Read this and weep

Michael Reddell Housing

I’ve never been to Las Vegas, and have no intention of ever doing so.  The idea of living there (desert, casinos etc) mostly seems quite unappealing –  although I can imagine people from Las Vegas may feel the same about living on an earthquake fault line and sending your kid to school in a spot the inevitable Hikurangi trench tsunami will one day sweep through.

But a reader was in Las Vegas earlier this week and left this comment here last night.

I just got off the plane from Las Vegas yesterday. I stayed there with a nice young couple who live in a townhouse about 10 years old. He’s an iPhone repairman and she’s a stay at home mom. He makes enough money to rent their nice, 10 year old, 140sqm 4 bed 2.5 bath townhouse with garage. I viewed an open home of an identical property going for US$275,000. They’re a short 3 [minute] drive from plenty of public amenities and only about 15 minutes from the city center. Driving around I saw a lot of new properties from single family homes to apartment buildings all prices at commensurate levels. Those properties were built en masse, in large developments each about half a square km block at a time. Similar young kiwi couples in their early 20s can only dream of this relatively idyllic lifestyle in cities of anywhere near similar size!

These were the kind of communities that made headlines 10 years ago for plummeting property prices in the subprime mortgage crisis. Now, they’re affordable, new, well-built homes for young families and in spite of the relatively low prices, developers are still hard at work building block after block of new market-rate affordable housing.

A cruel irony of New Zealand is things here cost more, but you still earn less. I thought the example in Las Vegas put to shame supposedly progressive polities like Los Angeles, San Francisco, and New Zealand, all of whose governments virtue signal in favour of “affordable housing” but cannot deal with market realities.

Sure, you always have to be a little careful in cross-country comparisons of individual house prices.  In the United States in particular, properties can come with quite high ongoing obligations to cover infrastructure costs etc (in New Zealand much of that cost falls directly on developers and is embedded in section prices).    But there is no credible way those sorts of charges are going to explain the differences between the prices of those Las Vegas townhouses and what our politicians here inflict on New Zealanders.

If I’m not keen on the idea of Las Vegas, it seems that many Americans are.  This is the data for the population of the metropolitan statistical area including Las Vegas.

las vegas

Lots of people, rapid population growth (faster than Auckland’s), and (it appears) wholly affordable housing.

As it happens, there is a big (well, by Wellington standards) townhouse development going on 100 yards or so, as the crow flies, from here. I think the individual townhouses have mostly been presold, but I did find one advert still online.  These places are perhaps 3 minutes drive from the park and beach, 15 minutes drive from the centre of town. But they are only two bedrooms, have a carpark rather than a garage, a single bathroom,and are only 76 square metres.  The asking price was $735000.

And this is Wellington, not as bad as Auckland.

You have to wonder why there isn’t more public outrage about a situation that gets worse (more people hooked into debt based on current high prices) with each passing year.

But what of our so-called leaders –  Ardern, Bridges, Twyford, Collins, Goff, Lester (and 30 years of their predecessors) who let this situation develop, know the problem (well, most of them do), and still have done nothing to fix the mess.  Not one of them will even suggest that house prices as cheap as those in Las Vegas is something we can and should aspire too.   What are they, by their indifference, doing to our kids?

Addendum

I know the distributional challenges of fixing this mess, once National and Labour in turn got us into it, are real.  A couple of years ago, in a post on options a new Labour government could consider if they were serious about reform, I proposed a compensation scheme.  If it helped overcome the obstacles to the sort of reform Phil Twyford and Judith Collins both talk about wanting, I’d support something like this.

