- Date published:
10:33 am, March 23rd, 2021 - 226 comments
Categories: Economy, housing, labour - Tags: housing crisis
RNZ’s report Government announces plan to help first-home buyers on the announcement from Labour today, you can pick out the details here.
All I can see is Labour tinkering so that more of the middle classes can get back into property speculation, while maintaining the property market as primarily for investment purposes not providing homes, and keeping the market on track for enhancing those investments.
Lew as always nails it succinctly,
Me, preventing fires by increasing the amount of kindling available to first fire-lighters
— Lew (@LewSOS) March 22, 2021
Buy a house for the first time, you’re on the ladder, and while the market may be cooled somewhat, it’s ok, you’ll still make shitloads of money over the next few decades as property prices increase and you might be mortgage-free by the time you retire. You will be able to borrow against that mortgage as well, so welcome to the affluent consumerist classes. At least that massive chunk of your income will be going to the bank, then you, rather than a landlord.
Nothing about renters. The only reference to rent is restrictions on landlords so that home owners are preferentially treated instead.
Build moar houses of course, but presumably most of that is for the private market, which will also keep the prices nice and buoyant for the investment classes.
Nothing about beneficiaries. Someone get back to me when Labour shows any fucking sign of talking about the massive gap between benefits and the ability to pay for housing costs. I’m of the generation that remembers when beneficiaries were first home buyers. When Ardern talks about the housing crisis being complex and needing time to resolve, it’s clear that she’s still talking about pulling up a few more people out of poverty and leaving the rest to get on with being poor.
Meanwhile, the climate and ecological crisis are banging on the door.
Where are green build initiatives? Owner/builder support? R and D for the alternative building sector who already know how to build houses at a much lower cost? NGO/Iwi/Community Housing Trust programmes? Development of new models of collective land and housing ownership? Regulation to make land available for Tiny Homes? State intervention into the rort by the building supplies industry, or the out of control costs from councils? Rent caps? Prioritising house building that sits outside of the private market?
I’m sure there are good things in the policy (Kāinga Ora, apprenticeships), and yes, go ahead and pick apart it all from the economics point of view and how the professional landlords and investors will hate it. But let’s also go up and pet the neoliberal elephant in the living room, which is that Labour want a status quo housing market with a bit less heat in it, presumably so the economy keeps floating for a bit longer.
I’ll be interested to see the responses today. I fully expect the liberal investment classes, who make up a big chunk of Labour voters, to either be on board, or to say ‘it’s not enough’ but still vote Labour ‘steady as she goes, but let’s not do anything real about poverty’ again next time instead of the progressive policies of the Greens. Because no-one really wants to pat the elephant when they’re all right Jack.
"But they are ideologically blinded – opposing the market is not an option, so they try market solutions." That is about all we need to know, as I have mentioned many times, Labour are lead by Free Market fundamentalists …
"The most influential strain of thought places “free market fundamentalism” (FMF) at the center of a critical analysis of neoliberalism. The term was coined by Nobel Prize winner and former chief economist of the World Bank itself –Joseph Stigliz. FMF is usually how neoliberalism is understood by progressives and conservatives alike. In this view, an unregulated free market is the culprit and the oft cited formula — de-regulation, austerity, privatization, tax cuts — is the means used to undermine the public commons"
…so what's the answer, because we really fucking need one,right?,,,well if we are honest with ourselves, wresting the Labour party back from the death grip of it's neoliberal masters is just not going to happen (look at Corbyn, Sanders) …so maybe we need to think about using The Green Party as the vessel for the real Progressive and transformative change we desperately need in this emergency…but of course The Green Party is riddled with neoliberals itself, so how do we go about turning The Greens into a serious Left Wing alterative party with a core message that can easily transend class, ethnicity and all the other walls that need breaching to quickly mobilize a popular peoples movement?
There are many others on this site who would have better first hand knowledge, experience and ideas on how to achieve this than me…
But one thing is for sure, it is time to abandon the idea of Labour as a party of progressive change, it is time to abandon the idea of Labour NZ all together, IMO.
Turn The Green Party Left!
The dear Lady stated it quite clearly before the election, in fact on could consider it an election promise: No new increases in benefits.
We are disappearing people into motels cause that is easier then finding a decent solution.
What dear Jacinda anounced this time around is that the children of the well to do will be helped into a Million dollar home – depending on where you live and those that don't fall into these income brackets can get stuffed.
Nothing bold about, just a big bag of stinky air.
We have our technical guy travelling to Auckland and then onto Hastings. The Admin was trying to book him into motels at both places. Almost bloody impossible as most are full with homeless!
(of a person, action, or idea) showing a willingness to take risks; confident and courageous.
"a bold attempt to solve the crisis"
Learn to pronounce
be unsuccessful in achieving one’s goal.
“he failed in his attempt to secure election”
I tend to agree weka, there were so many other things that could have been done as per your 10th para (starting Where are green build initiatives? ). Instead we get some fiscal fiddling that may or may not have the desired effect. Too soon to tell.
In the meantime it's still raining here in Brissy. I don't think we've seen this much sustained wet the whole time we've been in Australia, outside of the cyclone event I worked through at Weipa.
You could house your homeless in the desalination plants…………
While Aotearoa has a large 'blocking' high pressure zone over us bringing glorious weather it's also stopping the system over the east coast of Australia from going anywhere fast. The pictures and articles of the mayhem over there is staggering and indeed worrying. Kia kaha.
This seems to be a major blindspot for them.
Yesterday I submitted an OIA asking for any evidence that MSD has assessed a raise in Accommodation Supplement vs the impact on the numbers in emergency housing. I don't really expect this to have been done, but I live in hope that this govt is not squandering millions each week based solely on the idealogical concept that people should be able to get cheaper rentals.
Since the amount spent on emergency housing now exceeds what is paid to landlords it seems like the next obvious question.
To show the diversity of views on this site I think the proposals are pretty good. The capital made available to Councils is going to get rid of one of the most significant bottlenecks.
There is a diversity of views. We used to be a quarter acre owning paradise where most people owned their own homes. This vision is to go back to that state.''
Investor's federation is kicking up a stink. That is a good sign.
The first home grant is only for properties at the low end of the market. I am not seeing any sales in this category right now apart from some intensive housing developments.
There is also significant boost for Kainga Ora and social housing.
There is no silver bullet solution to this crisis.
thanks Micky. I didn't read the details, because as far as I can tell my basic premise is true: Labour are wanting the housing market to keep steady but not too fast and they have no plan to address the massive gap in affordability. Building more private houses will increase house prices in the short and medium term, which will increase the massive gap. So while there will be a chunk of NZers who will do well out of this (first home buyers of a certain income level), the lack of discussion about people who are permanently locked out of *any affordable housing is just fucked up.
I'd love to see more people having the security of home ownership, I just don't see how this set of policies will achieve that without also making things worse for renters.
There is no low end of the market any more. It's all varying degrees of high. But sure as shit the low end of high will increase from this policy.
I need to write a post on what regenerative housing policy would look like. I think the ideal of home ownership, quarter acre style, is a useful starting point, but short of a major GFC which destroys the market, the ways out of the crisis aren't from the mainstream perspective. eg new land ownership models (collective) could be developed for low income people who don't have the resources to develop them themselves. That class of people will never get ownership or tenancy security otherwise because the gap between income and the lowest end of the rent or property market is just too big. We need lateral, creative ideas now.
That is a fair assessment Weka. The Government wants to gradually adjust the market rather than change it dramatically.
Which is basically the same as the last government….
The Government has also announced it is upping the cap on how much a home has to cost, for someone to be eligible for the grant.
btw, that 745.000 dollar single wide trailer in Wellington (posted link to that yesterday) would not be affordable under this scheme.
"There is no silver bullet solution to this crisis."
Yeah there is. Build baby build. Gut planning restrictions and remove impediments to housing growth both spread and intensity. Do it NOW not in 3 years time.
