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The housing bubble

Written By: - Date published: 8:38 am, April 20th, 2014 - 176 comments
Categories: greens, housing, labour, national, same old national, Steven Joyce - Tags:

housing is a right

A recent article by Jesse Columbo in [published on the website of] that doyen of capitalist magazines Forbes about New Zealand’s housing market is a very interesting if somewhat terrifying read.  Although he is not the first to claim that our property market is unsustainable he says there is clearly a housing bubble.

American Economist Nouriel Roubini stated last year that New Zealand’s housing market was potentially toxic and was in danger of suffering a calamity.  Another American Economist Harry Dent has forecast a 30% to 50% correction once the Chinese Housing market also corrects from a bubble.

Columbo’s reasoning is compelling.  The following is a gross simplification of what he is saying but I believe the gist is clear:

  • Interest rates have been at an all time low for the past 5 years.
  • Property prices have doubled since 2004.
  • New Zealand’s home price-to-rent ratio is 77 percent above its historic average and its home price-to-income ratio is 26 percent above its historic average.
  • Our mortgage bubble has grown from $70 billion in 2002 to $186 billion in 2013.  That means that we pay the thick end of $6 billion a year more primarily to Australian banks.
  • Mortgages account for 60% of banks’ loan portfolios which could mean carnage if and when the bubble pops.
  • Australian and Chinese buyers are inflating the bubble.  Chinese buyers in particular who have access to 1% interest rates are able to justify spending significant amounts on New Zealand homes.  If the Chinese market goes and loans are required to be repaid quickly then a fire sale is on the cards.
  • Government debt has tripled since 2008.  If global interest rates increase then it is going to hurt.
  • New Zealand’s exchange rate is overvalued.  A sharp correction will almost inevitably cause an increase in interest rates.

The consequences of a bust are also clear.  Overleveraged borrowers will go broke, credit will dry up and unemployment will increase.   As Selwyn Pellett has been saying for years the basic problem with the New Zealand housing market is that more and more people are borrowing more and more money from Australian Banks to buy the same houses off each other.

This is scary stuff.

And the failure of the housing market can clearly be seen now.  Out west a modest three bedroom home in Glen Eden sold recently for $600,000.  A friend’s son has become one of the few young people I know who has been able to buy a two bedroom major fix up home for $425,000.  Our next generation must be wondering if they are ever going to own a home of their own.  And meanwhile with increasing values there is a comparable increase in rentals and many people are being rented out of the market.  If they are unemployed they could head for the country but no doubt it will be claimed that they are avoiding work and their benefit will then be taken off them.

National’s response to Columbo’s article are typical.  Stephen Joyce this morning attacked the messenger and called him an alarmist.   Obviously according to Joyce there is nothing to worry about.  And obviously it would be politically unpopular to even acknowledge that for the common good the value of peoples homes should be reduced.  Bernard Hickey said that the issues were real but that the talk was somewhat alarmist.  Both men miss the point though.  If there are these structural problems then something should be done.

You would think that the prospects would have any responsible Government taking urgent action to correct what is clearly a badly performing market.  Regrettably National’s approach seems to be:

  1. Deny there is a problem.
  2. Allow more urban sprawl.
  3. Stop most young kiwis from being able to afford to buy a home.
  4. Blame Labour.

Labour has a variety of policies which can address the problem.  These include the following:

  1. A capital gains tax on all homes apart from the family home.
  2. Kiwibuild – 100,000 affordable homes in the next decade.
  3. Restricting foreign speculators’ ability to buy residential property in New Zealand.

The Greens’ policies are similar.  They want to:

  • Reduce speculative investment in the housing market by tightening the rules around loss attributing qualifying companies and introducing a capital gains tax on all but the family home.
  • Increase peoples ability to save for a deposit and service a mortgage by increasing the minimum wage to no less than 66% of the average wage.
  • Introduce a Universal Child Benefit that can be capitalised towards the child’s first home.
  • Increase provision of low interest financing for low-income households seeking home ownership
  • Shift the standard tenancy conditions towards more secure and predictable tenure arrangements.

I hope that Columbo and Roubini and Dent are wrong.  But just in case the Government should be doing something to address what clearly is a major threat to New Zealand’s economy.

176 comments on “The housing bubble”

  1. Paul 1

    The issue isn’t just a housing problem. Our overall economy is about to tank. “Rock star economy.” Haha. It would a joke if the impacts weren’t so serious for ordinary NZers.

    I hope some of the corporate media apologise for their repetition of the National Party’s political message. Maybe some honesty now from the Herald about how much this government gas dragged us into debt, rather than the disingenuous reporting of a future budget surplus. A report detailing how Bill English has laid waste to the NZ economy under his watch. And an article describing how John Key has sold it to any wealthy corporate to loot.

    When is this country going to wake up?

    • Tc 1.1

      Yes that rockstar economy which has the predictable second album coming to the final track and an imminent breakup as the core players are fighting amongst themselves, leaving or preparing for life after the parliamentary trough.

      NACT have wilfully fuelled the bubble by not implementing CGT or preventing overseas speculators snapping up akl houses, I know many who have indulged based on the absense of a CGT.

      An auction this week on a house that went for 3times it’s mid 90’s price was being fought over by Chinese, Korean and others bidders backed by limitless funds and 1% interest, hardly a level field for first home kiwis seeking a foothold.

      Blinglish mates at the reserves new rules have just pushed the top end up and squeezed the bottom end so congrats bill, job done mate.

      • Paul 1.1.1

        His actions border on treason.

      • mickysavage 1.1.2

        Spot on TC. Those 1% interest loans are a killer and make all the difference. They chance the buying dynamic and until those rates rise more and more of the country is going to be sold to overseas interests.

      • greywarbler 1.1.3

        Steven Joyce is busy on radio making sneering comments about this guy from Fortune magazine that is offering warnings. But Joyce doesn’t want to take up the offer. The guy says we have a housing bubble and with rising interest rates we are likely to pop our bubble gum, and get that messy sticky stuff on our faces.

        But apparently we have very low government debt. How can this be when the gummint is borrowing to keep us going? Are they working on a two-trunks under the bed system. One full with gains and bubblegum, and the other with all the financial statements of a holding company called New Zild based somewhere offshore showing that it is just about bankrupt?

        Incidentally strange about housing – my neighbours have had a townhouse on the back of a two unit crosslease title on the market for over 9 months. They have reduced the price considerably, it’s QV or below but it won’t sell though it’s handy to the city. It has steps up from the flat street level so not prime for older people (slips, falls), has own garage, in good order, good neighbour.
        I think the low deposit situation has closed down opportunities for starter couples. No-one has been living there all the time it’s been for sale. I think no-one expected it to be rejected like this.

        See Radionz.
        http://www.radionz.co.nz/news/political/242126/joyce-pours-scorn-on-bubble-prediction
        “Associate Finance Minister Steven Joyce is scornful of suggestions that New Zealand is experiencing an economic bubble that might burst.
        He says New Zealand’s recovery is solid and broadly based.

        The prediction of a collapse came from an American economic commentator Jesse Colombo, writing in Forbes magazine….

        He added Mr Colombo has picked on housing in this country, but ignored other advantages like improving trade balances and low public debt..”

        • karol 1.1.3.1

          I thought private debt has long been NZ’s biggest economic problem (in terms of conventional capitalist economics)?

          • greywarbler 1.1.3.1.1

            That’s been stated for some time, that NZ government debt had been reasonable and that private debt is the cause of our current a/c deficit. (I think I have got that right – feel free to correct.)

            I went to wikipedia on the trail of our govt debt relative to others.
            Quite interesting how high to GDP the big countries are.
            Here are some I noted – all for 2012 unless stated.

            Public debt as percentage of GDP
            (CIA figures – USA Central Intelligence Agency.)
            UK 90%
            USA 72.50
            China 31.7

            Others
            Greece 161.3
            Portugal 123.6
            Spain 85.3
            Russia 12.2
            Ukraine 38.8

            Ireland 118
            Iceland 118.9
            Norway 30.3
            Finland 53.5

            Singapore 111.4
            Australia 29.30
            NZ 41.8

            Germany 2013 79.9
            Switzerland 2011 52.4
            Netherlands 68.7
            Vietnam 48.2
            Venezuela 49

            Nigeria 18.8
            Chile 10.1

            World 64

            So we are middling to low. Similar to Venezuela which I think has oil. And they are having economic troubles. If you are powerful or dynamic like Singapore financially, it seems that you can carry a lot of government debt and just play with the levers, but we need to be nearer Australia surely, above Chile but we both are mainly agricultural so near 30 maybe would be wise to aim for.

            And some stuff from Stuff on NZ, 9 November 2013.
            Government debt has reached $60 billion, having climbed $27 million a day since John Key became prime minister – and forecasts show it will rise for years to come. …

            It already equates to 28 per cent of New Zealand’s economic output, is more than $13,000 for every person in New Zealand and is forecast to climb by another $10b by 2017

            When National took control of the Beehive in 2008, debt was just over $10b, but Finance Minister Bill English said it inherited an expanding public sector at a time when the economy was shrinking….