No one will much care about rental property owners who might lose in this transition –  they bought a business, took a risk, and it didn’t pay off.  That is what happens when regulated industries are reformed and freed up.    It isn’t credible –  and arguably isn’t fair –  that existing owner-occupiers (especially those who just happened to buy in the last five years) should bear all the losses.   Compensation isn’t ideal but even the libertarians at the New Zealand Initiative recognise that sometimes it can be the path to enabling vital reforms to occur.  So promise a scheme in which, say, owner-occupiers selling within 10 years of purchase at less than, say, 75 per cent of what they paid for a house, could claim half of any additional losses back from the government (up to a maximum of say $100000).  It would be expensive but (a) the costs would spread over multiple years, and (b) who wants to pretend that the current disastrous housing market isn’t costly in all sorts of fiscal (accommodation supplements) and non-fiscal ways.

47 thoughts on “Read this and weep”

  2. Las Vegas is built on the Nevada desert. Nevada is mainly desert and the total land mass is 286,000 skm. Compare that with the entire Auckland region of 5,000 skm. There is thousands and thousands of hectares of nothing but sand. I was in Las Vegas over the Xmas and New Year holidays and took the Jetblue flights to and from San Diego and it was quite hypnotic seeing nothing but shades of brown and browner sand dunes as far as the eye can see at 20,000 km heights.

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    • Did I think it was cheap to live in the US? No, it was expensive. Food prices and basic amenities was a similar price to Auckland except in US dollars which meant a conversion rate of 0.68%. A Celine Dion concert in Caesars Colosseum, part of the Caesars Palace set me back almost US$1,000 for 2 adults and 1 child. Even tickets to the Cirque du Soleil live water stage performance set me back US$400 at the Bellagio Hotel.

      Having a quick lunch meal at Gordon Ramsay’s Steak and Beer English pub in Caesars Palace set me back US$150 and buffet dinner at costs US$100 per person and you had to queue for 2 hours to get in.

      Even a BurgerKing will set you back US$13 for a standard crispy chicken burger combo ie with chips and a drink.

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      • Just come back from living in the US for 5 years. In my experience there (mostly LA, not Vegas), entertainment and labour-intensive services were expensive, but everyday costs felt considerably less. Healthcare is expensive but there is now considerable government support for low income people to receive affordable healthcare. Groceries were about the same price as in NZ. Petrol was much cheaper, and just about any physical good, from cars to any kind of ordinary household item, were cheaper. And then there’s housing – median house prices in LA are the same as Auckland (about US$600K) but the US national median must be much, much lower than in New Zealand, as are interest rates to get the mortgage. I think this explains why your discretionary goods in Vegas were so pricey – people have more money left over after they pay for the necessities.

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      • Las Vegas is surreal like a giant adult Disneyland. Los Angeles was a real eye opener in terms of how poor the city is. Even the cop cars look old, banged up and dirty from the 80s.

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  3. Yes, my cousin is a real estate agent in Virginia, a short distance from Washington DC. She sends me her weekly listings newsletter and even there the prices are so low it makes me weep.

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    • No need to weep …. don’t be so surprised
      Virginia minimum hourly wage rate $7.25 per hour
      What would you expect the underclasses could pay

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      • Looks like there’s a move to raise it to $15/h by 2021, the same year New Zealand’s government is planning to reach NZ$21 or about the same in USD.

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      • Spent a week in Los Angeles. The walk of fame is a walk of shame. Cracked pavements, dusty and dirty. The entire street was lined with 2 dollar shops and at nights angry drunken and drugged out people roamed, kicking at signs, swearing at people.

        Wanting to catch the New Year fireworks in the LA city central I google searched the closest carpark about 15 minutes walk away. After the New Year fireworks, the walk back to the council carpark was like a visit to Spookers. The street was lined with the dozens of homeless sleeping on the sidewalk. Rats scurried around the sleeping homeless. The stench was almost unbearable, of vomit, of human faeces and urination and the sweet sickening scent of weed and beer.

        I thought my hired vehicle would be all smashed up with missing tyres but was pleased to see around 5 cars parked close to my vehicle and normal people wandering around. Then I realised the carpark was closed and the only way in was to drive into spring loaded car tyre spikes that popped up on entry, the length of a middle finger. I drove out easily as i had parked earlier in the day and no problems exiting but these other 5 cars were stranded with all their 4 tyres punctured. Talk about how vicious the US local council can be on a council carpark on a night of fireworks organised by the council.

