with.

        Interesting also that in recent weeks someone has done some work on values and price increases which shows that what we have now is extremely normal and being normal will continue as it always has.

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  6. Just when I vowed not to post to this blog because I’m an amateur among professional economists with there own technical language you introduce a subject where we are all experts (similar to education).

    Today’s newspaper has a full page advert for a company that will build a lovely looking up market house for $369,000 with 4 bed, 3 bath, 2 dining rooms, double garage and 207sqm; all you have to do is provide the land and site works.
    If you assume large chunks of land were available at the price farmers pay and the builders used latest factory techniques to produce numerous small but decent houses suitable for couples, small families and retirees (90sqm, 2 bed, parking bay) then the price would be about $100,000 plus land and site work.

    I was told my grandparents in the 1920’s were renting when a rat got into the bedroom so my grandfather Bob, a railways guard stretched his finances to buy a house for about 850UKP. That was just below triple his annual wages. In the 1970’s when renting in London I didn’t like the guy I was sharing with so I bought a 3 bed old house at 10,000UKP which was also just under 3 times my salary.
    What has changed since those days that allows crazy prices (Auckland, Vancouver, Sydney, London, Paris, etc): girls work, they go back to work when they have started a family, the ratio of discretionary income has increased dramatically (in the past just putting food on the table, clothing and heating absorbed a major fraction of income now even the poor buy fast food), and income inequality has increased – it has always been the ‘better off’ who could afford to buy it is just that definition of ‘better off’ that has altered.
    Finally there is the need to live in large cities. This I can’t quite understand. If Auckland disappeared then this discussion wouldn’t exist; NZ is full of lovely cheap homes. OK farming is now mechanised and there just aren’t many jobs in villages and small towns so some movement would be expected but why so dramatically fast? Is it something to do with the media? Or benefits? Or immigration (a known fact from 100 years ago that immigrants move to cities)?

    Back to the subject matter: Andrew Little knows that housing is a great issue for getting votes, he also knows that a realistic solution can’t be presented until after the election. Any political change that produces winners and losers must never be explained before an election because the losers will be far more energetic in their opposition than the potential winners in their support. [This goes back to Gladstone complaining about losing an election because of the opposition from publicans “.. we have been borne down in a torrent of gin and beer”]

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    • Yes I saw that advert too.

      The NZ problems may be mostly an Akld one, at least in its most extreme manifestation, but…..my personal example was from Wellington.

      All your demand factors may very well be important, but they wouldn’t drive up house/land prices if it weren’t for the land use restrictions. It isn’t clear that there is any local authority in NZ where – regulations impeding – supply is adequately responsive to changes in demand.

      (By the way, very few people commenting here are economists)

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      • I’m tempted to write in computer mumbo-jumbo – we use it to confuse and justify pay rises. Your writing is invariably clear and elegant but I have difficulties with basic terms such as “Productivity” – then I stop worrying how it is measured so long as it is done so in a consistent manner and that the experts believe it reflects reality.

        I totally agree with you about land use restrictions – I was just trying to make it clear that with what I believe is called an efficient market prices would drop well below what most of us think is possible. Do you have a comparison for average houses as a ratio of average wages with average cars as a ration of average wages for say the last 50 years?

        Meanwhile still living quite happily in the bottom North Shore suburb of Birkdale and not worrying too much about a new government gaining power and removing all building restrictions on land in their first week. Land prices might drop like a stone and new houses beyond our outer suburbs might be given away next year but there is no way Auckland will solve transport problems in my lifetime so Birkdale homes will retain much of their value.

        Yesterday at an AGM for the city apartment block where I own my only apartment the manager said that when he took over the block 7 years ago roughly half the 72 apartments had couples living in them; now it is none. Overcrowding and living in garages is our current solution to Auckland’s population growth. Most of the time I feel happy that government inaction has doubled my wealth but every so often I feel really guilty. Our government has two things it can do (1) get more homes built (2) dissuade people from coming to Auckland – the alternative of do nothing when you think about it, is evil.

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      • Not sure about the cars, but i did find this link, http://www.thepeoplehistory.com/1950s.html in which in the 1950s (presumably in the US) car prices were about a sixth of house prices. Of course, NZ then was one of the few places where cars held their value – import controls and all that. My mother had done a UK OE in the 50s, earning foreign exchange, which allowed her to buy a car. My grandfather ofen jested that my father only wanted to marry her because she had a car. Tells you something about relative values I guess.

        As to your last line, less I agree 100%. Evil should be named, and if only we had a few political leaders willing to do so.

