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The Froth Comes off The Beer

Written By: - Date published: 8:00 am, January 5th, 2018 - 77 comments
Categories: australian politics, Economy, housing, labour - Tags:

Auckland appears to be following the trend set by Melbourne and Sydney of a softening in expected prices for selling houses.

Sydney’s property market is cooling for the first time in two years.

 

Melbourne is shaving the froth off the beer.

 

Auckland is going from nuts to fractionally less nuts.

 

The impending five year bright line test, and the ban on foreigners buying existing homes, also signals a price cooling.

 

This is likely to be good for house buyers – especially locals. That is the policy intent.

 

My experience over a few decades is that the hardest hit will be apartment owners in lower-quality blocks whose repayments from rent cover the interest but not the principal.

On previous trends, a fair few apartment owners who could afford it only by renting out and paying the minimum, will find themselves paying mortgages of an amount higher than the market value: they go “under water”.

A few of those won’t be able to sustain that, and sell at a minor loss.

At that point a few in the media will lose their shit.

My advice would be: be cool.

This is necessary, and this is planned.

As noted by the IRD in its paper on the “bright line test”, it does not  “impair private property rights, restrict market competition, reduce incentives on businesses to innovate and invest, or override fundamental common law principles”.

But we should expect media discussion that it does.

So not chaos, a good change for first home buyers, but some tough media stories coming up.

77 comments on “The Froth Comes off The Beer ”

  1. Antoine 1

    All sounds good.

    I don’t have much sympathy for anyone who bought at the peak of the market that cannot ride through a small to moderate drop in price.

    A.

  2. Sanctuary 2

    Tales of housing Armageddon sells newspapers.

  3. Sabine 3

    there is a real issue in AKL, namely that people who would like to sell their property to either up or down grade depending on their needs, but don’t want to leave AKL, can’t as even after they sell they won’t have enough money to buy something else the next day.

    then there is the real issue in AKL that for people who want to down grade cause the kiddies left etc there are no properties to buy. You can get G J Garderners monstrosities with the silver fern etched into any glass/mirror, but you can’t find a decent two bedroom, one kitchen, one bath, one toilet with a bit of green around and a car park.

    so what you have is now people holding on to their properties – good for those that have them paid off – cause they will never make enough money to buy elsewhere, and those that can’t sell to get out of the mortgage. And bingo, your market is fucked.

    Well done National. I can see the scavengers circling above waiting for the first to drop so that they get to pick the bones clean.

    I also think we are going to see a flood of rentals starting to show up in the sales lists, as I can see a few ‘landlords’ realising that they actually don’t have the money – might never had to begin with – to upgrade their slum rentals to comply with the new insulation regulations. As i have been househunting the last few month i have seen my fair share of ‘rentals’ and oh my gosh, no insulation and no heating source seems to be the Kiwi way. Never mind the illegal add ons, the rotting floorboards, the unclear boundries, the leaking roofs, non closing windows, cracking walls.

    • Kevin 3.1

      And the people who live in these slums say nothing for rear of losing the roof over their heads.

      I know personally of one situation in Hastings of a family living in a rental where the spouting is rotten and leaves large puddles on the ground that take days to soak away, the light bulbs blow on a continual basis. The bathroom was ‘renovated’ as the floor was rotten but the owner the waited six months before covering it. While the renovation was being done, which took a week, the family showered at my place and were offered no compensation from the landlord. The house is not insulated but has a heat pump, which then costs a fortune to run as a result. The tenant had to buy their own stove to replace the existing one where only one element worked, the oven was missing the insulation rubber around the door and the door closed quicker than any mouse trap I have seen. The rental is ‘managed’ by a woman who works for a reputable rental company but she is an arrogant, obnoxious c**t who does not give a toss, just as long as the rent is paid, which it is, on time every week. Any time work is required it takes weeks for it to be done and there is always the implied threat that all these repairs are just getting too much for the landlord.

      This is not uncommon and every time read a story about ‘hard done by’ landlords, I just laugh.