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  4. I have a relative who lives in Henderson – part of the Las Vegas metropolitan area. Our only visit was about 8 years ago and he drove us to a massive development where we had a meal in an empty restaurant in a deserted shopping centre and he pointed over the scenic lake to big new houses and told me one of his colleagues had bought one price reduced from $750,000 to under $300,000 (US$). [Certainly not the kind of development that Brendon would approve of.]

    House prices in NZ will always be a little higher because of the smaller scale and less competition among developers and builders; however there is one factor of any real significance and that is land prices. The current CV for our Auckland home is $250,000 for the house and $900,000 for the land. Given recent property price decline maybe the land is now worth $750,000 but it is still a crazy price for a piece of land that is not suitable for most agricultural activities.

    It is obvious that a govt that cared for the population would want land prices to go down and I can imagine many solutions starting with the nationalisation of all land and working down to less drastic solutions. As the owner of a rental property I think that landlords should not be rewarded for windfall profit on the sale of the property – they should be looking for rent equalling costs of ownership plus profit. So I read your last paragraph about the ‘distributional challenges of fixing this mess’ with interest. Your proposal would give an advantage to apartment owners and a disadvantage to landlords who invest in improving their properties; the same idea based on a land valuation might be better.

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    • Nevada, 286,000 skm. Auckland 5,000 skm. Is it not obvious why land prices are cheaper in a desert where nothing grows? Pukekohe farmers are already complaining and competing for highly productive land which generate an income. Land Prices have to be higher if you want to build houses on limited available highly productive land?

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      • Stop being silly, now one is going to count land in the middle of the desert 500km from the city, anymore than they will class lake taupo as Auckland… The area of Las Vegas is 352 km² …

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      • New Zealand has 12 million hectares of agricultural land. Even if we protected land currently used to grow vegetables from development, Auckland (currently 490,000 hectares developed) could double in size by developing the abundance of land used for dairy, raising horses in Karaka, etc, and that would represent less than 5% of the country’s total agricultural land (which would probably be reduced anyway due to carbon/methane emissions restrictions). In practice Auckland needs far less than a doubling in size – even an extra 20% or so would yield a vast, vast reduction in land prices to the benefit of young families in New Zealand.

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      • Guvbums, the entire Las Vegas city was built on a desert with water and power, fed from a massive Hoover Dam which would cost billions to build in todays dollars. There is still 286,000 skm of desert to build on. Who will complain? Certainly none of the Nimby’s that we have who seem to have rather deep pockets that can hire teams of lawyers to block development whenever they feel aggrieved.

        Harder to build on water in Lake Taupo due to our our famous “can’t block the views of our Nimbys” but some European cities certainly do build on water with floating houses. They are now building solar panels on the oceans as land space is limited and expensive to have a sea of solar panels. So not silly really is it?

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      • curioukiwicat, sure we can build houses easy enough anywhere but as Phil Twyford has found out that he can’t sell 50% of his kiwibuild houses in certain locations because it is not required either too far or still too expensive to build. Since his budget is $2 billion and not the $30 billion that Phil Goff is asking for to get infrastructure into greenfield sites, his kiwibuild target of 10,000 a year fell to 1,000 a year and then now to no idea how many and the kiwibuild target got dropped.

        Latest report is 57 kiwibuild completed and now we find that number is also grossly exaggerated because many of these were already in the works and then just relabelled out of desperate incompetence.

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    • Re: [Certainly not the kind of development that Brendon would approve of.]

      I am intrigued by curiouskiwicat’s Los Vegas example, which converted to kiwi dimensions and money is a 157sqm house on a 162sqm section costing $NZ 407,000. Probably the garaging wasn’t counted in the square footage area of the house -as the practice in North America and Europe is only to count the heated/useable inside space. So it is a significant sized house on a small plot of land.