            Labour finance spokesman David Parker said that in the first update after National become government, debt was forecast to be $45b in 2013, and only a third of the difference related to the impact of the earthquakes. http://www.stuff.co.nz/national/politics/9380846/Public-debt-climbs-by-27m-a-day

            http://www.interest.co.nz/news/59689/nzs-low-public-debt-means-govt-has-scope-delay-201415-surplus-imf-says-global-economy-wid
            8 June 2012
            And on a report by the IMFBased on its April mission, the IMF forecast New Zealand’s current account deficit widening to 7% of GDP over the “medium-term,” and its net external liabilities widening to 90% of GDP in 2017. At the end of December 2011, New Zealand’s net external liability position was NZ$147 billion, or the equivalent of 72% of GDP, according to Stats NZ.

            The New Zealand dollar would need to be weaker than its current level to contain this increase and limit a further buildup of foreign liabilities over the longer term, the IMF said.

            Some sources of opinion on housing affordability:
            http://www.interest.co.nz/category/tag/housing-affordability

            • poem 1.1.3.1.1.1

              Those figures are afew years old. I was under the impression that govt debt is closer to 76b+ and I certainly wouldn’t call NZ’s debt thats been racked up since national came power as “middling to low.” and the amount national have borrowed thus far, every NZer should be a millionaire a few times over !!!

  2. BM 2

    They don’t miss the point at all, this young guy makes his money being alarmist.that’s his specialty.

    He’s a doomer and besides no one has a crystal ball no one really knows whats ahead and it’s foolish to think that you do.

    Best to just use common sense and go with the flow.

    • mickysavage 2.1

      And Roubini and Dent? And don’t you think that the data should be addressed rather than the messenger attacked?

    • Paul 2.2

      Another economist who says our housing market is a bubble earlier this year.

      “Harry Dent has predicted some of the worst market crashes in recent history, including the decade-long economic slowdown in Japan in the 1990s and the 2008 global financial crisis.
      Now, he is predicting property prices in New Zealand will fall between 30 to 50 per cent in the next few years.
      Speaking from Australia – where he is promoting his latest book, The Demographic Cliff, and talking at seminars – Dent said New Zealand was in a property bubble that was ready to burst.
      He said the bubble was being propped up by baby boomers, immigration and foreign buyers, especially from China.
      Mr Dent predicts the next global financial crisis will see the unwinding of commodity prices. That would be bad news for New Zealand’s export-led economy, he said.
      The crisis – which Mr Dent predicts could start as early as this year – would be a major depression rather than a recession, he said.
      “China is holding up real estate, especially in Australia and New Zealand, and one of the reasons is the rich Chinese are getting out of the country.”

      BM’s solution. Ignore all warnings, as people did during the derivative boom….

      http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11207102

      • Paul 2.2.1

        And Roubini wrote in the Guardian in December 2013.

        “It is widely agreed that a series of collapsing housing market bubbles triggered the global financial crisis of 2008-2009, along with the severe recession that followed. While the United States is the best-known case, a combination of lax regulation and supervision of banks and low policy interest rates fueled similar bubbles in the United Kingdom, Spain, Ireland, Iceland, and Dubai.

        Now, five years later, signs of frothiness, if not outright bubbles, are reappearing in housing markets in Switzerland, Sweden, Norway, Finland, France, Germany, Canada, Australia, New Zealand, and, back for an encore, the UK (well, London). In emerging markets, bubbles are appearing in Hong Kong, Singapore, China, and Israel, and in major urban centers in Turkey, India, Indonesia, and Brazil.

        Signs that home prices are entering bubble territory in these economies include fast-rising home prices, high and rising price-to-income ratios, and high levels of mortgage debt as a share of household debt. In most advanced economies, bubbles are being inflated by very low short- and long-term interest rates. Given anaemic GDP growth, high unemployment, and low inflation, the wall of liquidity generated by conventional and unconventional monetary easing is driving up asset prices, starting with home prices.”

        http://www.theguardian.com/business/2013/dec/02/housing-bubble-bust-recession

    • Tracey 2.3

      the emperor has no clothes bm

      • One Anonymous Bloke 2.3.1

        All the people who say that are alarmist doomers! It’s impossible to know what will happen. Winter might not follow summer.

  3. Such an extensive analysis of the article, related policies and subsequent Stuff responses published this morning is an impressive effort, but a small point from the opening sentence:

    A recent article by Jesse Columbo in that doyen of capitalist magazines Forbes…

    In the stuff article linked to:

    Hickey added that it appeared Colombo’s article had not been published in Forbes magazine proper, which was important when judging its credibility. Instead it was published on the Forbes website with a disclaimer saying Colombo’s opinions were his own.

    • karol 3.1

      Hmmm… yeah. But Forbes Magazine does tend to be a right leaning publication with links to the Republican Party.

      • BM 3.1.1

        It’s means the guys article was just opinion and website filler.
        Opinions are like arseholes, every one has one.

        • RedLogix 3.1.1.1

          Let’s compare the arguments and evidence made in Columbo’s article, along with his relevant track record of expertise – with the attempt at same you have just made BM?

          I’d suggest you have just made a bigger opinion of yourself than Columbo.

        • karol 3.1.1.2

          Or, it means the editors wanted to keep it on the margins of debate, contained in an op ed box, in spite of it including a range of supporting data.

        • Paul 3.1.1.3

          Charming, as ever.

        • ffloyd 3.1.1.4

          Bm Have you noticed that jkey starts most of his sentences with “In my opinion”

        • Tracey 3.1.1.5

          and yet hes more expert than say slater or farrar to express an opinion on this topic…

        • fender 3.1.1.6

          “……..everyone has one”.

          Nah, I suggest you have them in abundance, similar to how some teens have acne..

        • dave 3.1.1.7

          so having a housing market the 3rd most expensive in the world is not a problem bm you continue with i love John key fan boy comments . its an inconvenient truth and typical nact fan boy you get nasty and blame every one but yourself s.

    • Draco T Bastard 3.2

      I note that everything that PG says has never been published in Forbes magazine and thus has no credibility.

      /sqarc :roll:

  4. vto 4

    People who think rising house values are a good thing are nuts and fools. There are no net benefits to rising house values – it is only a negative.

    • Tc 4.1

      Yes wait till the top end start screaming as rortneys rates relief measures expire and they start copping full supershity rates based on their soaring values.

      I see inorganic collections are now cancelled in akl, one less service for higher rates, nice.

  5. Ergo Robertina 5

    A line that’s worked well in the past couple of years is that housing affordability is only a serious issue in Auckland and Christchurch. It’s been constantly repeated in the media, including by Opposition MPs. It’s obscured the issue of the huge international credit bubble threatening New Zealand with an illusion that domestic factors are the main driver.

    • Paul 5.1

      Totally agree. The corporate media has misrepresented events to suit their owners.
      Little has been said also of the amount of debt this government has got us into.
      You hear about the potential of a budget surplus. You don’t hear how much the country now owes thanks to the mismanagement of the economy by Key and English. Government overseas debt has nearly tripled since 2008.
      The Labour Party sadly is still a supporter of neoliberalism.
      When will NZers wake up to the truth of what’s going on in this country?

      • dave 5.1.1

        its just not government debt its total debt the article is talking about sum total of all debt that will take us all out people total debt is 450 percent of GDP its huge and unplayable on nz incomes !

  6. RedLogix 6

    This is the one that pisses me off:

    Chinese buyers in particular who have access to 1% interest rates are able to justify spending significant amounts on New Zealand homes.

    Exactly how the hell is that happening? Why are we allowing Chinese banks to giving essentially free money to their citizens to buy NZ assets?

    And why cannot New Zealanders access this money? Why do we have to pay 6-7% for exactly the same asset?

    • tc 6.1

      The game is all about money and control RL, houses, infrastructure (power gen’s), farms, citizenship etc all you need is cash under the nact regime either up front or via a ‘charity’ like the waitemata trust.

      ‘Why are we allowing Chinese banks to giving essentially free money to their citizens to buy NZ assets….’ a great question to the nact by all and sundry running into the GE.

      Foreign ownership (i.e. control) of property, infrastructure and industry, selling out education to failed overseas dogma, labour laws for sale, TPPA etc all it took was 2 terms.

      a 3rd term under nact will decimate middle NZ, which will be job done for the hollow man having hollowed out NZ and handed it over to their backers.

      • Paul 6.1.1

        Tragically, you write the truth.
        A sad end the country created by Michael Savage’s generation.
        The plutocrats are taking over the world and we are returning to the times of Dickens.

  7. Even if Colombo (and everyone else) is being alarmist, I’m inclined to agree with them. Because the problem is, I don’t see these issues being taken seriously by our government (which has done bugger-all to address house prices) or our media (which continues to breathlessly report every record-breaking house price like it’s a good thing, unless of course the purchaser looks like a foreigner).

    I’m sure before every major crash there’s someone who was saying ‘Um, guys, we have a problem’ who was dismissed as alarmist, a crank, a conspiracy theorist.

    • Paul 7.1

      Yes the Herald normally sounds like an outlet for the NZ real estate industry.

