House prices

Looking at the polls, or the flow of daily news, in many respects it no longer much matters what policy positions the leader of the National Party is enunciating. Hardly anyone supposes that the government after the election won’t be either Labour alone, or Labour and the Greens. And so if we are at all concerned about policy, what matters for the next few years is what Labour’s leader is saying, and what – as incumbent Prime Minister – she has been doing.

Three years ago we were told by the Prime Minister – and correctly so – that the housing situation in New Zealand was pretty bad (the word “crisis” was often flung around). House prices had risen enormously in the previous few years, as indeed they had under the previous Labour government, and the National government prior to that. She made much of “child poverty”, and most serious observers recognise that a significant contributor to problems in that area was the extraordinarily high level of house prices in New Zealand. A few thought Labour was getting serious about fixing the grossly-distorted housing market – making it a functioning market, rather than a thing rigged by central and local government. The Executive Director of the New Zealand Initiative had even done a joint Herald op-ed with Phil Twyford who was then Labour’s housing spokesman.

I was among those who was on record here as being sceptical. Controversial reforms only happen if they have strong backing from the leader/Prime Minister. But whether under Andrew Little or Jacinda Ardern, Labour leaders in Opposition never highlighted the core problem – the land use restrictions – and only ever cited the palliative or distraction measures Labour was proposing; ones which, if they had any effect at all, might be a few percentage points in a climate in which house prices were perhaps twice what they really should be in a functioning market with abundant land. When, with a functioning land market and the lowest interest rates in a very long time, real rents should have been cheaper than ever.

What were they proposing? There was the proposed foreign buyers ban, the extension of the bright-line test, and ring-fencing. There was the vaunted capital gains tax, and talk about immigration (although the specifics would have changed the net flow for only one year). And, of course, there was to be Kiwibuild. If you dug enough in Labour’s manifesto you might find mention of land-use reform, but it never got much attention or profile at all.

And where are we now after three years in office? The REINZ’s measure of median house prices has risen by another 27 per cent – and real house prices are so high that 27 per cent increase at these levels are much more material, and damaging, than 27 per cent increases might have been 20 years ago. There hasn’t been much general inflation in the last three years – about 5 per cent in total – so real house prices are up in excess of 20 per cent in just three years. In none of that period was the economy performing spectacularly well, and of course this year has been flat out disastrous, mostly due to events beyond the government’s control.

And what has the Labour-led government done in that time? They’ve done some of their specifics – the PM last night claimed the foreign buyers ban had made a difference – while others have just fallen by the wayside. Capital gains tax is no more, and Kiwibuild was one of the government’s more embarrassing failures – not that, even if delivered, it would have made more than a jot of difference to the underlying, land price issue. Oh, and they’ve been consulting on locking up more land – especially on the outskirts of Auckland – as allegedly “highly productive”. Thank goodness we didn’t have that sort of government when Carlaw Park was in use as market gardens or Manurewa or Lower Hutt or…..

Asked about house prices in the debate last night, the Prime Minister seemed reduced to hand-waving. Perhaps the foreign buyers’ ban did make a small difference – it is genuinely hard to tell – but even with it real house prices have still risen in excess of 20 per cent in three years. For a city with median house prices at five times median income – and Auckland, Wellington and Tauranga are far higher than that – that 20+ per cent real increase is equivalent in cost to a whole additional year’s income. (In well-functioning markets, house price to income ratios of three are quite sustainable).

She seemed reduced to claiming that she couldn’t have fixed the housing market in three years – a claim that is not only wrong, but belied by the fact that her government has shown no real sign of trying, and is not promising anything much different in the next three or six years. One might almost believe that the Prime Minister doesn’t really care about the level of house prices at all, so long as she can keep it in check as an electoral concern. And, as a statist at heart, she’ll be happy when lots more people are in state houses – perhaps a reasonable outcome in itself, for a small minority, but hardly a systematic solution to one of the most egregious policy disasters in modern New Zealand history. (On that statist note, did anyone else note that when talking about lifting living standards her only answers seemed to be higher minimum wages and the state paying “living wages”, with never a hint of firing up overall economic performance in a way that would support market-led much higher wages all round.)