      If the house had been constructed with side walls as firewalls built up to the boundary this would give more space out the back for inside/outside flow. I think that would be the better option for the NZ market.

      From the pictures the whole neighbourhood appears to be similar 3 story houses on small plots. By my calculation the neighbourhood would have a housing density of about 40 houses per hectare -assuming a generous allocation of 35% of the neighbourhood being streets, parks and other public spaces.

      40 houses per hectare is twice the density compared to what is currently being built in new subdivisions around Christchurch.

      Housing density could be easily increased by allowing the market to convert some of the houses, pretty much as they are configured, into two or three flats i.e one flat per floor, with or without garaging on the ground floor.

      Given its density this Los Vegas neighbourhood can support twice the amenities compared to new Christchurch subdivisions, meaning better public transport, more and closer commercial activity, more and closer public services like schools…..

      What is there to disapprove of? Better amenities with lower cost housing -well done Los Vegas!

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  5. Las Vegas apartment size is 175 square metres
    Not bad size wise
    But
    what demographic wants to live in a 3 storied apartment
    Certainly not your grandparents, or your elders

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      • My parents have moved into a second level (and highest), 2 bed apartment in a new 275 unit retirement complex in Christchurch. It has a nice outlook overlooking fields and ponds. It has a lift -should their mobility deteriorate. They love the whole complex. It is a shame this sort of scale of new housing isn’t being built for the wider population.

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      • In NZ we struggle to build high rise. 9 out of 10 will be a pesky leaky building soon.

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    • My family was happy to do so, in Canada when the kids were little. Row houses (6 in a block), unit title, ample shared open green space for everyone to play in. Ground floor: indoor garage, heating plant, laundry, play room. Middle floor: large kitchen/living space, dining, large lounge with nice views over the green space. Top floor: four bedrooms, bathroom. Affordable and very functional living space; kids could play indoors (supervised in the kitchen area, on their own in the play room), or outside with friends in the grounds away from traffic.
      If well designed, such layouts provide functional living and efficient use of land. But the developers had built over 100 3-bedroom and 4-bedroom units in this development, and that scale is pretty much the smallest that works.
      Would New Zealanders buy such homes if they were available? That must depend very much on how much the price can be reduced by the construction and land-use efficiencies, which also depends on how bloody-minded the council planners are.

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  6. This makes a difference – no Asian hot money seeking a refuge

    According to the 2010 Census, the racial composition of Las Vegas was as follows: White: 62.1% (Non-Hispanic Whites: 47.9%; Hispanic Whites: 14.2%) Black or African American: 11.1% Asian: 6.1% (3.3% Filipino, 0.7% Chinese, 0.5% Korean, 0.4% Japanese, 0.4% Indian, 0.2% Vietnamese, 0.2% Thai

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    • According to the 2013 census, the racial composition of Queenstown was as follows:
      White: 87%, Maori: 5.4%, Asian: 6%

      Does Asian hot money seeking a refuge actually makes a difference?

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  7. My experience of housing development in the US post the GFC mirrors the posted example. In passing one should note the “affordable houses” spoken of in the post are entirely developer driven – no invisible hand of government needed or there. We developed houses in Texas, Georgia (Atlanta), Nevada (Vegas) and California (San Fran). San Fran was the exception – very high land/acquisition costs and huge compliance costs from the local and state government – consequently house prices were 5 x Texas prices and half the house size. Another key point is unless it was a 10,000 sq ft bespoke house all the materials came from Home Depot or equivalent. Standard ranges of granite bench tops (options on size, shape and colours), showers, window sashes, windows and so on – there was good range and avoided the need to go bespoke. In NZ we have a myriad, for example, of aluminium window manufacturers – most sub scale and therefore expensive.

    Many new developments dealt with metropolitan infrastructure costs by way of a bond that went with the property and was progressively paid down over 15 years – spreading the cost across many years rather than up front as is the practice here. This is a simple idea we could put in place immediately.