    • And I’m sure the number of people who say ‘Um, guys, we have a problem’ greatly outnumber crashes.

      We certainly have problems and potential crashes, always, and must be forever vigilant. But most of the time crashes are avoided. If I understand Greg correctly he seems to think Labour and Green policies would help avoid a crash – so it’s possible National policies could also help avoid a crash.

      Unless the crash is global in which case we can’t do anything but ride it out as best we can.

      • Paul 7.2.1

        Incorrect. We have some control.
        We can position the country better in the case of a world economic crisis.
        Being more local and less global for a start.
        We can nationalise banks.
        We can own our own assets.

        But I think you knew that.

        • dave 7.2.1.1

          you can only control your own situation the last 2 years i have spent retiring all debt you can see
          signs are everywhere loan sharks pay day loans ,mortgage mountain, credit card debt,student loans ,farm debt, local body debt company debt Colombo just pointed out what was hidden in plain sight as a country collectively we are broke! again 1984,1984.1984,1984,1984,1984

          • Paul 7.2.1.1.1

            You are right; individually , we can try to control our levels of debt.
            Countries can do things as well.
            Not signing agreements like the TPP retains more sovereignty and control.
            The banks hates countries like Venezuela and Iran because they are not under their control.

      • anker 7.2.2

        Crash or not surely NACT should have intervened, because an equally important issue as far as I am concerned is housing affordability.

        Nact have done nothing to address this.

      • RedLogix 7.2.3

        If you have no clue as to the root cause of asset prices bubbles – then I imagine the idea that ‘nothing can be done’ has some appeal.

      • Tracey 7.2.4

        how many crashes since the great depression and how many since 1980.

        auckland house prices double every ten years… is the saying up and has been since the middle 70s.

        its the relationship/% of rent/mortgage to income that is killing.

        nats have made everyone fixated on reaching surplus.. which is a hat tip to cullen, of sorts.

        pete you seem so fatalistic.. hands in tge air about many things.

      • How do we know ‘most of the time crashes are avoided’ if they don’t happen, Pete? Or is this another time when you just have ‘common sense’ on your side instead of actual citations?

      • mickysavage 7.2.6

        I am saying Pete that National’s lack of policies will not help avoid a crash and makes it more likely to occur. Do you think that the Government is doing the right thing by sitting on its hands?

        • dave 7.2.6.1

          crash happen when there is a mad rush for the exit by that time Elvis has long since left the building

        • poem 7.2.6.2

          No, they are not Mickysavage, the nats are doing what they alway do, deny there is even a problem !!

  8. tsmithfield 8

    The article is quite self-contradictory and omits a number of relevant facts.

    It ignores the impact of the Christchurch rebuild that will positively impact the NZ economy for the next 10 years.

    On one hand he expects interest rates to rise. On the other hand he expects the currency to fall. However, rising interest rates tends to be supportive of a higher currency. So long as the differential remains between NZ interest rates and the rest of the world, then the NZ dollar will remain strong.

    The article ignores the fact that, although the RB is projected to raise interest rates, it therefore has plenty of headroom to drop rates again if things start heading south.

    The author points out that we have a high percentage (50%) on floating mortgage rates, but ignores the end part of the graph he refers to which shows a major dip in those on floating mortgage rates. This is clearly because the RB has been flagging increasing interest rates for quite awhile now. People, generally not being stupid, and motivated by self-preservation, have been switching to fixed mortgages. This continuing trend means the percentage exposed to floating interest rates will continue to drop, reducing the effect of floating interest rate.

    The author ignores the impact of demographics. Trends in recent times show increasing migration into the country. This means higher demand for housing which is supportive of housing prices.

    The author predicts the Australian economy to burst and therefore impact New Zealand. However, he ignores the effect this will have on Kiwis returning back to NZ (as is already happening) resulting in a further increase in migration back to NZ, along with capital inflows, therefore supportive of both the NZ dollar and house prices.

    In short, the article is sensational, self contradictory, and light on facts.

    • Tracey 8.1

      but if labour were in govt you would agree with it.

      • tsmithfield 8.1.1

        You’ve got me there! I have to admit that would be a unique circumstance where all of the predict outcomes could happen at once. :smile:

      • mickysavage 8.2.1

        BM and TS why don’t you address the data rather than attacking the messenger?

        • tsmithfield 8.2.1.1

          Actually, I did address the data. I don’t see to much in the way of personal attacks in anything I said. On the other hand, you just seem to be repeating his comments without much in the way of analysis at all.

          Here is another contradiction in his argument. He argues that the housing bubble is due to the current low interest rate regime. On the other hand, he points to the bubble occurring over the period starting 2004. From that starting point, and for four-five years after, interest rates were around 8%. So on one hand he provides evidence that house prices were increasing while at 8%. Yet on the other hand, he argues that interest rates increasing to around that level again will cause the market to crash.

          How about you apply some of your intelligence to actually addressing the points I made rather than accuse me of adhom. attacks that I didn’t make.

      • dave 8.2.2

        bm gfc is still with us it aways was its a slow moving train wreak it just taken a few years for the tide to come in down under

    • Do you know what else ‘ignores the impact of the Christchurch rebuild’? Our Government, every time they claim credit for economic growth.

    • The Chairman 8.4

      @ Tsmithfield

      The Christchurch rebuild is largely being funded by inflows of insurance payouts and increasing debt.

      Over the next 10 years increases in insurance premiums and debt repayment will largely eat away those gains.

      We’re all expecting interest rates to rise due to inflationary pressures.

      He expects the currency could possibly fall due to the Fed’s tapering. That being the case, interest rates would require to further increase to continue to attract capital inflows, which reduces that scope of lowering interest rates to compensate.

      Loans are being fixed at higher rates. Moreover, loans are not fixed for the duration, hence fixing merely delays the full negative impact of higher interest rates. It doesn’t negate it.

      While higher housing demand will help support house prices, in our low supply market it would also drive prices up. Resulting in more inflationary pressure and the negative impact of even higher interests rates.

      The variables he highlighters could align and result in a falling dollar and higher interest rates. Hence, it’s not a contradiction, its a possibility, depending on how the wider economic variables play out.

      In short, the article is only the key points and not a full report.

  9. Jack 9

    Very difficult for 1st Home Buyers to compete with 1% interest rates out of Asia.

    I don’t understand why here in NZ we have the highest interest rates in the 1st World Countries and record Bank profits, increasing interest rates only benefits the Banks what about the productive sectors of the economy?

  10. jh 10

    The Savings Working Group blamed tax breaks for property investors and immigration:

    Savings Working Group
    January 2011
    “The big adverse gap in productivity between New Zealand and other countries opened up from the 1970s to the early 1990s. The policy choice that increased immigration – given the number of employers increasingly unable to pay First-World wages to the existing population and all the capital requirements that increasing populations involve – looks likely to have worked almost directly against the adjustment New Zealand needed to make and it might have been better off with a lower rate of net immigration. This adjustment would have involved a lower real interest rate (and cost of capital) and a lower real exchange rate, meaning a more favourable environment for raising the low level of productive capital per worker and labour productivity. The low level of capital per worker is a striking symptom of New Zealand’s economic challenge.

    – Serious consideration of the impact of the level and variability of immigration on national saving, and the impact that this might have on the living standards of New Zealanders. There are indications that our high immigration rate has pushed up government spending, house prices and business borrowing.

    http://www.treasury.govt.nz/publications/reviews-consultation/savingsworkinggroup/pdfs/swg-report-jan11.pdf
    A recent Treasury Working Paper says the same thing

    On balance, the available evidence suggests that migration, in conjunction with sluggish supply of new housing and associated land use restrictions, may
    139
    have had a significant effect on house prices in New Zealand.

    http://www.treasury.govt.nz/publications/research-policy/wp/2014/14-10

    80% of population growth of the last 20 years has been from non NZ citizens. So people leave when things are bad but it is the topping up which has come from off shore which has created that statistic.

  11. jh 11

    A lot of what goes on in our economy could be described as capital gain mining. Land value based taxation might deal to a lot of the incentive.

  12. Rosie 12

    Thanks for posting on the Jesse Columbo article Mickey. Mr R and I were a bit freaked when we read it on stuffed yesterday. (And surprised to see such an article on stuff as well) Joyce’s response to it was predictable and lol no, he couldn’t support the content of the article could he!

    We wonder where such a bursting bubble leaves households like ours with only one income (I’m out of work) with 28 years left to pay a mortgage that we put an 7.8% deposit down on and we’re in our 40’s! We are holding our breath till September when our fixed rate of 4.89% ends, and as it is, we already live week to week with nothing left over.

    At the moment we feel the security of our home is at the whim of the banks and that they have far too much power over the ordinary NZer. NZer’s have they not, been thrown into the winds of “market forces” with little government intervention or regulation to support the easy access of NZer’s to affordable housing, whether it be rented or owned?

    • RedLogix 12.1

      We wonder where such a bursting bubble leaves households like ours with only one income (I’m out of work) with 28 years left to pay a mortgage that we put an 7.8% deposit down on and we’re in our 40′s

      Fuck me Rosie – that sort of loan should be illegal predatory lending. Shameful.