But we heard nothing from the Prime Minister – last night or in other speeches or interviews – suggesting she has any sort of vision of much lower house prices in New Zealand. I saw this post on Twitter yesterday afternoon

The Little Rock metropolitan area is bigger than Wellington and Christchurch but smaller than Auckland. These houses are about as far from the centre of town as Upper Hutt is from central Wellington or Orewa to central Auckland. And just look what you get for around NZ$300000. (In a place with interest rates just as low as those in New Zealand with – for the leftwing journalists currently aggrieved at loose macro policy – a central bank doing even more to buy up all manner of assets.)

But you don’t hear the Prime Minister talking of that sort of affordability as something New Zealand should be matching. But think about the sort of difference it would make if we did – not just to people buying a house to live in, but to the cost of supplying rental accommodation as well. It isn’t some silver-bullet to the issues around poverty – 50 years of real economic underperformance aren’t just about house prices – but it would make an enormous difference, and (not incidentally) turn houses back into a (lifetime) consumption item, not something to stress about or speculate on the value of it. Fear of missing out – which has, reasonably enough, driven many younger people – would be a thing of the past.

And even if one granted – what may have been the PM’s point – that writing a robust new land use law might take some time, markets trade in a forward-looking way. If anyone really thought Labour was serious about taking steps that might make a three bedroom house on a decent section affordable again, they’d hold off buying. And those who own the artificially-scarce land available for development would be looking to offload it now – developed or not – before that scarcity premium vanished from the price. But there is no sign of any of that. Instead, we have the government’s official economic advisers forecasting a new surge in house and land prices once the immediate Covid dip has passed.

Now, we know the government has had a report recommending its own rewrite of planning law. Who knows what will come of that, but it is hard to be optimistic. Again, if it were genuinely going to open things up we’d see the smart money moving already and peripheral land prices falling. But no sign of that – any more than there was when the Auckland spatial plan was put in place.

The dominant ideology of Labour (and much more so the Greens) seems to be simply opposed to allowing the physical footprint of our cites to expand much at all, a firm opposition to allowing markets to work in determining where new development takes place (thus, in combination cementing in quasi-monopoly land prices), all while both parties are wedded to driving up the population rapidly. Of course, some of them will tell you they are keen to facilitate greater urban density in existing suburbs near the central city or around transport hubs. I don’t have too much problem with that in principle, but it don’t think it is either right – or probably politically tenable – to ride roughshod over community preferences (many/most new developments run a system of private covenants, and it isn’t obvious why existing neighbourhoods shouldn’t have that possibility if that is what most existing owners want) and – more importantly here – there is little or no evidence that the drive for density, and height, is likely to lower the cost of a constant-quality unit of housing. Sure, you economise on land – even though gardens are what many people would actually prefer (revealed preference illlustrates that) – but the cheapest way to build houses is single-level properties, and (I’m told) the per unit costs of apartment blocks of several storeys are really quite high. Unless the land market is opened, so that there is genuine amd aggressive competition to supply new development sites, it is very unlikely that anything is going to change to deliver land-abundant New Zealand the sorts of real house prices it could, quite readily, have.

And that’s just a disgrace; a shameful reproach on both major parties (and their sidekicks) – but it is Labour which has been in government these last few years and almost certainly will be for the next few. It is inefficient and discourages inter-city labour mobility, but – more importantly to me – it is simply deeply unjust, with the burden falling most heavily on the young and the poor (in New Zealand that means disproportionately Maori), on new arrivals, and on those without wealthy parents, or even just on those who value self-sufficiency and earning their own way in life.

I look at my own teenage children and grow increasingly angry at the indifference of a Prime Minister who endlessly talks about “kindness” but has done nothing to fix the grossly distorted housing market, just presiding over ever-worsening imbalances. My son came home from the church youth group the other night telling me that one of the church leaders had said that he and his wife had purchased their first (inner Wellington) house for $25000 (at what would have been near the peak of the early 70s boom). That is about $250000 in today’s money. I checked that same house this morning – now almost 60 years old – and an online calculator estimates a value of $755000. Sure, real incomes are higher now, but in a functioning market that doesn’t justify higher – constant quality – real house prices. How would almost any early-mid 20s couple today purchase a first home in our cities? That should be a normal and reasonable expectation – looks still to be in much of the US – but this government seems quite content to turn the vast bulk of the country into a nation of renters. I recall going to Switzerland for a central banking course about the time I bought my first house, and being told by our hosts that prices in Berne were so high that really only department heads at the central bank owned their own houses/apartments. I was shocked – and disapproving – then, but never imagined it would be the case in land-abundant New Zealand. But something increasingly close to that is the legacy of National and Labour.