Also invest massively in local infrastructure to support the necessary development (government is at least doing something on that front).
Before you can "build baby build" – the sentiment of which I totally agree – you must first have in place the land ready for the building. That has been the underlying problem for years now. I worked for a time in the civil construction industry setting out subdivisions for new developments. It was an on again – off again game. Yet year on year there was an increasing population needed to be housed and the supply always failing to meet the need. One of the main problems that has existed for years now, has been the fact that council infrastructure such as sewerage, storm water and water were:
a. old, and
b. never designed for the increased loading that the new large subdivisions were going to place upon them.
also increasing population sizes in particular areas bring other problems such as increased pressure upon roading and other council services. Asking existing rate payers to front up with the costs for new subdivisions from which they will receive little benefit is not going to go down well at the next local body elections.
With that in mind, I see the $3.8B injection into local body infrastructure as the most significant part of this package. It will not result immediately in a plethora of new housing, and nothing the govt can do will. Currently many new builds are being delayed not just from a lack of available developed land, but also because of a lack of supplies because of covid. Plumbing and electrical items in particular.
If you do not restrict the flow of money into housing speculation, building more will never be enough.
Largely irrelevant. Get the supply sorted and the speculation will sort itself out. Investors are in the market because there are good returns to be made because supply is constrained artificially. If you allow supply to match demand more then returns on investment become much lower and people will choose other more attractive investment opportunities rather than having a complex set of rules that need government to police that tries to do the same thing.
please explain how this will 1) stop property prices from increasing over the next 12 months and b) lessen the massive gap between rent/mortgages rates and what many people can afford/income.
Nothing in the government plan will reduce the he massive gap between rent/mortgages rates and what many people can afford/income in the next 12 months unless it causes a housing price slump (which perversely will set up the next housing crisis as people will stop building houses as it is not economic for them to do so ).
What making it easier to get land for housing or to build in greater density will do is stop it rising for many, many years so that it will slowly return to a more manageable ratio. But it needs to be done ASAP not in 3 – 5 years time.
Ok, so to be clear, what you are suggesting isn't a solution to the housing crisis, it's a way of slowing down the increase in house prices and possibly slowing down the worsening of the housing crisis?
It's a supply problem, always has been, always will be.
Go and actually talk to the surveyors, builders, planners etc.
39 00 empty houses in Auckland says it is not supply that is the problem.
It is "hoarding'.
A lack of affordable houses.
We had a lesson on that with toilet rolls.
KJT you have missed off a zero. 40 000 at the last census. This is an obscene situation. Have to agree with Gosman on the point of intensification but not expansion onto valuable arable land. What has happened in the Pokeno, Pukekohe area over recent years verges on the criminal. Government assistance to local government for basic infrastructure is a very sensible move.
Correct, was 39000.
infusednz is correct. Lack of supply is the problem. Take away tax deductions – Rents will increase. Increase the bright line – properties will be held longer. If Kiwi build had been successful, we would have an additional 40,000 low cost houses available by now wouldn't we? That may make a difference.
Lack of supply is the long term problem if we are determined to grow at the pace we have done recently.
But you can't magic up supply without considering local and regional infrastructure. Inconvenient truths often ignored by those who casually call simply for more houses.
Well, the government did commit to $3.8b on local infrastructure but that announcement is nowhere near enough in dollar terms or in terms of vision.
Take Northwest Auckland for instance. The area between Westgate and Waimauku is busting to have several tens of thousands of homes built so much so that there are mounds of dirt everywhere around already built light industrial and retail.
But, the NW motorway is already way over capacity at peak times, never mind the local roads. There is even an unkept and largely disused rail line running right through the entire region. How do the people in these new houses get around?
The land is there, the transport corridors are not, and the political vision is not.
Yes you are correct regarding infrastructure, which is why it was crazy to ever think that Labour would build 10,000 Kiwi Build affordable houses a year.
Gosman -In a civilised society and by that I mean a society that has achieved a development above banana hording apes, a person has a right to a roof over their head, clothes on their back and food on the table. We are not talking about luxury items here, but basics that are fundamental to a functioning nation.
The greed is breathtaking to be honest. But lets not forget, most politicians are part of that illustrious group owning many properties. If this would be put into a saga it would have to be played out in the times of Robin Hood.
There is no golden bullet, what about the energy that labour spent in attacking the then govt about the issue then we wait 4 years and after some of the largest price increases we get this.until these f%^*wits get to understand that we need a prolonged period when property increases are dwarfed by income increases that we go backwards at varying speeds, preferable for some drop in values or stagnation over many years . Every month that property increases faster than disposable incomes this government has FAILED.
so now the low end for 1st home owners is $700k in what universe does the leaders live in for it is not this one 🤬
Nothing about renters…
Exactly. And it brings to mind this…critique of the Accommodation Supplement.
CPAG have done a lot of work in this area and sees…
The AS is a significant government subsidy of the private rental market, covering the cost of approximately 10 per cent of the $10 billion to $12b rents paid to private landlords a year. Although it assists some recipients with mortgage payments, the AS helps neither the state nor the vast majority of its low-income recipients accumulate or maintain assets for themselves.
To be fair, this transfer of wealth from the state to landlords is only partially due to the AS link to housing costs. The main problem here is that successive governments over 25 years have neglected adequate building programmes and policies to encourage home ownership.
CPAG, and of course the much sidelined WEAG, claim that…
…core incomes need to be increased by 30 to 50 per cent, depending on their circumstances.
This is from an article written over two years ago announcing the release of a report entitled The Accommodation Supplement: the wrong tool to fix the house, produced by people with a long and intimate familiarity of the whole environment of poverty and housing and food insecurity.
CPAG and the Salvation Army were battling this shit all the way through the dark days of Key and Co. The fact that CPAG and Co are being assiduously ignored by this current administration highlights this current administration's ideological accord with the last mob.
Transformative my arse.
Someone get back to me when Labour shows any fucking sign of talking about the massive gap between benefits and the ability to pay for housing costs.
Has anyone here tried to apply to a bank for a mortgage recently? Banks are the gatekeepers to buying a home, and they assess of a number of rules around equity, credit history, serviceability, security of income and age. Put simply a significant section of the population (I'd guess at a number over 30%) will never qualify for any kind of loan regardless of house prices. They never did, they never will.
This is why we have a social housing and residential rental market.
So yes this package of measures will definitely cool the ridiculous speculation going on at present (which had absolutely zero real impact on my business) – but it's not clear to me that it increase the number of people transitioning from renting to owning. They still have to qualify for a mortgage regardless.
And even if prices did start falling dramatically, the one thing I do know for certain is that both buyers and banks really hate putting money into a falling market.
The business of housing has many moving parts, all of which interact in complex, often poorly understood ways. In response to this announcement there will be many predictions and claims mostly depending on the person's particular perspective. Most of us only see the part that impacts us personally, so we tend to draw conclusions on that partial information. That said, I think it's too soon to tell how exactly this will play out.
Overall I'm not personally too fussed because I never structured my business around capital gains, although the significant slice of middle NZ who've been depending on residential rentals for their future retirement income are going to be looking at this govt's multiple moves stacking up against them – and are unlikely to be overjoyed much.
I see housing as a political conundrum not diss-similar to a seller/buyers power in price negotiation being defined by their walk away price point. The government is not politically willing to lock first home buyers out of the market which means they have no real ability to stop prices rising.
I have identified the main constraints as follows,
First we have the growth in prices for buyers this means borrowing for longer. We are fortunate here however that banks are structured in such a way that they are incentivised to consider borrowers ability to pay accurately.
We also have the investor segment, which tends to have better equity due to existing assets having accrued in value. The govt is also trying to level the playing field against their natural advantage.