      For those of you who thinking nothing can be done about house price bubbles here are the three steps needed to stop them in their tracks:

      The RB uses it’s regulatory power to limit bank lending to no more than 12 times the annual imputed rental value of a property. Currently they are lending anything up to 24 times that value. The reason why this works is that the rental value of a property can be quite accurately determined by valuers and it’s usually closely linked to real wages and actual use value.

      In order to prevent a property crash the RB phases in this limit by dropping the number by 1 every year, ie next year the limit is 23 times, the year after 22 times and so on. This lets normal inflation do most of the work for you and within a decade house prices are affordable again without anyone being hurt (except of course the bank shareholders who will hate it).

      Limit all residential property purchases to NZ residents only using NZ bank money only.

      Limit all table mortgages to no more than 18 years. That measure alone would force interest rates down.

      Existing overseas owners pay a 1-2% stamp duty tax per annum on property they already hold.

      If we did all these things there would be no need for a Capital Gains Tax – because there would be no capital gains.

      • greywarbler 12.1.1

        RL
        I remember that you had or still have rental properties. Were you saying that somebody trashed one recently? It’s useful to have knowledgable sensible ideas coming.

        So your ideas would work, because of all you know about the sector. The idea of the sinking lid policy to prevent sudden loss of stability in the market is wise and doable.

        • RedLogix 12.1.1.1

          Thanks gw.

          The property remains empty. We just don’t have the time or money to do anything about it at the moment. What actually hurts most is the breach of trust we put in the tenant involved – it’s a longish story and ultimately it’s going to be his loss not ours. We’ve only lost some money – he’s no longer trusted by anyone in town.

          Another critical measure that would be really worthwhile is to greatly improve the transportability of mortgages. The average household moves about once every five years or so, and most times they finish up refinancing with a new loan – which resets them to the start of the mortgage table again.

          If they continue to do this four or five times over 20 years or so – they will still have a sodding great mortgage and not have paid down much principle at all. If the banks however were required to transport existing mortgages onto new properties and retain the current schedule – this would hugely reduce the total amount of interest households pay.

          Most people would be very well advised to spend some time playing around with a mortgage calculator and learn how table mortgages really work.

          • greywarbler 12.1.1.1.1

            RL Yes include that in the bright ideas list that is doable. Transferable mortgages are used in other countries – which? I don’t know but I believe I have read about them so someone else can look that up as I have to get dinner pronto.

            Time is passing and I have been here for ages. Hope I have done some good today.

          • Lanthanide 12.1.1.1.2

            Another critical measure that would be really worthwhile is to greatly improve the transportability of mortgages. The average household moves about once every five years or so, and most times they finish up refinancing with a new loan – which resets them to the start of the mortgage table again.

            There’s no problem here other than mistakes made by the borrower.

            If you sell your property and buy another one that cost exactly the same as the one you’re selling, and the mortgage on your current property had 25 years left to run, it’s entirely your choice what mortgage term the new property would have – be it 25 years or 30 years. If you foolishly chose to have a 30 year term on the new mortgage, your repayments would be slightly lower, to be made up for with heaps more interest cost in long term. But it also means you get to “party” on the extra freed up money now.

            If the new house you’re buying costs more than your current one, which is usually the case, then that’s a good chance you would be needing to extend the term out to 30 years rather than 25, so that you can actually afford the repayments.

            • RedLogix 12.1.1.1.2.1

              There’s no problem here other than mistakes made by the borrower

              Except it is a mistake the banks are quite happy for their customers to make. I don’t know about you but I’ve never had a bank proactively explore the possibility of transferring a mortgage with me.

              If the new house you’re buying costs more than your current one, which is usually the case, then that’s a good chance you would be needing to extend the term out to 30 years rather than 25

              Lets say you currently have a $300k mortgage that is 10 years into a 20 year term. and you want to move to a $400k property. It should be possible to transfer the existing $300k to the new property and then top up the remaining $100k with a new loan consisting of a $20k deposit plus a $80k new loan. (I’ve neglected any equity you have in the first property for simplicity.)

              That’s my other big bug-bear. The optimum period for a table mortgage is actually about 15 years. If we regulated against terms longer than 18-20 year (and anything longer really pumps up the total interest paid to obscene levels) – then in order to keep repayments affordable banks would have to cap interest rates much lower than they are now.

              Put this the other way around – banks only get away with interest rates greater than 7% by stretching out the total terms. It’s a disgusting confidence trick really.

              • Lanthanide

                Lets say you currently have a $300k mortgage that is 10 years into a 20 year term. and you want to move to a $400k property. It should be possible to transfer the existing $300k to the new property and then top up the remaining $100k with a new loan consisting of a $20k deposit plus a $80k new loan. (I’ve neglected any equity you have in the first property for simplicity.)

                You haven’t actually said anything different than what I said.

                Assuming the borrower can make the required repayments, there is absolutely nothing stopping them from choosing to structure the lending on the new property in the manner you have described. There is no legislation required here – what you want is already possible.

            • greywarbler 12.1.1.1.2.2

              Lanthanide
              Why use the term party. You often take the didactic, demeaning approach with judgmental topping, when talking about things. Can you try to be a bit kinder to fellow humans please, and allow for the condition in your dispasionate statements from above.

              • Lanthanide

                I used the term party with quotes specifically to distance from if I had said party without quotes.

                By using quotes, I am borrowing the terminology used by others when discussing these sorts of things (see interest.co.nz and propertytalk.co.nz), but not actually saying it myself. Furthermore the reason I put quotes around it was to imply that you wouldn’t necessarily be partying with the money, eg it could be used for other productive or necessary purposes.

                Obviously I can’t expect anyone else to know my thinking behind using the term in the way I did, on the internet, but those are the reasons I used it, specifically with the quotes around it.

                • greywarbler

                  Thanks Lanthanide, the word use lessened the understanding of your analysis to me.

      • Foreign Waka 12.1.2

        Over and above, abolish the taxpayer guaranty for banks and financial institutions. I do belief however, that a capital gains tax would lead to a better outcome as foreigners would not buy up as they do now, especially large sections or prime farm land and tax income would increase. There should also be a percentage of council flats available for people on low wages. The rent needs to be pegged against the income.

      • DAVE 12.1.3

        affordable housing is defined as no more than 3x annual income ,banks should be regulated anything above that is unaffordable and totally immoral .FUCKIN HOUSING SHOULD BE FOR SHELTER NOT THESE STUPID FINANCIAL GAMES THAT ARE GOING to SERIOUSLY WREAK LIVES.
        us collapsed at x5 annual income Auckland must be around a factor of 11 to 12 by now I it was 10 2 years ago. imf rates NZ as critically unaffordable.
        house pricing rising isn’t a problem if income is rising as well but we have as a country fucked that one to.
        those of us like Rosie who come after the baby bloomers we have been collectively screwed .

        • Rosie 12.1.3.1

          +1 Dave. Housing for people not the benefit of banks.

          Thanks for your acknowledgement too. The only people that can buy houses easily enough in this country are those at the top of the ladder. It’s not like we had a choice in taking on a 30 year mortgage at our age. God knows what is going to happen in the future. Illness and unemployment were part of the difficult circumstances, otherwise we wouldn’t be struggling quite as much as we are.

    • greywarbler 12.2

      Rosie
      It seems to me that for some time hence, that NZs without houses or straining to get into one and avoid being the jam on some owners bread and butter, should be able join a special club/social grouping that brings together like- minded individuals. This would give opportunities to meet compatible people who could then end up buying a house between them.

      I would imagine there are already legal templates that cover the situation when someone wants to buy themselves out of joint ownership. And in this scenario there would usually be another in the social grouping that could be found to take their place. It would be a little like letting a room, as far as the sharing goes. But there would be a commitment, it would be a longer term thing, and the ambience would be of an extended family.

      The people who had bought the house might be regarded as the ‘head owners’ and a new person or persons, would be the secondary owners who would have to move if unhappy, but on fair terms. Or the person, or people, who put down the major deposit could be stated as the head owners. It could be done, it would just need to be thought out and planned properly. The opportunity of getting to know people in the group first would mean that most deals would be harmonious. If not there would be a mediation system, and a legal means of getting out.

      We have to change to help ourselves. The past commitment to helping people into their own house has dropped away, and a large deficit has built up. Labour could once again offer low mortgage rates at least for the first ten years, plus a reasonably low deposit, once a savings record had built up in Kiwibank. And of course monthly help with a child allowance for the first three children, one of which could be capitalised towards the house would be a good return to helpful practical policies for families.

      • karol 12.2.1

        Or we could just move away from this idea that we all need to own property. Myself, I have no interest in doing so.

        Joint ownership of property may appeal to some, but not necessarily everyone.

        • greywarbler 12.2.1.1

          karol
          Housing of different sorts is needed. And different methods of establishing individual rights to it rental or what. So something for everyone, if there is sensible planning that meets public approval, people’s input should be encouraged to see what is required.

          • karol 12.2.1.1.1

            Yes, there needs to be a range of possibilities – state/council housing, private rentals, and various ownership options. At the moment, too much stress is put on everyone trying to own.