I try to be even-handed on this blog, and thus I should repeat that I have no idea if National would be any better now. They weren’t last time – despite positive rhetoric then too – but perhaps this time would have been different. But it doesn’t matter. They won’t be in government for the next few years. And all the evidence is that we have a Prime Minister who doesn’t care about lowering house prices, is uninterested in spending political capital or making the case to do so, and to the extent Labour has policy ideas in this areas none are likely to deliver real house prices lower than the disgracefully high level they were even three years ago when Labour took office.

53 thoughts on “House prices

  1. It’s depressing isn’t it. I find it difficult to muster much enthusiasm at all to vote this time given I don’t think it will make any difference to the main areas I care about (housing, climate change, being able to enter New Zealand without spending two weeks in a hotel (I care less about the fee than using an entire years annual leave to make a trip worth it)) given the track record of the Government so far and their stated policies for the next couple of years. Let alone inequality, child poverty, the rest of it.

    I even saw Grant Robertson saying that National voters should give him their support because Collins isn’t as economically adept as the Key/English governments which were responsible managers of the economy. Isn’t that the lot he told us inflicted austerity on our schools and hospitals leaving them crumbling, and didn’t achieve any productivity growth? But actually they had a good record now that he wants to try win 50% this time round? Oh well. Be kind and all that.

    Liked by 3 people

  2. Michael

    You don’t have to look far to find a political reason why neither of the main parties has any enthusiasm for lower house prices. Short of a failed economy, it’s just not going to happen.

    Liked by 1 person

  3. Yes, people with current large mortgages have an interest now in avoiding a house price fall (altho that isn’t most of the population). That is why in a couple of past posts I’ve proposed partial compensation schemes for owner-occupiers – sometimes one has to compensate the losers to smooth the path to better long-term outcomes. (And with the scale of public spending this year, what used to look like serious fiscal outlays now looks more like rounding error!)

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    • “I’ve proposed partial compensation schemes for owner-occupiers – sometimes one has to compensate the losers to smooth the path to better long-term outcomes.”

      Here in Christchurch we are 10 years on from the earthquakes and there are still hundreds (if not thousands) of residents who have not had their disputed claims settled. I cannot begin to imagine the complexity, delays, legal battles, injustices and strife awaiting anyone who thought they might get some form of equitable compensation from government in a scheme of the type you propose.

      Such a scheme would overshadow the Waitangi Tribunal treaty claims in complexity, scale and significance.

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      • I set out the proposed scheme in an old post (will see if I can track it down) but it was deliberately simple, and based on verifiable information (arms-length purchases and sales) so – bad as the EQC etc situation is – I don’t think the earthquake parallel is necessarily relevant here (where the issues are around each individual property, old insurance policies, tension between EQC cover and that of private insurers, and often people with no desire to sell/move).

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      • 33% of NZ households are completely debt free and increasing exponentially. 34% have less than 50% debt and that debt is declining rapidly under this low interest regime. So it is only the remaining 33% that have high debt levels.

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  4. You have written a critique of the supply side – and fair enough. But you have nothing to say about the demand side – in particular the financialising of the house market. House owners congratulate themselves on their growing wealth while the haves get richer and the have nots are left behind. House owners, especially of multiple houses, pay no taxes on their property or windfall profits. In the context of NZ’s tax structure this is grossly unfair. Meantime the house market absorbs a greater and greater part of NZ Inc’s capital and the productive sector is squeezed for productive investment – something that you spend so much time agonising about. Join the dots.

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    • I’m not generally a supporter of a (realistic) capital gains tax, but (more importantly) more view is a pretty consensus one that a CGT would make little sustained difference to the level of house prices.

      On your final sentence, I’ve devoted various posts – altho possibly a year or two back – to making the point that we do not have over-investment in housing (given our population); instead we have too few houses. Of course, house and land prices are far too high, but that does not divert any real resources away from business investment – it is really just involves a (deeply unjust) generational transfer, forcing today’s young to the old really high prices to purchase the properties.