Then we have rents, it makes sense economically for owners to have as much equity as possible, but this may well imply landlords being as aggressive as possible raising rents. Its no longer as acceptable a business plan to just earn capital gains in lieu of rental income these days.
And of course there is also the shortage of subsidised/state housing, though this really does not need to be priced like the rest of the rental market.
But unless the govt is willing to impede first home buyers I think they have the longest outlook on their borrowing and will probably facilitate further similar increasing price trends.
On a positive note the govt does seem to be building up the state/subsidised sector as they should/must. If they had not made long standing suggestions they could broadly reduce housing costs then maybe the public could accept this as their most important role, not actually the more broad kind of middle class welfare.
Thanks for the considered reply – quite helpful.
We are fortunate here however that banks are structured in such a way that they are incentivised to consider borrowers ability to pay accurately.
Yes – as I tried to outline below, just making renting (from both the tenants and landlords perspective) less attractive, doesn't automatically mean that you then move to ownership. Homelessness (as seen in the USA) is the other equally likely alternative.
The govt is also trying to level the playing field against their natural advantage.
The ability of a business to deduct interest clearly tilts the field somewhat in favour of investors. If you really wanted to level this it would have made more sense to allow homeowners to deduct mortgage interest as well.
And of course there is also the shortage of subsidised/state housing,
True and this is a consequence of decades of underinvestment, but the question we might want to ask is just how large a fraction of our housing estate do we really want the govt to become? Effectively driving out private landlords and the state taking their place doesn't feel like a big improvement somehow. Not when like me you've lived and worked in a country where this was the case for most of the 20th century.
I think this govt's intentions are certainly in the right place, but whether or not pulling on these particular levers is going to have the desired effect is way too soon to tell.
I'm not sure interest should be deductable for owners. Not without something similar available for renters at the same time.
So I don't think this can be used to balance investors vs first home buyers.
I think Steve Keens idea of a loan to (infered) rental income lending ratio can limit prices, however would probably just lock most first home buyers out if applied today (because it makes buying a contest in putting the most equity into your bid, e.g cash).
Not without something similar available for renters at the same time.
Well it effectively is via their landlord. Keep in mind that renting is still way cheaper than owning and this is one of the reasons why.
Plus it's my understanding that in the US it's common practice – I'm fuzzy on the details.
But otherwise yes – Keen's rather elegant idea could be very effective and be gradually introduced in annual increments over a decade or so to make it pretty painless really.
If you really wanted to level this it would have made more sense to allow homeowners to deduct mortgage interest as well.
That would tend to push up prices even more.
Overall I'm not personally too fussed because I never structured my business around capital gains,
Capital gains are largely irrelevant. Those who will be "fussed" are those who have structured their businesses around excessive borrowing.
These announcements aren't aimed at beneficiaries. It focuses on home ownership and house production.
Good question about the Green alternatives given that the Minister for homelessness is the Green co-leader. They could have at least tried to get their ideas in there.
The interest deductible closure will kill a lot of the speculative froth – though theres not much as it is. It will encourage a lot more slow Buy And Hold strategies.
Kainga Ora are on a roll. $2b plus the infrastructure fund will see whole suburbs transformed even faster than now. Maybe they should take over NZTA as a super development agency.
I would have liked to see more focus on trusts as tax minimising property vehicles. Thats where most of our wealth is.
Also needs more work on intergenerational equity shifts. Deductibility to get parents give more kids deposits would assist.
yes, and that is why this is so true.
The interest deductible closure will kill a lot of the speculative froth – though theres not much as it is. It will encourage a lot more slow Buy And Hold strategies.
All I can say from my own perspective, that absent this deductability we would never have built as we did, the cash flow would never have stacked up.
There are some details yet to be worked out around the announcement. It looks like the bright line test will remain at five years for new builds, and they will have to figure out a way of allowing interest to be deducted for new builds that are being done on a commercial basis.
But because tax losses are already ring fenced, this won't change the position of anyone operating with negative cash flow, it merely reduces the tax losses that can be claimed when the business finally makes a profit in the future. And at that point the owner is usually retired, or very close to it. How that plays out is something I'm not sure about at the moment.
Yes house building for rent will be consigned to just a very few large companies.
And there will be no more treating private rentals with some social good. There's a surprising number of kainga and family trust blocks which do little monthly discounts and contra deals.
No more. Rents will go up yearly according to the market. It will be purely a business mow.
Sadly I think you are right, we have three tenants who have been with us since before we came to Australia and we've kept their rents low for what you describe as 'social good' reasons. My partner can take way more credit for this than me – but in discussion with her this morning even she can see we can't sustain this anymore.
Now I'm almost retired carrying a negative cash flow is just not an option.
That's the real fishhook, end of the day rental properties are businesses a landlord will tally the costs add a margin and set the rent.
Sure this announcement will push some investors out but others with more liquidity and longer time frames will fill the gap.
Rents will rise as a result.
Banks are getting tougher now Friend of mine is struggling to get finance has paid $600 a week in rent for a few years and saved a 100k deposit at the same time bank saying he won't be able to service a mortgage that would be equivilant to his rent…
Therefore, tax regulations should have been introduced on rent not capital, tax heavens such as trusts opened up and exempt properties from being allowed to be held in trust (transparency). State housing contracts put in place with urgency. As long as there is no new supply, prices will rise.
We can watch as the rental support (another ruse for some landlords) will go up and up. People will not earn more but tax will be going through the roof to support the homeless and at the same time those who have a home have to pay eyewatering rates. I am already eying a lux tent that will do me just fine.
Yes I am disappointed the government didn't seek to ensure there was zero tax advantage for holding property in trusts full stop.
There would be very few votes lost on that one – it's where all the big end of town hides its stuff.
Unfortunately it would have meant introducing a massive tax for wealth that seeks to leave the country – because that is surely what it would do. US Senator Elizabeth Warren is currently proposing such a tax. The French tried such a tax and the blowback was so big they reversed it within months.
So far our government has managed to slow down much of NZ's capital circulation (in property) and freak barely anyone out. And also done it in a manner that National will not undo it. That is something of a political feat.
Yes – it's odds on we'll be doing a bit of 'capital flight' ourselves.
I don't pretend to understand the changes the govt announce, but I feel it is a possibility that they are on to a winner when you hear the howls of outrage and protest from the head of the property developers. Good job
but I feel it is a possibility that they are on to a winner when you hear the howls of outrage and protest from the head of the property developers. Good job
Unless you're willing to argue that the govt should be the only builder and owner of property in NZ, exactly who do you think actually provides all these nice, warm attractive homes you want everyone to be able to live in?
The men who reframe and reclad houses other men built according to standards now recognised as faulty.
OK so no property developers or builders then. Who should do the job? Pixies or unicorns?
Neither. Young people with a future buy or lease land and build dwellings there mentored by competent builders and supported by local government.
Sorry but the era of the hands-on owner-builder is long gone; we were one of the last. Sure it's still technically possible, and I'm sure a few brave souls do, but in practice the odds are stacked against you.
I still remember the last building certification we went through in 2005, and being told that he was surprised we had managed it – that we had become a tiny minority even back then.
So don't paint me unsympathetic, but it's not a solution.
They'll be howling anyway, while they're eyeing up their next property purchase in the knowledge their accountant will sort things out or failing that this is nothing a rent increase can't deal with.
Why 'the only' provider?
Unicorns or pixies?
The train of thought appears to be that because the speculators and rentiers are howling that their profits will be merely exhorbitant rather than extortionate*, they will all vacate the sector as only the government will have any interest in building new dwellings.
*cue the pitiful story of a capitalist with $10mil in property who, nonetheless, is apparently living in abject poverty to provide tenants with homes
I would email you a copy of my accounts if I thought it would help, but I have broken down the percentages at 14.1 below. In discussion with our accountant he tells me our numbers are pretty typical, if somewhat conservative.
In short our operating cash flow (aside from any increase in equity) is about 12% of rental income. If you think this can be called 'extortionate' then you're using a different dictionary to me.