            I have heard said that younger people now are less in to home ownership (from necesssity) and also less into owning/driving cars. That may not be a bad shift. It may mean they are open to a wide range of alternatives.

            • bad12 12.2.1.1.1.1

              True Karol, but while the equation home-owner/ home renter is still in demographic terms still in favor of the owner the politicians will be reluctant to change anything,

              When the demographic swings the other way, renters outweighing owners by a larger % in the population then and probably only then will the ‘political process’ begin to address the cost to not only people but the economy itself,

              Until that swing occurs the renters in society will remain an un-noticed, unreported on demographic…

              • bad12

                As a hint to what might occur under the current model of housing as far as rentals goes i take a line i read in a Herald editorial,(sorry haven’t got a link, it was last week sometime),praising the current Government’s dismantling of State Housing and extolling the virtue of ‘private NGO providers’ which added a small push for private landlords to be included in the full Government subsidy for ‘social housing’,

                Now that would keep the pot boiling in places like Auckland and Christchurch as the landlords fell all over each other to get a slice of the action…

                • Foreign Waka

                  The shift from public good that is mostly part of the motion that the most vulnerable in a society are looked after, has been abandoned by the public themselves. Now many stand there screaming for help but still vote a right leaning party. It is perplexing but the only way to explain this is that the individual ego is greater then the wish for equal excess to help and essentials. As for the housing market, since this is the only market left that shows good returns in all situations, it is no wonder everybody is making a run for the money – literally. A capital gains tax would put a big damper on this but the loudest voices against it will come from those who do the buying and “investing”. We are not talking just small investors but people with a large number of rental properties and companies involved in apartment building. None of those are interested to be part of a community that beliefs in public good.

                  • greywarbler

                    FW “equal access” is what I think you mean, but that would make it a very great Freudian slip.

                    • Foreign Waka

                      Quite right, would it not be great to have some hungry kids getting some excessive experience? Thank you for pointing this out.

        • RedLogix 12.2.1.2

          On the list of more radical, but still doable ideas, is that all residential land should be leasehold.

          Instead of paying rates, we would pay rent to the local council. The land would be permanently ‘owned’ by the Crown and could not be alienated in any manner.

          After all there is already quite a bit of leasehold residential property in NZ and for the most part it works perfectly well.

          The big advantage would be that the banks would not be able to include the value of the land as an asset for a mortgage. And property bubbles always involve the value of the land – not the buildings. Buildings are not nearly so prone to inflation because they always have a new replacement value.

          • greywarbler 12.2.1.2.1

            RL
            +100
            I have noticed with surprise how my old house keeps going down in value, and land goes up. It does need regular repairs but still is worth more than QV says. However I wouldn’t complain of course if it means the rates don’t rise much.

          • karol 12.2.1.2.2

            Yes, the leasehold of “Crown” owned land is a good option – it’s like a long term and secure rental. Plus, it’d likely help to eliminate people speculating on property.

          • Rosie 12.2.1.2.3

            RedLogix, great idea that all residential land should be leasehold. No problem with that at all.

            I think it would be helpful if NZer’s could move away seeing their house as a money maker and see it as home for life. But folks are in it for themselves and couldn’t get the idea of their house not increasing in value – as a means of making housing more equally accessible to all.

            It would only be a radical idea in that the bulk of homeowners firmly entrenched in the current profit mindset would be resistant to it.

        • Rosie 12.2.1.3

          “Or we could just move away from this idea that we all need to own property. Myself, I have no interest in doing so.”

          Hi karol. I felt the same way until I got into my 30’s -and we were renting up until two years ago when we bought our first house. I had felt at odds with the NZ obsession about home ownership, (or what I perceived as obsession) and find it shallow and materialistic. The whole idea of “climbing the property ladder” I find particularly crass. I guess it could be referred to aspurashonal in the Bennett/Key sense of the word.

          It became harder to rent when the GFC kicked in. We had landlords selling off their property and had three moves in five years as a result. It was tiring, stressful and expensive. all that moving around and felt like we wanted to be in one place until our old age, hence the decision that pushed us towards taking the plunge and buying. We also wanted to have the ability to do what we wanted with the house and set up a garden etc.

          So we are no longer at the mercy of the landlords, we are at the mercy of the bank instead. Out of the frying pan and into the fire perhaps.

      • DAVE 12.2.2

        what family’s like Rosie need is a country whos economy works for its people not the wankers at the top housing in-line with income .income in line with the cost of living its not rocket science.

      • Rosie 12.2.3

        Hi Warbs. I do know people who have done exactly as you have suggested, with varying degree’s of success. The ones who started out living in a communal situation eventually moved through various living/co ownership arrangements until they ended up living miles away from people in the middle of no where!

        It’s not my idea of a living situation, I’d never feel settled living with others. I have bouts of depressive behaviour which would be no fun for others living in the same space. It was fun flatting in my late teens and early twenties but you know, times change…..

        • greywarbler 12.2.3.1

          Yes Rosie I am of the opinion that it could be successful only if people got to know each other first and you don’t usually in the common sharing situations. It would be like extending the family so people would have to take time, talk deeply, think deeply, plan their approach to the common services with behaviours that were agreed, i.e. be careful of heater use, only during certain periods of day, bnt not go round turning of lights as soon as leaving a room etc. Differing behaviours could drive one mad.

          Understanding that there were times when someone could be feeling ‘seedy’ (depressed)
          and perhaps not feeling like talking, just nodding at each other could be a way accepted of keeping communication going.

          It wouldn’t be easy, but some of the poor quality housing that poorer people end up in now would see a great improvement if sharing a better house with compatible people could be organised by them. And the legal side attended to so methods of dismantling the arrangement were spelt out and agreed to. So no nasty taste left at the end.

      • just saying 12.2.4

        I’m just reading “Ministerial Investigation: Options for Cooperative Housing”, which was signed off by Phil Goff in 1987.

        Talks about the different kinds of housing collectives and the different legal, financial and social structures that would be required from local and central government to enable people to set them up and thrive.

        As a result of this report, nothing happened (to the best of my knowledge).

        Even after all these years it is worth a read. Maybe the Labour Party could dust it off and think about a suite of policies * that would provide resources and structures to enable a variety of housing options.

        *Provisio, if they involve bureaucracies controlling the working class, forget it. The power must be given to the people…..or it’s just more of the same old shit.

        • Tracey 12.2.4.1

          can you post a link to that report

          • just saying 12.2.4.1.1

            I have a hard copy.

            If you know where these sorts of things are archived online the full title is; Ministerial Investigation: Options for Cooperative Housing. April 1987.

            According to the foreword, submissions were to be heard by an Investigative Committee on Coperative Housing via the Hosuing Corporation, and it was proposed that the first of a number of cooperative housing schemes were to be launched before the end of that year. It would be interesting to know what happened. I suspect the social democratic nature of the thinking, and especially the funding proposed led to its demise.

            Still, nice to know there were still some residual traces of Labour thinking in that disastrous caucus, even if they were eventually stamped out.

  13. Ad 13

    Labour and Greens should they win (hail Mary full of grace) will face a media narrative so strong that they could successfully orchestrate banking and business interests into a broad social tipping point. This happened under Savage, Nordmeyer (after a poorly conceived budget), and Clark. Without major counter-offensives, this at best spooks minor coalition partners, and at worst kills governments. To me that, not the Matrix-like prophecies about our “inevitability”, is the message here.

    Our collective adduction to real estate and cheap imports has embedded our media, retail, banking and personal interests into coaddiction. Unless stronger $NZ currency controls and housing market controls, are handled with astonishing pilitical finesse that we have not yet seen from this Labour caucus, they will likely find a major manufactured crisis orchestrated hard against them. The rest is armchair economic refereeing.

    Forbes is merely a useful vizier for the alignment of powers that future govt will face. Insofar as politics has any operable levers left, that’s the counterfactual I’d run over the weekend in DC’s beehive “war room”.

    • RedLogix 13.1

      will face a media narrative so strong that they could successfully orchestrate banking and business interests into a broad social tipping point

      Thank you. It’s exactly what Clark/Cullen faced. I had the privilege of asking Michael pretty much exactly that question over a beer one evening and he was quite clear about the limits of what a left-wing govt was and was not allowed to do.

    • karol 13.2

      Yes, it’s good to be reminded of that. It’ not just about winning the election. It’s about developing changes in culture and policies that will openly work for the good of the whole community – for all Kiwis.

      • Ad 13.2.1

        Agreed. It also requires of us that we project onto the future how much of a future blueprint of freedom is possible, is highly unlikely, and how much is not possible. Helps limit post-election melancholy, trust me.

  14. Pohutukawa Kid 14

    Here’s some interesting ideas worth thinking about from today’s UK Guardian

    http://www.theguardian.com/business/2014/apr/20/housing-superbubble-ten-steps-release-pressure

    • RedLogix 14.1

      That’s a good summation of the conventional thinking on house price bubbles.

      But really it is Item 8 that is the dominant factor. The NZ housing market is driven by these factors in order of importance:

      The always dominant factor is bank policy. Steven Keen has charted the extraordinarily strong correlation between mortgage growth rates and property prices here. And here.