      But my entire macro analysis – various papers elsewhere on this site – has been about the entire direction of econ policy has skewed resources away from tradables sector business investment. It is a major issue, but I don’t see a compelling case that housing itself is a causal factor.

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      • Funny how people trot out a CGT as a solution to this problem, when all it will do is hand some of the gain created by bad policy to the drug dealer i.e. the government’s who perpetuate the gain. What better CGT to impose than one that limits the need for the tax in the first place i.e fixing the supply side as you suggest.

        Tax and re-distribute seems to be the answer to everything, new tax rates, minimum wage increases, living wage, benefit increases etc

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      • We already have a CGT. It is called the 5 Year Bright Line Test and it is almost one of the highest in the world at 33% tax. House prices continue to rise. Taxes add to cost of production and therefore add to higher prices as more taxes are added.

        The Labour Government added the 5 Year Bright Line Test at 33% and they added to tax by the Loss Ring Fencing of Investment property..

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    • “House owners, especially of multiple houses, pay no taxes on their property or windfall profits”

      Neither do the owners of Tesla and Alphabet shares, 700% and 100% respectively in the last 12 months.

      Why just focus on the owners of houses, the 12 month gain on which has been a fraction of those?

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  5. It’s not just those who have large mortgages that have no interest in seeing house prices fall. All home owners would consider falling house prices to be a loss of personal equity. If compensation was limited to those who had mortgages, then everyone else would wonder why, having paid off their mortgage, they were being discriminated against. What about mortgages on rental properties?

    I’m happy to see your suggestion, but nothing looks that simple to me.

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    • Here was my post. Recall that my aim to not to compensate all losers, but to offer enough to enable the ground of the political debate to be shifted, with some sense of “fairness” to the politically-salient people.

      As for other homeowners, my pick is that mostly they would adjust. My house – no mortgage – is twice the real price I paid for it. I’m not better off as a result and would feel no worse off if it halved (and would welcome the freedom it created for my children).

      Rental property owners aren’t very electorally sympathetic – esp to Labour govts (and the scheme was with a Labour govt in view).

      https://croakingcassandra.com/2019/04/24/reforming-housing-land-and-compensating-some-losers/

      Liked by 1 person

  6. From The Landlord Says: [2008]
    Meanwhile the National Party released its immigration policy. You may wonder what this means for the property market. It is clear from research that immigration is one of the key drivers of house price growth.
    The logic is simple. If you import more people into the country, then you need more houses. Supply and demand means that prices are then pushed up, this is particularly so in Auckland.
    While the latest immigration numbers show the number of people coming into New Zealand is starting to rise, the Nat’s policy looks like it wants to increase immigration levels even further. (Although it is unclear what sort of number they are targeting.)
    This policy is, arguably, a plus for people who want house prices to rise. (But may be not so good for first home owners wanting to buy.)
    My guess has always been that property investors lean heavily towards the right rather than the left. (This was made clear in an email newsletter I saw from one developer this week.)
    ………………
    It is outside the Overton window to connect the two now.

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    • Actually immigration is negative since March lockdown with more departing than arriving but house prices are booming. The reason is that International students do not buy houses so do not have houses to sell when they leave. They are counted as migrants.

      Returning Kiwis buy houses when they come back and we are clocking in 6000 extra Kiwis every 2 weeks. Kiwis that leave now do not sell their houses because their long term plan is to return to NZ.

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      • Kāinga Ora are buying 1,000’s of houses, This is driving the current boom. When they reach whatever their quota is prices will crash.

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      • Kainga Ora is also vacating thousands of houses leading to the homeless queue increasing each year to now 20,000. The plan was a bold one to increase the density of existing NZ housing land, but unfortunately the build process after 3 years of vacating those properties is still a work in progress. Building everywhere but just can’t finish. I am hearing complaints now that the higher density terrace house developments do not fit the typical large families of 6 or 7 of polynesian/Maori.

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  7. The median household income in Arkansas is $47,062 – so US$200K range not affordable/sustainable if based on the 3:1 ratio for well-functioning markets.

    Given the near-zero bound interest rate environment of today, that affordability measure probably needs revising. I’m not sure when it was devised but I suspect probably two decades ago.