    The over-riding point about housing developments in the US is they are built to sell – the developer needs to have local amenity, a sense of community, schools etc all dealt with – if they don’t have those dealt with the development will fail as the house buyer has an alternative down the road. It is that simple.

    The GFC housing collapse was a lot about buyers who had NINJA loans (No Income No Job or Assets) advanced to people with no prospects of repayment. Altruism by successive governments said every one must be able to own their own home – Congress created loan guarantee agencies like Fanny Mae and Freddie Mac to encourage banks to lend and banks were at risk of criminal prosecution and jail time if they were shown to be deficient in fighting “discrimination” (ie not lending to certain classes or citizen) – the incentives were massive for the banks to see it the way of Congress. Criminal prosecution if you don’t do it and underwritten loan books if you do.Ultimately Fannie Mae, Freddie Mac et al went bankrupt once there was an economic slowdown, as the (nil) equity in houses disappeared and the loans were worthless “assets”. This was the folly of poor lending practices with mortgages underwritten by Federal Guarantees – it ended in tears.

    Twyford, Robertson and Ardern should beware – Kiwibuild has become a last resort underwriter of building projects for private buyers – it seems not to have the institutional skill, demand or supply to perform its purported roles. The costs of housing in NZ are exacerbated by the regulatory load placed on the land – Kiwibuild won’t fix that.

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    • Bloke in Auckland, that’s a great perspective. I’ve been wondering lately: with online sales now ending the need for on-site buying, what’s stopping suppliers in New Zealand from scaling up and competing on volume/price using high quality imported building materials to get scale if necessary? Obviously we can’t get the economy of scale of the US, or even Australia, but surely there’s a way for enterprising materials vendors to undercut the current high prices? What’s stopping this happening in New Zealand?

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      • It’s a good idea – One thing we did see with reno’s was being able to walk around a house with an iPad and scan each room (and outside wall) – the scan made a list for the local home depot to supply. Paint, spouting, , bench tops, shower boxes etc….you ordered and picked it up from the branch in a few days.

        This was 5 years ago so will have improved with machine learning since. No good reason it could not be ordered from here (a house load) and shipped ready to go… just need Home depot to join the dots and put a product together – export to NZ. I’m sure Alibaba would offer similarly.

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      • I think the main impediment would be getting BRANZ approvals for the materials. But the competition definitely needs hotting up around materials.

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      • Spoke to a Chinese builder about importing container loads of materials or even some of the modular houses on sale on Alibaba. He replied that Auckland Council required a testing certificate on all the imported materials which he found would cost $400k to complete. Still cheaper to buy from existing suppliers if you are a small builder, that is why suppliers here don’t have competition, there is a huge testing certification cost to get new products into houses.

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  8. We asked a Realtor in Dallas where the rural – urban boundary was – coming from Auckland as we did. He didn’t understand the question – so I said where do the city planning regulations end and rural rules start?

    He thought for a bit and said “it’s pretty much flat all the way to Oklahoma…..”

    That’s why housing developments in Texas are first class and priced to sell. The market determines quality and amenity not a council bureaucrat. Insurance deals with build quality and surety. If the developer cannot get a first class insurance Co to guarantee the build (leaky homes etc) the buyer will buy a house from someone who can (and the bank won’t lend).

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  9. Michael, could you add typical Las Vegas wage rates/family income to this story to complete the picture please.

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    • Household median income is US$53,000-54,000 in 2017, compared to $58,000 for the US as a whole, US$56,000 for New Zealand and US$63,000 for Auckland in 2017. To be honest, it was surprising to see that, although wages and GDP are much higher in the US, household median income is about the same! Still, if incomes are about the same, and housing costs are much less…

      NZ stats: https://imgur.com/a/lkbC4e2

      US stats: https://www.census.gov/quickfacts/fact/table/US,clarkcountynevada,lasvegascitynevada/INC110217

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    • Not sure about your specific numbers (as you know, healthcare bedevils US wage numbers) but GDP per capita in 2017 was about US$51000 in Las Vegas MSA (only the 155th highest MSA in the US). In NZ, Akld was NZ$61000 and NZ as a whole NZ$57000 in the year to March 2017.