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      • It about 4-5 years ago the we were in a position where our population was off to Aussie and had been for a longtime. Now that wasn’t because of housing but because of lack of work. That seriously depressed house prices and also stopped the building of new houses.That turned around suddenly and the govt. got things moving and hey presto we now have all this price nonsense about housing.

        In Tauranga we had subdivisions that were ready for houses and a large one went under because no one wanted a section nor to build a house. So it was possible to buy a cheap house and a cheap section. Demand fixed that.
        Just the market place at work.

        Oh and the price of the sections went up almost overnight, just as they did in the last boom.
        If we reckon that NZ lost 40000 citizens for about 20 years there are still a lot to come home but just imagine what NZ would have been like IF the GOVT. had any idea about what they are doing and had managed NZ properly.
        What a different country it would be know.

        I don’t know much about much but I have thought about this for many years. The Govt. and its brothers in arms, the socialist bureaucracy that advises them, have much to answer for.

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  7. I agree that Labour’s policy seems half-baked and ineffectual. I think the party has embraced economic conservatism (in the sense that they only like to make small changes rather than anything radical). I think it would be relatively easily to make houses more affordable but there is just no political will. Many factors on both the supply and demand side are feeding the high prices, but with a comprehensive strategy that tackles both we could easily bring down prices. Examples of useful strategies might be extending the bright line test to 15 years, land taxes, immediate and substantial cuts to migration (perhaps 10,000 – 15,000 residency approvals per year), elimination of negative gearing (we need to think about “animal spirits”, not just economic fundamentals), ban on foreign buyers (the bubble they contributed to in Auckland spreads to other NZ cities as local residents and investors are priced out of the Auckland market), elimination of the urban / rural boundary coupled with investment in transport infrastructure such as rail. Making all of these changes at once, would I believe bring down house prices dramatically. Yes there would be some pain to property speculators but the number is a relatively small percentage of the NZ population and they shouldn’t have been so greedy in the first place.

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    • If you are standing I will vote for you. Note the cost of a decent public transport system is beyond Auckland council’s capability. Or maybe just increase rates by 50% and introduce high congestion charges and road tolls?

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    • Tony you housing affordability wish list seems to include the following factors;
      -That government has the political will to address housing affordability with a comprehensive strategy
      -Extend the bright line test to 15 year or similar tax reform
      -Elimination of negative gearing.
      -Substantial cuts to immigration
      -Ban on foreign buyers
      -Elimination of the rural/urban boundary coupled with increased investment in transport infrastructure -such as rail (commuter?)

      Phil Twyford as Labour’s housing spokesperson and campaign chair in my above linked video indicated (not in this order),a Labour government would;
      -Tackle the housing crisis with a fresh new approach -a big comprehensive bold plan of reform which would take a serious amount of political will.
      -They would tax speculators, shut out foreign buyers (Non-NZ residents being only allowed to buy new builds like in Australia) and close the negative gearing loophole (using the tax -$150m a year to insulate 650,000 houses over a ten year period)
      -Reform city planning rules -get rid of urban growth boundaries to improve land supply.
      -Introduce infrastructure bonds to increase investment in infrastructure needed for the urban environment.

      Tony the only thing in your list that Phil did not mention was the substantial cuts to immigration -but Andrew Little has announced he wants this cut by tens of thousands (major policy announcement yet to come).

      Phil further explains how a government build programme -kiwibuild and addressing the rorts in the building materials programme fits into the comprehensive plan.

      Tony I struggle to understand where you are coming from when you say Labour’s (housing) policy seems “half-baked and ineffectual”. Labour’s housing policy is well defined and detailed http://www.labour.org.nz/housing.

      The issue as Michael describes is the selling of Labour’s housing policy to the public and whether Labour’s leader -Andrew Little has internalised the policy to the degree necessary to implement it.

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      • Well maybe my “half-baked” comment was a bit over the top. However I think Labour is not really serious as Andrew Little has said twice that he didn’t want to see house prices fall. Also their changes to the bright line test are only from 2 to 5 years. I think it doesn’t go far enough to discourage speculators. Similarly I would like to see more in the way of land taxes which Labour hasn’t mentioned. Actually I would like to see progressive land taxes where holders of large property portfolios would pay a higher rate. Yes Labour has made noises about cutting immigration, but I haven’t seen any actual policy. It wouldn’t surprise me based on comments to date if the cuts were only to work visas. To gain traction I think we need deep cuts to permanent residency approvals as well. Such a radical change just isn’t in their DNA in my opinion, but I will be happy to eat humble pie. I think Labour is making an effort, but still can’t help sitting on the fence. If the shortage of houses is 60,000 growing at 12,000 / yr , then Labour’s Kiwibuild plan isn’t going to dent this number if they can even scale it up to their target of 10,000 / yr.