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    • Median house price in Little Rock is about US$150K, and median household income appears to be a bit higher than for the state as a whole.

      People could certainly afford more house with real mortgage rates near zero, but the supply price is a key consideration and only the raw land price should be v sensitive to changing interest rates.

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    • It is too simplistic to relate house prices to income. It has to be about the affordability measure. $200k at 10% interest and a $50k salary is vastly different from a 2% interest rate. What we need is more dwellings built. Supply increasing by more than demand. That will deflate the market. As a previous poster pointed out, two-thirds of owners have zero to less than 50% debt so well insulated from a fall. Perhaps the new buyers could have the ability to write off “equity losses” against their tax paid so as not to be the losers?

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      • The ratio of my income to the price of my house, when I purchased it in 1990 was 1.23. The current ratio is 0.64 (income vs rating valuation). The ratio of my current income to my income in 1990 (in virtually the same job) is 3.16. So, the affordability has reduced considerably, even for the top bracket earners, even when much lower mortgage interest rates are taken into account.

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  8. Hi Michael

    Also relevant to Eric’s sigh: “Little Rock [has] a 2020 population of 197,371… Little Rock is currently declining at a rate of -0.13% annually but its population has increased by 1.99% since the most recent census [in 2010]…” (from https://worldpopulationreview.com/us-cities/little-rock-ar-population).

    The same website records Auckland’s population growth since 2010 as 21% (and not currently declining). So Little Rock’s population growth is essentially static whereas Auckland’s is far from it.

    This doesn’t distract from your central point that NZ house prices are “extraordinarily high” and NZ is failing to build enough houses, but it does ask what house prices in Auckland would be now if Auckland’s population had remained static for 10 years (like Little Rock)? In that world, while unjustified land use restrictions would still be a problem, at least they wouldn’t be driving prices up.

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    • Yes, it is a (mostly) sensible move that will lower effective – quality adjusted – prices for some, for whom a parking space has no value. But probably needs to be accompanied by proper charging for on-street parking.

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      • It’s more than just about parking spaces.

        It allows 6 stories by default in city centres and along rapid transit lines

        “Policy 3: In relation to tier 1 urban environments, regional policy statements and district plans enable:

        a) in city centre zones, building heights and density of urban form to realise as much development capacity as possible, to maximise benefits of intensification; and

        b) in metropolitan centre zones,

        c) building heights and density of urban form to reflect demand for housing and business use in those locations, and in all cases building heights of at least 6 storeys; and building heights of least 6 storeys within at least a walkable catchment of the following:

        (i) existing and planned rapid transit stops
        (ii) the edge of city centre zones
        (iii) the edge of metropolitan centre zones; and

        d) in all other locations in the tier 1 urban environment, building heights and density of urban form commensurate with the greater of:
        (i) the level of accessibility by existing or planned active or public transport to a range of commercial activities and community services; or
        (ii) relative demand for housing and business use in that location.”

        Click to access AA%20Gazetted%20-%20NPSUD%2017.07.2020%20pdf.pdf

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      • Yes, I was just responding on the car parking point. I don’t (at all) like the idea of minimum heights, but of course it is consistent with the Greens’ ambition to have people jammed into apartments.

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      • With 52 Volcanos in Auckland which has resulted in 40 million sqm of height and density limits throughout most of central Auckland, I seriously doubt we can get to 6 kevels in most of Central Auckland.

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  9. Well, fancy coming home to that lot of depression.
    My goodness.you all need to get out more in the sunshine.
    People are crying out for workers.
    Many businesses are busy as can be.
    Some are not and they have a problem but hundreds of people have moved on starting new things.
    You could look at this FB page an see that hundreds of people have new ideas and are selling stuff all over the place. https://www.facebook.com/groups/Chooice

    As for last nights poll if anyone believes that you again need to get out and about.
    I have not spoken a single person in weeks who want this govt. back. They are lying duplicitous incapable of Govt. and many people see that.
    If you ask the younger voters they are all off to ACT.

    On housing. Little Rock doesn’t have hills on an earthquake zone and nor on an uplift.
    Those houses wouldn’t last 1 minute in a decent quake let alone the wind and rain Wellington has. You need to compare apples with apples and you ain’t done that.

    Cheer up Jacinda is going down.