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      • Might be clearer converted to a single currency – not hard to do it in my head. GDP per capita in Aukland only 7% higher than New Zealand (or rough guess ~10% more than non-Auckland). Logic would indicate house prices in alignment with take home pay which just proves Auckland house prices are seriosly illogical.
        Brendon will have some explaining with his agglomeration theories.
        Would these per capita figures be ignoring children, the retired, non-working parents? Applying to the 10 members of my family in Auckland: 2 children, one retired, one not working, one near the $61k, three well below and two modestly above (sadly no member of my family works for Auckland council with its rumoured one in three on >$100k pa)

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      • Bob re an explanation of agglomeration theories for cities go to the illustration stating -“Improving access increases productivity and incomes” in the following paper. The next two pictures and text also discuss agglomeration productivity effects.
        View at Medium.com

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      • I had always assumed ‘per capita’ was the entire population or at least I had until I read your figures which make NZ incomes rather higher than I had expected. I am guessing that Auckland with its high immigrant population would also have a high number of no-incomes particularly children. Third world immigrants tend to have larger families for one or two generation until they assimilate. That would partly explain the very low productivity factor for Auckland which has a third of the NZ population. Does anyone have a figure for the no income fraction or alternatively a figure for median earnings for a NZ worker? Assuming one in three is a child that would make a typical average workers income about $90k so all my family are failing to reach average which is a surprise given some of their qualificaions and talents.

        Brendon: I have read one book you recommended about aglommeration – the maths theory being for each doubling of the population typically productivity increases by a factor of 1.15. It leaves Auckland as an outlier with low performance. Your comment about access partly explains it – some really bad and unwarranted congestion but then again some successful cities with high productivity have access issues – try taking vehicles into Leeds or London for example. My answer would be our successive governments desire to import 3rd world wages; so in London (40 years ago) a bus driver was lower middle class and no where near minimum wages but in NZ a bus driver is only just above minimum wages. Simply targetting high paid immigrants would solve many of our problems. Along with rational land values.

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      • I have checked some of this stuff before. Population age structure etc doesn’t materially the regional results (at least Akld vs rest of NZ). Among other things, Akld has a lower than average share of over 65s in its population.

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      • I think I was confusing median salary with GDP per capita. Even Auckland has some productivity that is not purely labour based. I’ll stop worrying about my family under-achieving.

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      • Those Lime Scooters are back and running on Auckland streets. A much cheaper option than the Len Brown intercity rail they are still trying to complete from city central to Mt Eden, now at a cost of $5 billion soon.

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  10. Where is the Progressive campaign for freeing up land available for housing, by sensible reforms of the RMA and the Local Government Act

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  11. Son lives in Queensland coastal town with university etc. 4 bedroom 3 year old house 365 dollars per week He is a RN mental health salary 30% higher than NZ. Thanks for your perceptive blogs on NZ China. Dennis

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  13. Spoonley went on to say: “I get really annoyed when people identify immigration with a problem like housing. Housing – especially in Auckland – is not an immigrant problem. It’s not caused by immigrants.

    “Immigrants might underscore it, but the housing deficit is a long-standing deficit. We have not produced housing to equate to the growth of Auckland for a very long time.

    “Immigration is part of it, but to lay the blame of housing availability and affordability in Auckland on immigrants is quite misplaced in my view.”
    https://www.interest.co.nz/business/89406/masseys-pro-vice-chancellor-professor-paul-spoonley-urges-immigration-service

    They say a picture can paint a thousand words

    So let’s save words and cut straight to the chase on the issue of immigration and house prices…


    https://www.interest.co.nz/opinion/69997/gareth-morgan-says-data-clear-migration-and-house-prices-he-says-it-numbers-coming-uk

    We have complex problems and a population fed information in a haphazard way: media gatekeepers and politicians selling snake oil – something like that

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