You're running a margin of 12% and getting annual equity increases in the double figures (assuming NZ property market, oh and those profits will not be taxed as capital gains if you wait out the bright line), and still moaning that you're hard done by.
Excellent demonstration of the capitalist mindset.
That's 12% is before tax; under the proposed changes the increased tax will take it close to zero. Is this still extortionate in your dictionary? Come on tell me so.
As for equity – well it's not the same as operating cash flow. At my age the banks will not lend and given the interest deductibility is gone it would make no sense to – so this leaves selling or increasing rents as the options.
Keeping in mind that none of our tenants will likely qualify for a mortgage, what course of action do you think they would prefer me to take?
… and the prophecy has come true.
And frankly, yes. You are fucking creaming it, mate. And all this is in addition to whatever you might actually do or produce for a living.
How you manage to take umbrage and feel sorry for yourself with a straight face is a miracle of nature.
And frankly, yes. You are fucking creaming it, mate.
Really? So you're trying to tell me that a cash flow profit after tax of something less than 5% (and returning damn nearly zero on the capital invested) is somehow 'creaming it'.
You're getting paid way more on NZ Super mate – so who the fuck do you think is the parasite here?
And poor you, left there in penury with nothing but the rapidly-increasing equity you profess to not care about. 5% of incoming rent – that's what, a grand a year? Any of the work offloaded onto property managers?
This money you're not making from the work you're not doing, that's in addition to the day job, right?
The only one who used the term "parasite" is you. Freudian slip?
Again 'rapidly increasing equity' is meaningless unless you can access it. At my age the banks are very unlikely to lend to me and even if I could, I'd still have to find something else to invest it in in order to service the extra debt. With interest deductibility gone, that option is pretty much off the table.
That leaves selling – or bumping the rents to restore a positive cash flow. Which option do you think our tenants would prefer? Asked you this question before, and you failed to answer it.
Look, either your self-perception is the rule and landlords aren't so bad as a group, so they'll likely be fine.
Or you're the exception, in which case you're asking that because one landlord throws crumbs to the peasants, the other peasants shouldn't revolt because the ones you throw crumbs at might end up worse off.
There are all sorts of way to access that equity if you really needed to – reverse mortgages, for example. Putting your rental properties into a financial instrument and selling shares in it. Ask your accountant about all the other ways you can make money while contributing no effort. There are loads.
There are all sorts of way to access that equity if you really needed to – reverse mortgages, for example.
All of which would depend on having the cash flow to meet the costs.
As it happens we've been talking to a number of banks in the past few months for just this purpose – and it really isn't simple as you seem to think.
Crucially – the point you keep missing – is that doing so only makes sense if you can use the money in another investment, and with interest deductibility off the table the returns necessary to make it worthwhile are just not there.
Besides I invite you to utter the words "reverse mortgage" in my partner's presence. I would enjoy watching that.
Only makes sense to you.
You're the one making the grand pronouncements on how my business should work, yet you don't know shit about it.
Not your business. Your priorities, and the fact that you're complaining about how you can't make money off the properties you own in a country where half the people don't even own the house they live in, let alone having other homes to rent out to others.
Anyone would think you were Oliver Twist, for crying out loud.
Reading through this thread, it is obvious you have experience with rental properties, and McFlock has probably never owned one and seems to have absolutely no idea of what it's like to be a landlord in the real world.
But like most people in the country, I've been exploited by my fair share of them.
Lord, save me from the asset rich who plead poverty.
If I understand RedLogix correctly the cash he has left, after paying the usual expenses, to cover the principal component of his mortgage payments, and profit, is 12% of his rental revenue. If interest is no longer deductible he may have problems.
And I'm only speaking to this topic from my own experience. But I'm reasonably sure that many people in the business, especially those who have been in it less time than us, will face a similar quandry.
Reverse mortgages do not depend on cash flow to met the cost. An investor with two homes or more could use a reverse mortgage and take the equity from one average home, and live very comfortably for many years.
So he sells and collects the capital gain. Poor bastard, practically in penury. /sarc
OK so you get to tell that to our tenants – none of whom will qualify for a mortgage. And will all face a considerable rent rise in an already tight market.
"Don't make the rentier market less profitable, or my tenants will get it".
Shit, if it actually works, more people will buy their own homes, there will be fewer ghost homes, and the rental market will become less exploitative. So maybe your threat is a little bit hollow.
Just as likely a different investor with more capital and a longer horizon…
In the mean time another person get shunted in a shitty motel room whoops, I mean emergency housing…
It is not a bad effort for a government from a society that underwent rapid stratification over the last few decades. The members of that government are necessarily strangers to the kind of pragmatism that had Savage carry a dining table into 12 Fife Lane.
Resolving the crisis will require rather more, and better thought out solutions, but they have at least shown willing. Tack a tiny house option in through their Genless initiative and they might go some way to breaking the pernicious monopoly that has priced an essential public good out of reach of the two lower income quartiles. Get the Greens on board by tasking them to design them.
It's better than anything the Nats would have done. We need to keep that in mind. That said, the package is fairly underwhelming. It's biggest defect, AFAICS, is that the state cannot, or will not, build enough social housing to take the pressure off rising rents. That's why I think we need a rent cap until supply of social housing improves. I',m not sure, either, whether bureaucracy (Housing or WETF the label is today) is up to hte job of transforming our housing environment. FWICS, too many well-paid officials are, at best, only paying lip service to the govt's nnounced policy changes. Perhaps officials do not want to change direction from neoliberal status quo, or perhaps Ministers are telling them not to change, that the media announcements are just window dressing. Who knows? But unless this govt does transform the housing environment, or least make a major effort, this term, it is finished.
its funny cause i think it is what the Nats would have done. The bright line test is their baby, all Labour did was extend once to no effect and now again, presumably again for no effect.
Increasing the prices people can buy with their govt subsidy is also nothing ‘good’. Consider that houses in Wellington are unaffordable by their own reasoning, and most will not be bought by first home buyers.
And the interest that can’t be written off anymore will be charged to the tenant, who will charge it on the Accom Supplement.
Never mind that she never mentioned those that can't rent, can't buy, are homeless, about to be homeless or such. Nope.
Fenton Street in Rotorua is now called P Street. Thanks government.
Doing the numbers, there is a reasonable chance of rents increasing forty percent over the coming four years. To cover the extra taxation obligation from the interest claim removal. That's what the numbers indicate on an interest only mortgage, on a 39% income tax rate. Remember too council rates are also going up in many places. As are insurance premiums. This hasn't included the likely hood of mortgage interest rate hikes over that time. But being devil's advocate, I'm thinking interest rates will remain low for a number of years.
That sounds about right. When we started we used to budget fixed costs (before mortgage and tax) at around 20%. Now they're just under 35%, and looking at the most recent insurance bill (which jumped from $2250 to $2720 this year on just one unit) it looks they will go over 40% for certain.
Now add in the largest single expense which is the mortgage interest and costs are now 52%. Plus on a P&I loan there is the principle to repay as well, which toward the end of the term dominates, and now my total outgoings are 88% of income.
Now bump up the tax and an already thin operating cash flow pretty much disappears altogether. In typing this out I've come to the determination that the rents will have to increase.
And if as you think rents increase by 40% over the next 4 years what do you think will be the occupancy rate?….Private rents are already unaffordable for most, hence the AS, increasing them significantly more will require substantial further government subsidy or substantial wage increases….how likely is either?
What is far more likely to happen is that those landlords that think their return is inadequate will divest the property (more than likely to a first home buyer) and pocket the capital gain…especially if they have owned the property for more than 5 years.
Well as I've said a few times, if you think the rent unaffordable, try owning the place.
I just did the numbers, if we sold all of our units to our tenants right now and they could come up with a generous 80% LVR, their aggregate mortgage payments would be, at a gentle 2.29% 25yr term, almost exactly the same as the current total rent they pay.