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    • Your comment about not meeting anyone who doesn’t want the govt out reminds me of those urban liberals in NY going “how could Trump have won, I don’t know anyone who voted for him”! On a betting site this afternoon National was paying $14 for the win – a very slight chance. (As for me, I have no real preference between the two of them).

      Re the LIttle Rock comparisons, bear in mind that the main thing that marks us out is land prices – ours are so much higher than those across much of the inland US. Your earthquake point may be relevant to construction costs – altho check out the New Madrid fault – but that is only one component of the difference.

      And bear in mind that, best we can tell, price/income ratios did tend to fluctuate near 3, even in these shaky isles, in decades gone by.

      As for the economy, the experience seems to be highly diverse. There are some sectors crying out for workers – often ones that made themselves dependent on migrant labour – and yet everyone grants that the unemployment rate is still rising strongly. We all hope that isn’t for long, but (a) time will tell, and (b) neither main party really has a serious plan for recovery and subsequent strong growth.

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      • There are some sectors crying out for workers – often ones that made themselves dependent on migrant labour –

        Well a year ago and going back they were the only workers to be had. are you saying we should not have planted kiwifruit, apples, cherries, grapes etc and just kept growing sheep?

        Our lazy lot didn’t want to shift nor to work. They rather you and I as taxpayers filled their bank accounts or found themselves soft jobs annoying the backside off businesses and individuals. Our issue was really allowing in people who we didn’t need but because life was sweeter here bought their money or lack thereof and problems with them.

        I don’t have much patience with either Labour nor the Nats. The Nats because they are uninspiring and are not that good at getting rid of bad legislation and labour because they have no idea how business works. The Nats are to beholding the Maori and the Catholics 30% approximately of our population.

        David Seymour needs more say.

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      • One can be sympathetic to individual firms, but still recognise that they had built a business model that left them too reliant on immigration. Of course, policy fed that: I’ve argued that if over time we pulled back sharply on immigration the exchange rate would also fall, allowing firms in tradables sectors the room to bid up wages to pay NZers to do the jobs. We didn’t rely on short-term foreign workers for labour a few decades back.

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  10. Took a look at the Welly market on Trademe. Anything with 3 or more beds and reasonably central looks to be around $1M now. In many cases much much more.
    Rentals? Looks to average around $230 per room equivalent. That’s horrendous, I pity the poor uni students.
    And re the earlier comment on relative build quality vs Arkansas, NZ house builds are very poor quality compared to the US or UK (having lived in both). Thin walls, weak timber, poor insulation, no central heating, single glazing etc.
    You get more bang per buck and far better quality overseas.

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    • There’s no land that can just be rolled out in Wellington anymore. Its all gone and whats left is dammed expensive to flatten and build on.
      Of Course like Auckland why in the heck would you want to live there anymore. It’s a huge disaster waiting to happen.
      Wairarapa though has lots of flat land to build on. Plenty under $500k.

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  11. MAYBE THEY DID. aT WHAT DEVELOPMENT COST. THAT MEANS ALL THE COSTS NOT JUST DRAWING LINES ON PAPER. SEWERAGE, WATER, ETC ETC.

    https://www.stuff.co.nz/national/politics/300115153/election-2020-wellington-wonks-turn-out-in-force-for-electorate-debate-on-sewerage-quakes-and-public-transport

    Read this to sum up wellington and why it is a cot case and why the rest of NZ suffers from the insufferable communists that live there.

    Have a better day today all of you.
    Oh by the way I was born and bred there. left in 1972 and wouldn’t go back for anyones money. Life is too short to live in a dump.

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      • Morning.
        Many do not anymore. Even the RBNZ is moving to Auckland in small steps. Not that that is all good as Auckland is just as bad.
        HNZ is headquartered in Auckland, all the banks, most of the industry left years ago. Many realized wht an earthquake would do.
        But don’t feel you have it on your own. The rotten sods impose a policy that affects us everywhere. We have just been stung with a rubbish collection via the council via the Chinese. We have used private contractors s for years but now the communists including the new mayor have decided to remove their property rights in favour of the Chinese. No compensation for people who have built up their businesses over 25 years, done a good job based on customer numbers. And that from our Mayor, a LT Colonel of the NZ Army. Someone who is supposed to look out for NZers. His comment was basically too bad tuff luck we are taking your rights away, get stuffed. Oh, he wasn’t alone all the other councillors rolled over to the bureaucrats as well.