      The second factor is immigration. This should be really easy for a government to control, although NZ is exposed to the very peculiar risk of a flood of returning Kiwi ex-pats if things go awry globally.

      The third factor is the absurd privatisation of the land development business by National in the 1990’s. Prior to that the majority of suburbs in NZ were developed by Councils who had access to low cost financing and could access all the future rate income of the property to service the finance. The actual engineering, earthmoving, services and such were contracted out – but the council could afford to sell sections at a far lower cost than a private developer has to. Essentially a private developer has to load all the costs of creating a section onto the very first buyer, whereas the public council could spread it out over future rate income.

  15. BM 15

    Build more houses, that’s the key and all the issues seem to be at the council end.

    First thing that has to happen is that the government has to nullify all the greeny doomers who have infested Auckland council and halted new land development or made it as difficult as possible.

    You don’t need Kiwi Build, that’s just socialist we know best nonsense .
    All you need to do is make easier for people/developers to build houses and eventually supply will outstrip demand and prices will drop.

    Reply to Pohutukawa Kid

    • Paul 15.1

      Ah well you obviously looked at the Guardian article in depth and looked at the number of economists and policy makers recommending 10 solutions to the problem…and for you it’s just build, build, build.
      From the article
      “. In fact, most economists agree that no one change is likely to do the job on its own. As Archer puts it: “I doubt there is any single measure that would prove to be a golden bullet, but a combination of measures could have some impact.” ”

      BM, yours is Neanderthal thinking. Such backward and limited vision is costing the world its environment …but as long as you and your fellow Randian ideologues can have everything you want, who cares, eh?

    • RedLogix 15.2

      A very old and close friend of mine is a significant developer of property in Auckland. I’ve talked with him about this on numerous occasions.

      The price of raw land and consents is only about 15% of the cost of a section. The rest is spread across all the other necessary engineering and development costs. All the roading, drainage, services and run-off management for a start. If for example you need a $2m pumping station to get water to your sections, you build it, pay for it and then hand it over to the council. The same for the roads, the power, the telecoms and so-on.

      Then of course in order to get the best price for you sections you never dump them all onto the market at once. All developers very carefully stage their releases in order to prevent any possibility of an oversupply in the market dropping prices. That’s the last thing the want because it destroys their profit.

      The fact is that even if developers had access to an infinite amount of free raw land – the price of retail sections would perhaps fall by maybe 10% at most. The supply of land is one of the least important components in the price of a section.

      Yet it is at the point where raw farmland is re-zoned as residential where the big money is made. Funny how freeing up land supply is only the factor you right-wingers bang on about – the one factor in the section price that has the least to do with housing affordability and the most to do with a very few landholders making big windfall profits.

      • Paul 15.2.1

        He won’t have a straight answer to that.
        Watch some dodging…

      • Ad 15.2.2

        +100

      • BM 15.2.3

        The Productivity Commission’s Housing Affordability Inquiry studied the issues before reporting to the Government in April.
        The commission blamed restrictive land supply but ruled out recommending tinkering with tax.

        http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10836274

        I take it you disagree with their findings?.

        Agree with what you say though about developers drip feeding properties onto the market to keep section prices artificially inflated, I have no doubt that it is quite a large factor in the building process.

      • BM 15.2.4

        I was just reading through the housing affordability report.

        According to the report, development contributions as a share of section prices was only around 5% in Auckland

        • felix 15.2.4.1

          That’s additional to the development costs, BM.

          You still have to do all the sewerage and stormwater and roading and drainage and engineering, and pay for all of it.

          And then you pay the council a “Development Contribution” as well.

          So you’ve just identified another cost that’s unrelated to the raw land price.

      • Herodotus 15.2.5

        Like to know your friend and where and when they purchased the land. As raw land comprises from my experience 33% of the cost. To get zoning changes 5-8 years so you have to find funding over that period, the cost to achieve private plan changes. The develop, earth works cover a season Oct-Apr followed the next year by civil works.
        Many developers are limited by the extent to develop by BANK funding and not limiting the release of finished product to max profit.
        Time is the largest cost in the process.

    • Tracey 15.3

      yes thats great. Last time we made it easier for developers and builders we ended up with over 100000 leaky homes.
      for some reason your great govt only extended accountability and responsibility for their work to builders and designers not developers.

      developers who form a company… build as cheaply as possible to maximise profits… take the profit and close the company and start again.

      cant imagine why lord key and act… usually so keen on personal responsibility let these guys off the hook.

      • BM 15.3.1

        A lot of that was due to poor design, crappy materials and faulty construction techniques.

        One learns from previous mistakes and hopefully does not repeat them,

        • RedLogix 15.3.1.1

          They were all highly predictable mistakes BM.

          When National was planning to change the Building Act back in 1992 they were explicitly warned against what they were planning. There were qualified industry people who told them to look at what had happened in Vancouver in the 1980’s and to avoid repeating exactly the same mistakes the Canadians had made and had already learnt from.

          But of course ideology trumped evidence as it always does with National.

          • BM 15.3.1.1.1

            Pre MMP days, politicians didn’t give a shit, our electoral system was nothing but a short term dictatorship, they did whatever the hell they wanted.

            Case in point 4th labour government.

            • Paul 15.3.1.1.1.1

              Yes I agree MMP makes our system more democratic.
              However, the fact that Labour copied Thatcher and Reagan in the 80s means there is little choice now for voters. Tweedledee and Tweedledum parties.

          • Paul 15.3.1.1.2

            As is presently happening to our Education sector.

        • Paul 15.3.1.2

          I would say that unscrupulous businessmen made a lot of money out of leaky buildings.
          Yes, they learnt alright that a government that takes away the rules that protects people is good for their criminal business ventures.
          Your faith BM in the market is so touching.
          All you’re doing is handing over to the corporate psychopaths.

          • BM 15.3.1.2.1

            A lot of the problems stemmed from Branz approved construction techniques.

            Builders followed those, building inspectors ticked everything off as correct, it wasn’t until a few years down the track that it became rather obvious that things weren’t going quite as planned.

            By that time the horse had bolted.

            • Paul 15.3.1.2.1.1

              What do you say to Red Logix’s point?
              “When National was planning to change the Building Act back in 1992 they were explicitly warned against what they were planning. There were qualified industry people who told them to look at what had happened in Vancouver in the 1980′s and to avoid repeating exactly the same mistakes the Canadians had made and had already learnt from.”

  16. fisiani 16

    If you really want to see a housing bubble then impose a Capital Gains Tax on all but the family home. Then watch people buying higher and higher value family homes to escape paying the CGT. Now that would really cause massive house price inflation and raise the capital value of the houses of the rich. Silly silly idea. That’s exactly what happened in Australia.

    • Paul 16.1

      You obviously did not read the Guardian article at 14 sourced by Pohutakawa Kid.

      Here is an excerpt.

      ” CGT ON ALL HOUSE SALES
      Currently, any profit you make on the sale of your main residence is free of any kind of tax. Only sales of second homes or additional properties attract capital gains tax (CGT).

      David Blanchflower, a former member of the Bank of England’s monetary policy committee, argues that the UK should roll out CGT further, adopting a model similar to one in place in the US. “This is a better fix than a wealth tax as you don’t need the bureaucracy to value as for a ‘mansion tax’ – you just use purchase and sales prices,” he says.

      The US model has exemptions: the first $250,000 of profit does not attract a bill if there’s a single seller, while if a couple is moving, they don’t pay any tax on the first $500,000.

      Exclusions could be adapted, and rates varied, so that larger gains could face higher tax charges. While this might make people less inclined to sell their home at a large profit, it might not deter them entirely – investors face a CGT bill on stocks and shares, fine wines and vintage cars, but still trade them in the hope of good returns. It would, however, reduce the amount of money that could go into the next property being bought, which should help calm prices – and the revenue could be used to replace stamp duty entirely.”

      Kind of refutes your point don’t you think?

    • RedLogix 16.2

      Actually that’s one point I agree on.

      A CGT exemption on the family home would have a distorting effect. And yet politically it’s probably impossible to avoid. It’s one reason why I’ve never been a big fan of a CGT in the first place.

      Far better to avoid excess capital gains (over and above normal inflation) in the first place. A CGT is an ambulance at the bottom of cliff – in this thread I’ve outlined at least four different types of fence we could build at the top of it.

      • Herodotus 16.2.1

        A CGT as labour has signalled is weak as they still allow the deductions of interest etc to still occur , then tax the gain well below PAYE rates, many pay taxes from their wages at double this rate and a on a far inferior income., for many investors their tax advantages would be similar to their CGT liability.
        100k home building and SHA’s are also not designed to solve the house problem just to be seen as to be doing something.

      • Foreign Waka 16.2.2

        If it is restricted to one transaction only, being a family home then it would not be the case. 1 transaction per buyer.

  17. dave 17

    remember the open bank resolution policy NZ deposit holders are not government guaranteed we get the bail in treatment.

  18. Tanz 18

    I have seen three bedroom homes advertiesed in Glen Eden around the 480,000 mark That is not too bad. Key i ignoring the problem because it does not affect him or his family.