But now add in all the fixed costs of owning. Insurance, rents, R&M which add another 40% or so on top. Plus every time you move house (on average every 4 – 5 years) there’s a bunch of real estate and legal costs.
On reflection in response to this change I think some landlords will sell, and others will just increase rents. In a years time I’m not at all clear that anything will be better.
In the light of your 'doing the numbers', it seems extraordinary that home/property ownership remains so popular – maybe there's also an upside?
However, as with all ownership, it's worth remembering "You can't take it with you."
Yes there are many good reasons to own a home, many of them intangible but important. From a FHB perspective however there are four things that have to come together:
But however you cut it, owning a home with a mortgage is never cheaper than renting. It's going to take 25 – 30 yrs of sacrifice to get to freehold ownership. It's this last factor which is all too often the one that's missing.
Stable income and ability to service the proposed loan
I would have thought that paying rent on time constitutes evidence of that ability, but the problem is that landlords must make a profit so the renter in fact pays more, for no equity. That is 100% the reason why renters I know want to be paying their own mortgage. The problem for the renter is; as values grow the deposit required for that first house keeps going up, faster than someone on a mid-to-lower wage can reasonably save for it.
Yes paying rent does qualify towards assessing serviceability. But there is more to it than this, banks will only lend up to a certain fraction of your income, because they know you have other living costs as well.
but the problem is that fact that landlords must make a profit the renter in fact pays more,
A common misconception. Your landlord, if they also have a mortgage, makes very little operating profit on your rent. As I've explained a few times elsewhere, the cash flow in the business is generally rather marginal.
Above at 14.2.1 I did the numbers. The rent paid would cover a mortgage at currently low interest rates, but three factors bugger this up. Firstly the banks will assess your ability to service it at a much higher interest rate, and secondly they know perfectly well you have a bunch of other substantial costs in owning. And thirdly once you get past a certain age, they become very reluctant to let you take on 25 yr mortgages, they know damn well that past the age of 50 if you lose your job, the rampant ageism in the job market means you will likely default.
So while you may think you can afford to buy, the bank may well take quite another view.
Where I do agree with you is that the current rates of price inflation mean that saving for the deposit is tough, unless Bank of M&D come to the party. That's a whole other problem that I think this govt could have tackled more directly.
Every week the mortgage is paid, the landlord’s share of the house increases, the bank’s reduces, and the renter has somewhere to live, for now. That is the inequity. You can’t argue it away, the renter works to pay you for the right to the shelter which you own the exclusive, private rights to by dint of capital.
Quid, Me Anxius Sum?
The critical factor you ignore in your calculation is principal…..unless you are interest only, or you refinance then over time the debt ratio improves….thats true for both owner occupiers and landlords…..if you constantly re-leverage your equity you have no one to blame but yourself.
Owner occupancy should cost the owner more because after he has made the final mortgage payment he will own the property outright, unlike a tenant who will never own the property he is renting. The same thing should apply in a rental situation. I can see no reason a tenant should be required to pay sufficient rent to pay the landlord's mortgage for him. In an ideal world of course landlords would rent out only properties which they owned freehold, and then the question would not arise.
Perhaps all rents should be deemed to rest on that assumption, and be regulated with that assumption in mind.
Ah … so you want me to provide you a house to live in at less than cost.
More free lunches.
Not at all. I'm quite happy to see a depreciation allowance included in the rent. However I'm not happy to see your mortgage payments included. Mortgages are not a cost. They are a payment for the house itself.
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Try buying a house without a mortgage.
If you need a mortgage, fine. But if you purchase one, it will be yours, so don't expect your tenants to pay for it. The appropriate way to charge for it it is to include depreciation in the rent.
Well depreciation has been pretty much pared back to sfa as well. So no that doesn't make for an argument either.
Basically your argument still comes down to wanting me to provide you with a cheap house at my expense.
At your expense? How do you make that out?
Depreciation rates are designed to last 40 years so I don't see how yours could be pared back to "sfa". I'm pretty sure you haven't been in the business that long.
You cannot claim depreciation on a rental property, only on the chattels.
You cannot claim depreciation on a rental property, only on the chattels.
Is that right. It looks as though my tax knowledge is a bit out of date. However it would not stop someone including depreciation when calculating how much rent to charge.
A refresher for you: https://www.ird.govt.nz/property/renting-out-residential-property/residential-rental-income-and-paying-tax-on-it/rental-expense-deductions
While perusing the first of your two links I came across the following:
You can also deduct interest on money you have borrowed to buy your rental property. You cannot deduct this if you have used some of the money:
The "something else" to which it refers is the situation where you purchase a property as a family home, and later rent it out. This indicates that the IRD don't consider interest to be something that contributes to gaining of taxable income. In other words it stands outside the productive process. I know that the Income Tax Act says that an expense is deductible if incurred "for the purpose of " gaining taxable income, but seems disingenuous to say that that is an expense's purpose if it doesn't actually contribute to it.
I think it would be more accurate to say that borrowing is done for the purpose of augmenting one's capital; which of course is a personal benefit to the borrower.
I am down with the gist (jist?) of your arguments, weka. The view of housing as an investment rather than a need for individuals, whanau and community.
I heard this just now on RNZ, a former advisor to The Greens and Labour, rates it as a 7 out of 10 (talked down from an 8/9 by Mulligan) for boldness.
Actually in addressing the demand and investor / occupier ownership split I think this is a good first step on the demand side of the housing equation. When people are buying we really want the rental investor to not be in the room any more. I'd like to see it backed up with increased investor LVR's and harder investor DTI ratios and moves to make sure houses are actually occupied.
And don't forget there is always a third class of potential buyer. With the housing supplement eating I believe about $5.5 mill a day – the government itself can be a buyer and that can underpin housing prices but help to lower rents at the same time.
And the government would acquire assets for it's money rather than subsidise landlords. It could also give the government sites to redevelop for part rent part sale where they have subsidised the council portion of the costs and can use some of the green small house ideas above. In particular smaller units for retirement housing to enable shifts from bigger properties
Would be interested to know how many units we need to build to house the current population adequately and if there is an aspiration for % ownership versus rental. Actual ownership is a better protection against any future RW government wanting to sell a large state owned housing stock.
Agreed Red Baron. Good points.
Do most citizens believe in a "collective responsibility for people having homes?"
We believe in a collective responsibility to moan and bitch if the housing situation isn't perfect and affects us negatively in any perceived way.
No they don't, but I was talking about progressives and Labour voters, and they can't have it both ways. They can't say they want poverty to end at the same time as saying don't touch my capital gains.
Labour will now lose the next election, the middle that has drifted to Labour during covid will now scamper back to National.
All trading entities can claim loan interest costs against income, but suddenly, landlords cannot – this will go down like a lead balloon with middle NZ.
You think people have forgotten the "fake piety" the "passing of private information" and "money in brown paper bags" plus "fake supporters along the road" lol lol
have you forgotten the first law of politics – people vote with their wallets
Landlords are slightly unusual 'trading entities' though. Their customers (tenants) are effectively the people they have beaten in the competition for houses. This competition rapidly becomes very one-sided as the winners obtain capital assets against which they can leverage loans, while simultaneously extracting cash from the losers. The playing field gets very uneven very quickly without regulation. (And that's without even asking the question of whether housing, at a basic level, should be a market at all.)
And I think your conclusion is wrong. The high anxiety at the moment about housing is because portions of 'middle NZ' who might have expected to own houses now look like they might miss out – or their kids will miss out without a whacking great inheritance that seriously restricts the retirement options of their parents. And I think they understand that this is because the table is tipped in the direction of investors and vast amounts of wealth are flooding into a relatively few pockets.
treasury think it is potentially a bad idea and wanted more time to sift through the potential consequences, but Jacinda and Grant think it is a great idea, so here we are.