        2 Ticks ACT.

        And here is a nice story.
        https://www.nzherald.co.nz/sponsored-stories/news/article.cfm?c_id=1503708&objectid=12359463

        Its raining here but have great day.

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      • Wellington is on a path towards being NZ’s Canberra. Core public service agencies have to stay close to where ministers and other agencies are, but others (public and private) will gravitate to where more people are, Private business in Wgtn is mostly either support services for the public sector, or the heavily-subsidised film industry.

        But yes, the entire country is poorly governed and – focus for this blog – that is reflected in low productivity levels and shamefully high house prices.

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  12. Fortunately one political party has a multi approach to housing and many other issues such as immigration, Labour’s globalist shut down of NZ etc.

    “New Conservative recognises that housing availability, affordability, and quality all need to be addressed on multiple fronts.

    There is no simple solution to this critical area and we need a number of initiatives. Our primary focus is on these 5 key areas.

    Supply Management: We will address the shortfall in housing supply on various fronts including:

    Resource Management Act and local government reform
    bringing more unproductive land to the market
    time-frames for undeveloped land to prevent pure land-banking
    improved and sustainable regional growth
    pre-consented plans
    review of taxation levers

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    • The New Conservatives looks like all talk and no action initiatives.

      1. RMA and local government reform. First you have to get past the Bird and Fish society, Nimbys, Greens and Heritage society
      2. Bringing unproductive land to market, 8 metres Queens chain along every river and stream, 40 million sqm of Viewshaft Volcano sensitive zones
      3.timeframes for underdeveloped land. Not when there few or any large scale development land. Most land is less than 1000sqm with a house that someone lives in. Aggregation takes a lifetime as someone lives there. Kicking them out is really not an option.
      4. Regional growth, we are already at peak cow and peak agriculture.
      5. Pre consented plans. Again scale depends on aggregation of tiny plots to get economies of scale..
      6. Taxation levers. We already have one of the highest CGT in most of the world. The 5 year Bright line test is a CGT. House prices have risen more than ever as a result of this CGT that the Labour government introduced.

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  13. My partner and I bought our first house in Christchurch just over 3 years ago. 2.5km from the centre of town, brand new town house, two bed two bath, internal access garage, fee simple title. We spent just under 400K. My brother in Auckland is looking for something similar and it just doesn’t exist for under 900k, friends in Wellington looking for something similar and doesn’t exist for under 700k. Makes me a bit sad that they can’t have what we found so easily!

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    • In Auckland, when you buy a property, most existing property pre September 2013 under the Unitary Plan allows for a minimum of 2 dwellings plus many more. You are paying $900k for the underlying future yield. Therefore it is actually $450 per existing dwelling plus $450k for future 1, 2, 3 or 50 etc in apartment and terrace housing zones stacked as high as 16 levels.

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  14. Hi Michael

    Why so little emphasis on demand-side policy (a la’ TOP)? I ask for two reasons. Firstly, all market equilibriums settle due to supply AND demand so surely the demand side has a role. Secondly, an ethical perspective. Income gets no free ride on tax; however, wealth does and it’s wealth inequality that is the real problem in NZ. It seems unfair (and unethical) that people work hard and pay taxes yet someone can sit on a property and do virtually nothing and avoid tax (after 5 years). I understand profit from the property is taxed but the fact is the huge gains (and incentives) are through capital appreciation.

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    • I don’t put that much weight on the demand side because in a well-functioning market, it wouldn’t make that much difference to price (there is lots of land, and adding building capacity over time isn’t that difficult). in the world we live in of course demand pressures exacerbate the problem, and among those pressures I particularly emphasise high rates of immigration.

      On tax, I’m fairly ambivalent. There are significant problems with a CGT, and it won’t solve the housing market problem. There is a fairness argument, but again in a well-functioning market (inflation-adjusted) losses would be about as common as gains.

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  15. Thanks for the reply. Yes I thought about the immigration point after reading more of your posts and it makes sense. And I also appreciate that a CGT wouldn’t solve things as it doesn’t seem to elsewhere (ok so gains v losses would neutralise tax effect). Feeling disillusioned this election, no party seems to have the right policies or political courage.

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