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      • Fair call Tony. I hope that Labour (or any other NZ political party) can be more convincing wrt advocating for more effective housing affordability policies.
        P.S I have reservations on the effectiveness of land value taxes to fund infrastructure. I agree it would be a more effective tax compared to land + capital value taxes i.e modern day rates. But whether it would be as effective as other funding mechanisms I am not convinced.

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      • A solution for Andrew Little: “house prices not to change on average nationwide – just some correction to wrongly priced properties”. All house owners are convinced their place is worth what they paid and it is everyone else who over-paid so a policy to have mild corrections might work. Of course if he attained power and enacted policies that dropped Auckland prices by say 20% he could still say “well on average nationwide there has only been a small adjustment”.

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    • Tony.
      The pain would be all yours I’m afraid. Single house owners with families would lose their values, lose their loans and it would become like the last downturn we had when lots were unemployed. Couldn’t pay the mortgage, couldn’t get work that paid and the bank sells the house. Is that what you think would be an acceptable out come of your policies.
      Property investors will still be there because they wouldn’t want to sell, (as most investors don’t) and they have the income from the property to pay the loan. The banks won’t toss them as long as the loan is paid especially in a sell down scenario.

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  8. There is a short fun video on Facebook comparing Japan’s city rents with the US.

    In Tokyo the average rent is US$890 a month, which is roughly NZ$300 a week.

    In comparison in Wellington the median three bedroom rental is NZ$555 and two bedroom rental is $420 (stats from http://www.interest.co.nz/charts/real-estate/rents-median).

    Rents are falling in Tokyo despite the city increasing in population because according to the video (which I agree with) Japan encourages new houses to be built which allows supply to keep up with demand.

    Video here https://www.facebook.com/attnlife/videos/1864174113844929/

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  9. “The outlook for 16 year old Cam isn’t great….” – not so sure: presumably Mr Little has a decent [paper] equity position to help out…!

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    • I imagine Little expects to need a house himself for quite a few decades to come. Young Cam – perhaps fortunate in that regard in being an only child – may come into his inheritance in 30 or 40 years time, which sadly looks increasingly like when many people will finally be able to afford a house.

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  10. Cracking the Auckland property market is no mean feat and for a young, single person the challenge is all the tougher.

    Kirstin Harvey decided to stop waiting for Mr Right to come along as a property partner and after upskilling on the DIY front she is now $82,000 richer after 10 months.

    A life-long resident of Auckland’s North Shore, her life plan had centred on the kinds of things her friends were up to – marrying, buying a home and starting a family.
    ———————————————————————
    Who hasn’t done things like this but here is the rub so to speak.

    But relationships passed and before she knew it, at 27 she found herself priced out of her home neighbourhood.
    Eventually she found and bought a property in Papakura at the peak of the market in July 2016, paying $430,000.

    On “an average salary”, Harvey had a $45,000 deposit all up; consisting of $5000 of her own savings, $35,000 from her Kiwisaver, and a $5000 government grant.

    So 27 and was the proud owner of $5000.00 of savings. So hadn’t saved much for how many years work. all got spent ?

    She is lucky that she managed to get those top ups. Want a house start saving as soon as you have an income.
    Save 10% of your gross earnings every week. Once you do it seriously for a length of time it becomes a habit. Work 3 jobs Plenty doe that.

    http://www.stuff.co.nz/life-style/homed/houses/93374663/first-home-flip-nets-82000-for-auckland-buyer

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    • Playing with the Reserve Bank’s inflation calculator was interesting the other day, it includes “housing” as an option. http://www.rbnz.govt.nz/monetary-policy/inflation-calculator

      Checking my own situation, my rent in central auckland has risen 316% since 1995, but wages have only risen about 91%.

      The inequity is staggering, and I’m strongly tempted to tell those responsible to stick their volcanic cones where the sun doesn’t shine.

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      • The $1.2 billion development of Auckland’s Three Kings quarry can go ahead, after an agreement announced this morning between parties involved in the big new housing scheme.

        “This significant development was proposed more than five years ago and has been subject to over 100 consultation meetings and dozens of High Court, Environment Court and commissioner hearings,” he said.

        “These types of delays are at the core of Auckland’s housing woes in that the building sector is not able to respond more quickly to changes in population.”

        http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=11875857

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