Lets see what the electorate thinks about it in 18 months time – when the effects start to bite and rents soar, good luck selling that consequence to labour voters.
A rent freeze for a couple of years might be needed. It's not an ideal response, because insofar as there should be any housing market at all, it should be a clean market with real competition and clear signals. That means the landlord's business model should be based on income from rents and on competition against other landlords to provide the best accommodation on the best terms at the best price. But currently there is little to no competition between landlords – or the competition has been displaced and occurs only at the preliminary house-buying stage rather than in the day to day operation of the rental business. So it's a pretty distorted market already, and throwing in a rent freeze wouldn't be sullying something that was already working well. Of course it would be ugly when the rent freeze came off – but life is ugly.
well they did not throw in that rent freeze, so how long before thy come around to 'understanding' how that is needed? Another 2.5 years? maybe an election promise for the next time to the few that still are able to rent?
I mean even in 2020 the rent freeze only worked for so long, then got shoved bye bye and rent went up like there is no tomorrow. And surely no one in government could have foreseen this, or even pretend to understand that.
No, there will be no rent freeze. There will be rent increases and the govt will shovel Accom Bene to landlords, as it has done for so long now, and those that fall out of the housing market altogether can get warehoused a few days every other month in 'emergency housings' a million + a day.
Yeah, they could just build, but they don't have the heart, the brains, and above all they have no guts.
"Treasury think" They get it wrong time and again!! " House prices are going to fall" the reverse happened so in this area their expertise is questionable.
Maybe 140,000 residential property landlords in NZ, and 2,894,486 voters in the last general election. How many new votes will National get as landlords "scamper back"?
Accomodation supplements total ~$1,500,000,000 per annum. If/when “rents soar“, will Labour voters penalise the government?
plenty, once renters see their rents skyrocket
1 k; 10 k; 100 k? Will plenty of renters believe they'd be better off under National?
Lets just wait 18 months shall we
but that might be two nat leaders from now!
Will most renters feel they are in a better position pre or post 2017, will those potential 1st home buyers feel any better today after this announcement or as a country are we better of regarding housing ?
your basis regarding what would National do? Who cares labour are the government and they have promised us solutions. Well the position has deteriorated look at the increase in property prices.
these announcements do no good for landlords, potential owner occupiers or tennants, how can they screw this up so much for everyone.
How did we get to here? Who really wants to make shelter more affordable?
Barring collapse, or the emergence of another political party with a focus on social justice, I know where my vote's going.
You mean the National Voters that like every now and then vote for a Labour Place holder until the Nationalistas get their act together and come up with another John Key.
Yes, i can see Labour be send into the wilderness even longer then last time after Clark.
There are all the industry that get told that no one will come to their aide and please roll over and die silently, or be humble. (That minister should have had his mouth washed out, considering that the whole Labour Crew currently in parliament is not known for any productive work anywhere. And a teenage job in a fishnchip shop does not count – there are kids that do that type of work to pay their parents rent).
There are all the unemployed women the govt gives not a flying fuck about and certainly does not bother itself about job creations for the poor dears. Oh, and while they get taxed, they should not expect a benefit.
then there are the kids that are poor, because their parents that are poor and hey, they now get a bowl of weetbix and a tampax if they are a menstruating person going to school, and surely that will make the poor urchins feel richer, right? Never mind the parents will still eat cereal without milk at diner time, so that the kids have something.
You need to look at yourself and understand that you are a political party groupie, no matter what you pull that lever while the rest of us go meh. Why vote for National light? There is no reason for any left leaning person who is honest about the needs of the country to vote for Labour or National. Both parties are useless, the National Party don't care and do what it wants – tax cuts for the very rich (and that includes the Labour Suits) , and the Labour Party is to timid (at best) or to gutless (at worse) to do anything – anything at all.
so yeah, i don't see any reason what so ever to vote for this clown car.
Hence this tiny we bit of an anouncment of nothing much, 3.5 years too late.
I've party-voted Green for the last four general elections, and plan to do so again.
Sabine, look at yourself and understand some of your pejoratives are ‘off‘, imho.
Not really Alan. National is a party of hardnosed money makers and not nation builders. We need a government not a CEO.
Middle NZ as you call it is relatively poor but that is often forgotten. The most typical salary is 52K gross. You do the numbers with those rents taking more 50% at least from that as the payment is off nett. We are slowly becoming a banana republic with the only “productive” sector being landlords.
All trading entities can claim loan interest costs against income, but suddenly, landlords cannot.
I agree. No business should able to deduct interest for tax purposes. Still, give it time.
At least you are consistant.
If capital gains "are not income" why are entities allowed to claim tax against the interest cost of earning it.?
Are you trying to tell me that capital gain is "earned"? That's news to me.
Merely pointing out the inconsistency.
I don't see any inconsistency being pointed out.
In fact the reason for the problem involving the relationship interest deductibility was due to an anomaly in Income Tax Act which regards interest as a cost of doing business, and nothing to do with the cost of raising capital. That has now been remedied, at least where the rental market is concerned.
Policy announcements could hardly be described as bold (imo) but they are potentially effective in that they make plain to those relying on continued capital gain that the party is pretty much over and that should have a chilling effect on prices…whether prices fall will depend on how many and how fast speculators/investors divest….the government (and RBNZ) will be hoping for a controlled and gentle divestment but the potential is there for a rush to the exit.
Time will tell.
do you mean that Labour's plan will stop house prices from rising? When do you expect the prices to stabilise?
That would be my expectation…when?..pretty much now….whether they fall will depend.
so people that bought a house last year will sell it this year for the same amount?
not necessarily….but an investor who bought a house say 6 years ago may look at the new regime and decide that they cant afford to keep the rental(s) without a substantial rent increase (which the market cant support) and decide the best course of action is to sell the property and reduce debt in the rest of their portfolio or invest in something else….before everyone else decides the same and reduces prices.
The problem for all parties is every situation is peculiar and there are thousands of them…the trick is picking how most people will react….a bloody difficult task….unless you go “bold’…if you go bold then the way people will react is much clearer.
I bought my house 3.5 years ago for 219k. It is currently sellable at 550.000 – thanks to the obscenity that is the housing market in NZ.
I can rent this place for nigh on 550 – 600 per week. My mortgage is 200. per week.
Why would i sell. I keep the rent where it is, if the tenant can't pay anymore they can go to Winz and apply for an Accom benefit. And chances are they would get it.
So as long as the government is happy to dole out that particular benefit, Landlords can charge what they want.
Then in 2.5 years you have a decent chance of a National government and …..the bright line gets cancelled, and anyone who held on to their property is in for a nice pay day.
Rinse repeat. And if you read carefully all the proposal you will find that something are not part of this 'war on speculators', any rules and regulations as to how rent can be charged, how much one can charge per bedroom etc. Nada, nothing, zilch, nix. Too hard basket.
Landlords cant charge what they want….they can charge what tenants can afford plus Government subsidies….the tenants are tapped out, and the government have given no indication they will increase the one and a half billion annual subsidy….and if they did how long can they keep it up with their debt to GDP ratio already doubled in less than 12 months?
As said, unless incomes increase substantially or Gov increases subsidies the private landlords have nowhere to go….except out.
And then theres unemployment…
"the government have given no indication they will increase the one and a half billion annual subsidy….and if they did how long can they keep it up with their debt to GDP ratio already doubled in less than 12 months?"
The govt can maintain or increase this indefinitely. This is true due to the way the institutions involved work, and debt to GDP ratios are irrelevant as they are for similar countries with 80%, 100%, 120% or over 200% debt to GDP ratios.
But it is slightly funny that in 19.2.1 the govt should apparently give you free money in order to implement a green investment program which it should anyway (and can do without giving away free money). That kind of policy will simply dwarf a few billion in spending of course.