  19. Colonial Viper 19

    A political party which announced policies actually effective in stalling or reversing house prices would never be voted into government.

    The only house value reduction policies a party could announce and which are not electoral death wishes are cosmetic ones which won’t materially reduce or stall house price increases. MP’s are not going to vote through policies which cut down their own property portfolios.

    It’s all about window dressing.

    • Paul 19.1

      A lot of people under 35 would vote for a party that made rental prices and house cheaper.

    • greywarbler 19.2

      Yes CV I can see house price drop likely being a vote loser. As super age rise also. Labour needs to have something electorally that helps, and make plans to stop foreigners buying up with all their bloated gains they have to spread around the world. They could lease perhaps, if they wanted a pad here.

      But it is amazing that as NZs have learned about our history they haven’t appreciated how the policies making the country good to live in had to be fought for. We have been the later generations of the ground-breakers, who just spend all the goodies that the parents amassed of whatever kind.

      There was deliberate legislation to stop large landowners getting hold of the land needed by the keen aspirational immigrants in colonial days. We are getting large land amassing projects, someone here said the farmer down the road owned ten farms, and where is our wisdom and desire for NZs to make their own country prosperous with their own work and receive the benefit for themselves now??

  20. Mikysavage left the most crucial list point out.

    7) Finance, not agriculture, is New Zealand’s largest industry

    Though New Zealand is commonly thought to be an agriculture-based economy, this couldn’t be further from the truth. Agriculture accounts for only 5.1 percent of New Zealand’s GDP, while the finance, insurance and business services sector is the country’s largest sector, contributing 28.8 percent to the GDP. Furthermore, banks account for 80 percent of the total assets of New Zealand’s financial system. Not only is New Zealand’s banking system dangerously exposed to the country’s property and credit bubble, but so is the entire economy.

    If anybody out there wants to pull the plug they only have to pull out their money because most of it isn’t ours.

    Also the National government has loaded up the books with $112 Billion (This was in 2012 so that could very well be a lot more now) in Derivatives which ar part of at least a $ 1.5 quadrillion in faux financial products global bubble which will collapse if even the smallest country (Like Greece which is after all only .4%of global GDP and tanking) defaults and triggers a domino effect of banks and institutions wanting pay out on them showing there clearly is no money to do so.

    By the way funny eh, that it was at the same time kiwi numbnuts elected a Wall street banker Prime Minister in 2008 that the National debt started to triple!

    • Paul 20.1

      That’s how the banks threaten democratically elected governments.
      Happened to the UK in the 70s when the IMF blackmailed the UK Labour government.

    • greywarbler 20.2

      travellerev
      Very interesting thanks for that. It needs to be dragged forward constantly so we don’t forget to look at the contents. Sort of like a swag over our shoulders as we tramp down the dusty road to look for our future.

      • travellerev 20.2.1

        Cheers Greywarbler, my pleasure. You might also want to check how Ireland and Iceland solved the bubble bursting (In Ireland John Key was one of the bubble builders by the way) when it happened to them. Iceland chucked three bankers in jail and said F^&k you and Ireland bailed the banks out and is now paying a debt which wasn’t theirs to begin with. Iceland is on the up and up while Ireland is sinking.

  21. jh 21

    In Christchurch a group from Canterbury University has an idea to bowl down an older part on TC1 ground and build a dense eco village.
    It can’t happen under private ownership. In fact the council want to rezone for density so you will have older residents hanging on and land lords (including rich-listers) going for broke on rectangular sites.
    Singapore has 80% of the housing in public ownership . The state owns the land and can do timely, sympathetic, intelligent redevelopment.

    • greywarbler 21.1

      That’s what they need to do in Queenstown. Pleasant, adequate housing is needed for workers servicing the holidaymakers and rich tourists, and that housing cannot be left to the private industry to provide, leaching out all the discretionary money that the workers manage to accumulate like living off the workers like varroa mites.

  22. jh 22

    There is also some evidence that
    immigration, together with other forms of population growth, has exacerbated pressures
    on New Zealand’s insufficiently-responsive housing market. Meeting the infrastructure
    needs of immigrants in an economy with a quite modest rate of national saving may also
    have diverted resources from productive tradable activities, with negative macroeconomic
    impacts.
    Therefore from a macroeconomic perspective, a least regrets approach suggests
    that immigration policy should be more closely tailored to the economy’s ability to adjust to
    population increase.

    2.3 Changing policy expectations
    While useful, models do not capture all the effects policymakers expect from immigration.
    When New Zealand moved to increase the numbers and skills of immigrants in the 1980s
    and 1990s, policymakers appear to have considered that these changes had the potential
    to have major beneficial impacts on the New Zealand economy, reinforcing the gains from
    22
    the other liberalising and deregulating economic reforms undertaken during that period.
    At that time, it was considered that skills-focused inward migration could: improve growth
    by bringing in better quality human capital and addressing skills shortages; improve
    international connections and boost trade; help mitigate the effects of population ageing;
    and have beneficial effects on fiscal balance. As well as “replacing” departing
    New Zealanders and providing particular help with staffing public services (for example,
    medical professionals), it was believed that migration flows could be managed so as to
    avoid possible detrimental effects (such as congestion or poorer economic prospects) for
    existing New Zealanders.

    Since then, New Zealand has had substantial gross and net immigration, which has been
    relatively skill-focused by international standards. However, New Zealand’s economic
    performance has not been transformed. Growth in GDP per capita has been relatively
    lacklustre, with no progress in closing income gaps with the rest of the advanced world,
    and productivity performance has been poor. It may be that initial expectations about the
    potential positive net benefits of immigration were too high.

    Based on a large body of new research evidence and practical experience, the consensus
    among policymakers now is that other factors are more important for per capita growth
    and productivity than migration and population growth.
    CGE modelling exercises for
    Australia and New Zealand have been influential in reshaping expectations.

    http://www.treasury.govt.nz/publications/research-policy/wp/2014/14-10
    Policy has been steered by a pincer movement by utopian socialists and the development industry. Any objections.. “Ha! …Racist”

    • jh 22.1

      Humans have an innate preference for people they perceive as their in group (like them) due to the adaptive evolutionary environment during the pleistocene. So cries of Racist from warmly wrapped up “progressives of the internationalist tradition” (and Harcourts Shanghai) have a potent sting.

    • bad12 22.2

      i would suggest that ‘population growth’, and i am not going to differentiate between immigration and New Zealand centric population growth, has grown from 3.3 million people 30 years ago to the current 4.4 million people,is the root cause of the ‘problem,

      As little ‘planning’ surrounded this population growth especially in the area of housing it is easy to see how we have ended up with the current situation,

      If some logical thought had of been applied to the more laissez fairre immigration policies applied during the past 30 years proper rules would have ensured that all immigrants had a house built for them, either privately or by the State, befor they arrived here,

      Of course the above presupposes that the current ‘consequences’ of the population growth that has occurred was in fact ‘unintended’

      Personally to hold to a belief in such ‘unintended consequences’ would also see me believing in the ‘tooth fairy’,(having stayed awake all night on one occasion my belief in that particular fairy is pretty much non-existent)…

  23. Populuxe1 23

    I’m more worried about the explosion of homelessness we will see in Christchurch with all the rent gouging going on for the few rentals left standing, and now the building contractors wnt to bring even more foreign labour in, driving more low income, beneficiaries and other vulnerable people out on to the streets. One elderly couple were living in the garage of a state house until WINZ threatened the house’s occupant. This is a disaster and the government refuses to do anything because “the market will sort it out” BUT THE MARKETPLACE IS BROKEN.

  24. Why I don’t think the bubble will burst. (not to any great degree anyway)

    In the first place, its not actually a bubble. Its been like this for decades.

    In the second place, its a question of supply and demand. If we see empty houses, we know the demand isn’t there. There are few empty houses.

    In the third place, its simply a question of investment. Housing is better than most other options for many reasons, but the primary one is everything else has become too hard.

    Who would be silly enough to put their money into risky capital and labour intensive businesses like-

    Mining coal
    Drilling for oil
    Manufacturing
    Mining other resources
    Fishing
    Farming
    Forestry
    Infrastructure projects
    Media

    I wouldn’t. Why not? Its all been made too hard by a myriad of regulations, laws and cronyist prequalification procedures. Nobody is going to change it. Not Labour or its coalition partner National, so most money in NZ will continue to be invested in capital gains free relatively unrisky housing.

    Even if it does collapse, unless you’re in debt, you haven’t lost anything really, as it all stays relative. You’re not exposed to regulations that will see you bankrupted or prosecuted or land in jail as you are with many of the enterprises listed above.

    So I reckon it will just go on with maybe a minor correction or two, but really, in the socialist sewer the west has become, and especially down here in NZ, what the hell else is there that any sane person would regard as a better investment?

    • Paul 24.1

      With a nom de plume of redbaiter, it’s clear you just want to be provocative and get a reaction to this drivel.
      You are either woefully ignorant of economic philosophies or angling for a long debate based on this nonsensical outburst.