I am also a bit confused about the impression of accomodation suppliments. There seems to be an impression that charging rent is morally wrong if the govt pays somebodies rent for them or that there is no benefit to the tenant if their rent is being paid for them. Or does somebody have an actual good explanation for the aprobum around this policy?
Have the government given any indication the AS will be increased?….no they havnt…I didnt say they couldnt but that dosnt suit your narrative so you are arguing against yourself….come back when you have a point to make.
I'm just highlighting your AS recons are not based on anything, and the govt can of course change its AS policy as it sees fit.
and if they do (which has in no way been indicated) then the situation would need reappraisal…..however if they did then they will undo much of the policy they have just implemented so Id suggest it is very unlikely….a future administration however may well.
Quite. Whereas these timid feckers are as beige as they come.
I have some sympathy…theyre trying not to crash the market.
Is a rapid price correction a crash by another name?
And how does that affect owner-occupiers who are happy where they are?
Will depend on the size of the correction and their level of exposure….id suggest if you bought 5+ years ago you will be fine….more recently and you may have a problem
Imagine if they had announced $10b in rental-only public housing..
Would anyone believe they could deliver though?….probably not.
They have however announced provision of funding for infrastructure for housing….that will be viewed with scepticism id suggest.
With the failure of Kiwibuild there is no confidence in the govs ability to provide substantial housing construction but the tax provisions are easy to implement and immediate.
Since speculators and landlords will be permitted to keep 67% of their ill-gotten gains I cannot see today's announcement regarding brightline taxes having much effect on house prices. However, the move against interest deductbility may have some affect. But perhaps the two announcements will be complementary in their effect.
Yes, the interest deductibility removal is the most impacting…and appears to have caused the greatest outrage by the vested interests….but as Woods said this evening , the moves have to be viewed in total, not in isolation.
what would they divest to? what would they invest in?
I expect nothing to happen at all other then the next rent increase to be hard and high on everyone who is forced to rent.
What indeed…that is a problem, but better to have a poor return than a loss of capital AND increased costs.
If I had my way the Gov would issue Green Bonds for the decarbonising of the economy.
Well you can always invest into 'my food bag', everything single packed in plastic and such, surely there you will get your poor return and increased costs. for throwing away all that plastic.
The only thing this will do is increase rents, shovel more Accom Benefits to those that hold on to their properties – if they can be arsed to rent them in the first place – and other then that. bumkins. NZ has got nothing to invest in, heck the NZ government is not investing in anything. Go figure.
My Food Bag was always a dog….cant believe anyone bought the IPO.
It wont increase rents…some will try, but they'll come undone in the main….there is no capacity to pay higher rents.
And the problem with a Green Bond is the Government dosnt have a plan or capability to implement it so the investment will languish.
We pay a million a day to house homeless for a few days in a motel, we are paying millions out in Accom benefit.
The government has money that it is happy to handover by the fistful to landlords and landowners.
Lets have a wager for 10 cents, i say rents will go up, you say don't. 🙂
Yep..i do say…but more important is what property investors think.
“what would they divest to? what would they invest in?”
Equities and Bonds are the main options. For example Smartshares NZ Top 50 ETF has a 15.73% 5 years annualised return.
Why would they want to invest in anything. Is it that they want to earn income "in their sleep" as J S Mill suggested. Perhaps the the government should offer inflation proofed debentures to accommodate peoples savings. That should be enough for anybody if they want money for nothing.
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Not all buyers. https://www.oneroof.co.nz/news/39151
Renters on the other hand can get screwed. https://www.stuff.co.nz/business/300259522/housing-policy-what-the-changes-mean-for-homeowners-investors-firsthome-buyers-renters-and-bach-owners
"Average Auckland rents tipped to hit record $600 a week this year: $18/week rise forecast"
This means that housing is an interesting 'market'. The losers in the bidding war to buy houses have to rent their accommodation from the winners – and by hiking rents, the winners are able to nobble the losers' future ability to compete with them.
Doesn't really sound like a market to me – more like the naked exercise of economic power.
Actually what you've outlined there is pretty much true of all markets, even more so the ones with significant natural barriers to entry.
It is the legitimate role of governments to moderate this tendency – but they need to be aware that most well intended actions will have unintended consequences. If this action either ramps rents up dramatically AND/OR tanks the market substantially, no-one will thank them for it.
Maybe we'll get lucky.
Some people will thank them if they tank the market, obviously, given that 40% of people don't own a house.
51% of people don't own the home they live in.
60% of homes are owned by at least one member of that household.
There are also freehold homeowners like myself who wouldn't be bothered by the market tanking. I own my house to live in.
I would feel bad for the people going into negative equity, but good for those who would then have an opportunity to own.
And why would you buy in a falling market? You'll likely lose your equity and the bank won't be much keener either.
Overseas experience shows that periods of housing market crashes not only don't help home ownership rates much, but tend to flow into the wider economy as major recessions.
In other words be careful what you wish for.
Prices six or seven times typical household incomes don't do much for ownership rates either. And a market crash is only for a limited period. Eventually prices stabilize, at a lower level, and buyers return. A crash is tough on recent buyers of course, but that the risk one takes on purchasing property (or shares, or any other investment).
PS: there seems to be something wrong with my monicker. I’ll try and correct that for future comments – mikesh
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Yes – that word risk. It goes to the heart of the matter here.
Many left wingers only put a value on labour. And because they've never taken a serious economic risk in their lives they literally have no sense of how to price it.
Poorer people, or left wingers as you call them, live risk every single day of their lives. The risk of being without the means to live in retirement, and the means to help their own children financially, because they couldn't jump on the investor, or even single homeowner, bandwagon.
But bad choices, right?
Looks to me there is zero economic risk in the NZ housing market and the numbers completely back that up.
Looks to me there is zero economic risk in the NZ housing market
So why didn't you take it on?
Are you for or against poverty? It's getting quite confusing.
You don't know what I've taken on, thanks.
Your philosophy is right wing to the core. Social responsibility is not to be considered when you, yourself are beating the the system.
I mean, why can't everyone just beat the system?
I made a moral choice not to add fuel to the fire, by refraining from buying more than one house.
So when someone takes on an economic risk and gets themselves out of poverty it's 'right wing to the core'.
Yet doing nothing and remaining poor is somehow virtuous? Because while being poor is indeed a risk, it's one that produces nothing but misery and no-one will pay you for that.
Possibly there are ways to get out of poverty without kicking the ladder out from underneath you, after your arduous climb.
I didn't "do nothing" and I am not poor.
But I decided to earn money in ways that add to the communities wealth. Not took from it.
I do not agree with “kicking away the ladder”.
Never denied that I'm a capitalist. I am now on my second business and I work for a multinational. I wrote a whole article about it.
I may have done better, money wise, by continuing working in the oil industry and buying three houses. But at least I can sleep at night.
As someone once said to me "everyone gets to decide if they are going to live their life as part of the problem, or part of the solution".
It no longer surprises me that people who profess to be religious/ Christian, prioritise their own wealth over, "Morality".
The less money you have, the more the risk.
Housing has not been a "risk", for decades.
The ones most at risk from a business collapse are usually the employees that lose their jobs, or the owner of a small business who has to give personal guarentees.. You know, the ones that don't make that much profit.
The million dollar business owner doesn't take the risk. His employees, suppliers and customers, do. As he scarpers to Australia with the assetts in his wifes name. While the company collapses behind him, with the weight of the borrowing he did.
A landlord is not, taking a risk. Profit is a certainty. Including the capital gains on sale. If it isn't ,you should fire your accountant.
You want the possibility of earning a premium for “taking a risk” start a small business that does something useful, building houses for example, and earn it!
A landlord is not, taking a risk. Profit is a certainty.
In which case you have zero idea of the reality. I agree that it's a modest risk, but so are the returns. They are certainly not a get rich quick scheme.
Plenty of people get into residential rentals and bail after a period, you read about the success stories, not the failures. Hell we came bloody close to falling over a few times in the first decade.
Why do you think we moved to Australia?
I know more landlords than you can shake a stick at.
Renovated houses for many.
Even the one whose house was trashed by the tenants, still sold for twice as much as they paid for it, including paying for the renovations, only two years before.
A property that has doubled in value in two years was purchased well under market. The buyer saw an opportunity to add value, took the risk and it paid off for them.
You could have done it too, hell it sounds like you did all the work for them, but 'moral values'.
Fuck, moral values, who would want those?
Pricing risk is for actuaries, insurance companies, etc, dealing with large populations, not for mum and dad investors. These have to heed Murphy’s law.
Obviously people try and pick the bottom of the market. But that aside buying into a falling market is still better than buying on the peak of the market.
Overseas experience shows
Because housing is such capital intensive part of our economies, and one that affects almost everyone, when it shrinks so does everything else.
And has all sorts of perverse effects. For example take a family that has purchased within the past five years, and the market falls under them leaving them with no job and no equity. Now they're forced to sell and are left with no deposit for their next home. (Or worse an overhanging debt to the bank.) Now suddenly they're back to renting, adding demand in that sector. They may never recover from this.
Or consider the small business owner who put up their home as collateral. And so on, the destruction of vast amounts of equity in a housing market decline has impacts everywhere. It seems to me that because Aus/NZ has avoided such a thing for a very long time now, we’re not very aware of their consequences.
With the wage subsidies gone New Zealand remains an exceptionally brittle economy.
We can thank our lucky stars that the milk price is high.
Because other than that, housing and infrastructure are propping up our entire economy. And as the last GDP figures show, even dropping $40+billion to fill the GDP and employment hole didn't even cover what we are going through structurally.
So it's all very well for the revolutionaries to say that they want to put a full effective capital gains tax on all rental property forever and until the end of time. But we are about as weak as we have been since the wool price collapse in the 1960s.
And for that we can thank the neoliberal clowns who built short term low-quality growth strategies and gutted training and education – building a low-wage economy and then crippling it further with low wage immigration.
If they had set out to ruin the country they wouldn't have done one thing different.
For us the return on the capital has now become zero. We'd be better off putting our shareholder funds, setting aside even the capital gains, into a 1% bank deposit.
There will be plenty of investors looking at their projected balance sheets today and deciding something has to change.
Good. Another house on the market?
Two things – sellers aren't stupid. It's unlikely they'll collectively dump huge numbers of houses onto the market and devalue their asset. Some will be forced to, but not the majority – so give up your revolutionary dreams of cheap houses flooding the market.
Secondly as I've suggested elsewhere – the price of housing is one thing, the willingness of the bank to risk lending you money to buy one is quite another. It's not a huge risk, but the banks do have rules for a reason. When they're broken you get events like the 2008 GFC.
And this is essentially the business model – that both my bank and myself have been willing to risk capital to provide housing for people who would not or could not take on that risk themselves.
Stuart. Nailed it.
Yes. Stuart has shone a light on a critical point I think we can all agree on. Having worked alongside several Finnish colleagues over the years I've always been aware of what that nation did right:
Note carefully, none of this was achieved by any revolutionary means. Indeed a list of the top Finnish companies reveals a substantial number of globally significant, highly competitive players all instantly recognisable by anyone in that industry.
The reasons why NZ has not been able to copy this model, especially around building a highly skilled, high added value economy are complex. The neo-liberal demolition of our trade and technical training system is certainly one factor I'll never forgive them for. Yet it seems to me we gave them up all too willingly.
Megan Woods is hopeful; RNZ deploys euphemistic labels. Are you just a homeowner when someone else is paying you to live in said home?
Wonder how many new homes she was advised need to be build in the next few years to have the effect she claims?
Megan Woods was terrible on One ZB this afternoon when interviewed. Couldn't answer a single question. At least she still turns up there I guess!
Who was the last minister to give a good NewstalkZB interview, in your opinion?
Tough question. IMO probably Stuart Nash.
Playing to his natural crowd then.
Arden has been bought, and owned. She has been bought and owned by smugly fat cat property owners who screw homeless renters, because they can.
Arden does not represent a "caring" society, only an utterly greedy one.
She is the reason I will not vote Labour again.
Ardern's caring is about profit, not people.
You are giving one person way too much credit.
If nothing else the policy is saying loud and clear that owning rental properties is not going to be treated as a business any longer. Just a purely speculative investment that will be taxed accordingly.
Nor do we want to leave this too much longer. FHB's are around half the market? so this means say 40,000 new buyers in the last year? – a policy from the Reserve bank to allow some interest only lending to FHB who have bought over the last few years would help mitigate any damage here.
And anything that can be done to wind back prices now rather than later means fewer go underwater. the stuff headline said it all -"better to jump off the roof than out of an aeroplane".
A glide path has been provided for over-leveraged investors to exit the market…
"Under the government's proposed housing rule changes, if you acquired a property before March 27 2021, you can still claim interest on pre-existing loans as an expense against your residential property income, but this will be phased out over the next five tax years."
Cue. A whole bunch of people who denied that land price increases should be taxed as business profit, wanting the mortgage repayments that enable that gain, to continue to be tax deductible as a "business expense".
I see the "penny has finally dropped". Obviously capital gains should not be taxed and interest should not be deductible.
A Start. But. The prices are too high. So pour even more money into the demand side. How is that going to work. Didn't work with accommodation supplements. Just increased rents. We all know the answers, CGT, cut immigration, and speculation, and build State rentals. Tens of thousands of them. Apprenticeship program and encouragement of new builds could be good though. And also the removal of mortgage deductibility.
Would it help if the PM used terms such as 'home ownership' and 'secure housing for their families' rather than 'property ladder' and 'housing market'? Not a very inspiring bout with Susie this morning on Natrad, Our Leader sang directly from the neolib songbook.
What about renters?
How about a rent freeze? Effective immediately.
Phase out the Accommodation Supplement and those over-committed landlords will have to sell.
do what Mickey Savage did….being back a M.O.W of some type…..build build build……and will suck up some unemployed……
Full court press underway by the vested interests in opposition to newly announced housing policy…..properties being pulled off the market in Christchurch we are told (over 300 more listings currently than has been typical for the previous few months)….rent rises all round is the cry ( theres 5500 currently for rent in Auckland on TM)….hard done by investors will quit the industry and there will be a dearth of rental property (must be going to take their properties with them)
One thing it all indicates is the housing party is over for the forseeable and maybe, just maybe we as a country will start to put our capital to a much better use.
Don't make light of it Pat, cities like Tauranga already have a crippling shortage of rental properties, this is only going to make it worse, There are going to be a lot of very worried renters in the near future..
Make light of what exactly…hand wringing by the vested interests?
And in case you hadnt noticed theres been a lot of very worried renters for quite some considerable time.
Have the landlords considered taking personal responsibility and not having avocado smash for breakfast every day?
This is a DFA piece on the changes. Note that the majority of the 200+ comments are positive (yeah..a few Aussies wishing their govt moved the way ours has).
Towards the close of the video it is pointed out that Joe Wilkes believes supply is not the issue, but affordability is. He did some great pieces particularly around Tauranga, Ghost Town where he walks around recording all the new builds, for lease signs, and visits Papamoa and a retirement village just to drive his point home.
Rent Controls need to be imposed by the Government .
They'd be a good measure to control rent growth and to deter the worst slumlords. And they'll be appropriate until the rental market begins delivering the benefits to society that markets ostensibly can.
Any landlord who insists on a need to increase rents because of the loss of interest deductibility, is following an unsound business plan and should be made to sell up and exit the market. A sound business plan would be one which entailed no need to borrow.
I suspect the rent control card has been kept back to be played only if necessary….the investors risk being hit with it if they refuse to recognise the new reality.
The goal is an easing, not a rout.