      • RedLogix 24.1.1

        Redbaiter is a rather sweet old libertarian duffer who graces us with his pearls of wisdom from time to time. He’s quite smart and certainly not ignorant.

        Actually this is one of his more coherent posts – there’s a fair bit to agree with in it.

        For a start I think he’s right that the property bubble will not burst of it’s own accord in NZ for some time. For the medium-term (a couple of years or so) there is a genuine shortage of housing in NZ mainly caused by the GFC collapsing the building of new homes for about 4 years or so. The industry has a fair bit of catch-up to do.

        Plus the shortfall created by the ChCh earthquake.

        Plus the net positive immigration back into NZ due to the job market going south in Australia.

        Plus the intense pressure from rich Chinese investors with cheap money looking for a rat-hole.

        Plus a govt that really does not care about housing affordability for ordinary New Zealanders.

        All of these factors will for the time being keep the NZ property bubble merrily inflating for some time yet. Yet all bubbles eventually pop. It’s an iron law.

        In a small market like NZ where labour mobility is modest, property market bears are characterised by a large drop in turnover rather than price. This is because our banks have generally been willing to tolerate very low or negative equity as long as the mortgage was being serviced. Plus our bankrupcy laws mean that if you default on a mortgage – you are likely to be left with a hefty residual debt to the bank anyway. Far better to just hang on and wait for the market to recover if you can.

        What may well be different this time is portion of overseas investors in our market who won’t behave this way – and possibly trigger a fire sale. Unknown territory.

  25. Furthermore, the govt, whoever it is, knows well that this is why housing is so popular as an investment. Its virtually all that’s keeping a pretty dysfunctional economy afloat.

    That’s why we have immigration. Waves of it. It keeps NZ’s most successful economic sector hot.

    Ask Helen Clark about it. She’s got what? Somewhere between five & ten houses last I heard. So have many other politicians in the Labour/ national coalition.

    They know the score comrades.

    • Paul 25.1

      Good we agree on the need to stop foreign ownership of NZ assets then?
      Like houses.

    • RedLogix 25.2

      Its virtually all that’s keeping a pretty dysfunctional economy afloat.

      You actually won’t get much quibble from most people around here on that either.

      No-one trusts the NZX – it’s a wild-west of shark-suited insiders with an appalling track record of suckering ordinary investors.

      No-one trusts our finance industry anymore. The events of the last five years speak eloquently to that.

      And successive govts have shown no inclination to protect local manufacturing against competitors who face far lower labour, regulatory and environmental costs.

      So where else to put your savings? Banks printing money into inflating property has indeed been the basis of our economy for the last 20 years. This is something I’ve more or less been saying for a while now.

      So to that extent RB and I are on the same page.

      • Paul 25.2.1

        Pretty gloomy outlook.

      • JAK 25.2.2

        The NZX is better regulated these days and offers an opportunity for small investors to put money into NZ companies, instead of into residential properties that produce nothing and bring heart break to the people saddled with high rents or unable to afford a home of their own.
        http://www.chinagoabroad.com/…/strong-run-new-zealand’s-equity-capital-ma…‎

        • RedLogix 25.2.2.1

          You do have something of a point JAK. Regulation has improved. It bloody had to.

          However for most people the stock market is simply not a viable place to put their retirement savings. Most ordinary people are not investment managers, nor should they be.

          If you then argue the case for managed funds, you’ve stepped into another realm altogether and one that I like less and less the more I find out about it. What between the hordes of day traders playing games with short-term blips and bumps, and the high-frequency traders who manipulate the market faster than even the big fund managers can – the global stock market scene has the hall-marks of a massive casino.

          By sheer accident I got to spend a day last week watching part of the share trading business in action. You have to be impressed at all the technology and cleverness – but I couldn’t shake the overwhelming sense of how utterly divorced from any sense of real business value share markets have become.

          • JAK 25.2.2.1.1

            Twenty thousand dollars split four ways gets you a share of say Contact Energy, Fletcher Building, Auckland International Airport and Vector. All likely to produce regular dividends. No capital gains tax if the shareprice appreciates and you can sell part of the portfolio if you need cash in a hurry.
            Residential property investing puts all your eggs in one basket, you are lumbered with ongoing management tasks and you end up supporting a market that prices out the young who need an affordable home.
            I would feel uneasy knowing that my residential property tenants were struggling to find the cash to pay me. Commercial property is a different story and I would invest in this via the listed property trusts.
            I am not an investment expert and would not spend money on an advisor because there are plenty of books, websites and newspaper columns with the information I need.

            • BM 25.2.2.1.1.1

              I haven’t had a lot to with NZ stocks what sort of leverage ratio can you get?

              • Herodotus

                Agreed, what other business scenario are banks willing to fund up to 80% of the investment on cash neutral business cases ? Try with a similar request for funds to buy shares, precious metals or even a real business case ?
                Banks willingness to loan large amounts of $ to fuel the property market is a major contributor to the ills that have resulted from high value housing. Perhaps instead of a CGT just eliminate interest costs as a tax deductible cost- it would have An immediate savings for the government instead of waiting for inflation to take effect, and as a result property values increase and then collect the 15% tax on realisation.

                • dave

                  they were funding up to a 100 percent less than a year ago there is a lot of those mortgages out there low to no deposit loans

    • poem 25.3

      I had the impression on the relatively recent documentary on Helen Clark, that her and her husband only owned 1 house. Can you provide a link or reference as evidence of your claim that she owns “Somewhere between five & ten houses” please.

      • Redbaiter 25.3.1

        In the 2008 Parliamentary Pecuniary Interests Register Clark was listed as having a house in the UK, a house in Auckland, a townhouse, an apartment and an investment property, which is probably a block of flats.

        I have been told she has since bought a couple more but I don’t know the detail or even if its true. She obviously likes real estate. What do you reckon she would be doing with the millions she is raking in from the UN?

        • poem 25.3.1.1

          And dont all politicians love real estate? Thanks for that, you have listed 5 known properties, thats a far cry from 10, the rest is supposition.
          And thats none of my business what Helen Clark does with the money she earns.

    • Draco T Bastard 25.4

      Its virtually all that’s keeping a pretty dysfunctional economy afloat.

      I agree with that line. It’s only the ever increasing lending from the banks that keeps the amount of money in the system inflating and thus keeps the economy moving. The only real fix to this is to increase taxes on the rich to about 95% or more. Get all that accumulated money out of their grubby little hands and reintroduce it to the economy.

  26. amirite 26

    Jesse Colombo’s response to Steven Joyce today, Steven Joyce may have to apply water to the burned area soon

    http://www.forbes.com/sites/jessecolombo/2014/04/21/its-not-a-bubble-until-its-officially-denied-new-zealand-edition/

    • Paul 26.1

      The most eye-opening section.

      “The reality is that I did look at New Zealand’s official GDP figures and found that the finance, insurance and business services sector accounts for 28.8 percent of the country’s GDP, while agriculture accounts for only 5.1 percent. After Mr. Joyce’s comment, I did further research and found that food and beverage manufacturing’s share of New Zealand’s GDP is only about 4.35 percent. Agriculture combined with food and beverage manufacturing accounts for only 9.45 percent of New Zealand’s GDP, which is just one-third of the finance, insurance and business sector’s contribution to the economy.

      Maybe Mr. Joyce should take a second look at his own country’s GDP figures.”

      So we’re in hook to the banking and insurance sector.
      Not a good position to be in and quite a different story to the one portrayed about our agricultural base.
      That’s what happens when you hand over the country to a shark from Merrill Lynch.

      • dave 26.1.1

        that low ??shit Paul those figures are terrible your right its an eye opener NZ dirty little secret most of the economy is just worthless paper pushing speculative holed out economy

    • karol 26.2

      LOL:

      If former Princeton University economics department chairman Ben Bernanke and the IMF can be blindsided by bubbles, my hopes are not very high for New Zealand’s Economic Development Minister Steven Joyce, who studied zoology in university and has no background in economics before 2011.

      And he challenges some of Joyce’s denial statements by referring to some official stats.

    • BM 26.3

      I don’t think Joyce will be losing sleep over bubble boys rebuttal.

      • Paul 26.3.1

        Of course …that degree in Zoology makes him such an expert to be ignoring warnings from experts about the economy.
        What’s your expertise to be so sure of Mr Joyce’s position?

        • BM 26.3.1.1

          In the real world a degree really isn’t worth a lot.

          Practical skills and experience count for so much more.

          • Paul 26.3.1.1.1

            So Joyce has more experience and knowledge of the world financial markets than Colombo.
            That’s what you’re saying?

            • BM 26.3.1.1.1.1

              He has more experience in creating wealth.

              • amirite

                I’m sure most sellers of snake oil have created amazing wealth for themselves. That doesn’t make them experts in medicine.

          • Draco T Bastard 26.3.1.1.2

            LOL

            RWNJs don’t have any of those but they do have degrees. It’s one of the reasons why our economy is tanking.

  27. dave 27

    BM this reporter has really upset you! you need to spend some quality time with your fellow slaters at whale oil. how dare this impartial columnist publish such dangerous information could spoil the party.

  28. dave 28

    BANK RUN!

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