      • Sabine 3.1.1

        the family living in one of these properties for sale is ‘keen’ to keep on living there.
        the house would collapse with the tiniest quake, no heating, rotten floorboards in the bathroom laundry, a leak under the kitchen sink. etc.
        The builders report was fun to read, but hey, it has had a new coat of colour.

        Another property the real estate agent pointed out the ‘bridge’ between living room and hallway. The floor boards were gone, so they ‘fixed’ it by putting board over the gap and hiding it under carpet.
        The young mother and child is very ‘keen’ to keep on renting that place.

        i have a few more of those, and yes, all the tenants are keen to stay, cause there ain’t nothing else to rent.

        btw, non of these tenants rubbished the place. just saying.

      • beatie 3.1.2

        My daughter’s rental is freezing in the winter, uninsulated, damp and draughty. the fire doesn’t work properly either. Last winter her son was admitted to hospital with a chest infection which was exacerbated by the above conditions. The rental is managed by a property company. She is reluctant to complain because, in our small town she would be unofficially blacklisted from any decent future rentals.

        Disgusting!

        Her father grew up in a large European city and although the family were very well off, they never owned a house. They didn’t feel the need because of long-term tenancies and decent housing.

  4. greg 4

    Antoine a lot people have bought to get a roof over there heads there going to be victims there not the speculator class.
    when you read about whats been going on in the housing market its criminal the case Augustine lau is the tip of the ice burg.https://www.interest.co.nz/property/90720/notorious-property-managerdeveloper-augustine-lau-speaks-out-about-why-hes-dog-box
    a lot home owners who bought are going to go under because of the housing bubble.
    In a lot of cases the loans should never have been made its been 9 years of greed.
    another national party disaster and there is no easy fix that doesn’t hurt.
    if the last government was doing there job we would never have got to this point.
    the greedy bastards did nothing.
    https://www.capitalandconflict.com/economics/the-remaining-housing-bubbles-pop/
    new Zealand features in the article

    • if the last government was doing there job we would never have got to this point.
      the greedy bastards did nothing.

      True about the first point but they actually encouraged the housing bubble. It was the only thing that let NZ show any sort of growth in the economy and thus allowing them to get their ‘surpluses’. Those surpluses are now going to vanish as the housing bubble pops.

      • BM 4.1.1

        Labours big spending plans are in trouble if those surpluses disappear.

        Guess Labours got three options if it wishes to continue with its plans.
        Borrow fuckloads, try and keep the housing bubble from popping or increase tax

        One and three will be very unpopular options.

        • Sabine 4.1.1.1

          What would National do?

          • BM 4.1.1.1.1

            Probably not try and crash the property market and aim for a gradual deflation of prices

            Labour has been like a bull in a China shop which will no doubt cause a hard crash.

            • Ad 4.1.1.1.1.1

              National did a good job softening the market in its last term.

              And with the government changing all we are seeing is the same gradual property market softening.

              The landlords and the Property Council people are bleating – it’s intended that they do.

              It’s amazing the way landlords complain – when almost all young people are locked out of the market because of landlords, but they don’t get the airtime.
              It’s time for the landlords to squeal a bit, and then make some hard decisions about whether they want to be in this game.

              Sure, some of those “mom and dad” properties will get swept up by large rental companies, but a lot more will then be priced just right for the first home family.

              That’s an intended result BM.

              The other task is to shift the investment intentions of a strong sector of New Zealand away from multiple house ownership towards productive assets and businesses. Again, an intended result.

              So that is what the are doing. And it is good for the 90% not the 10%.

              • Zorb6

                Ad makes his 2018 comedy debut-‘National did a good job softening the market in its last term.’!!!

              • greg

                lets not forget landlords have had billions of dollars of tax payer money
                from the rental supplement there greed drove them to leverage up to stupid levels its no good squealing now they cant say they weren’t warned.
                its amazing there the very people who demand everyone else take personal responsibility. but they don’t like it for themselves well tough. BM you lot had 9 years and did nothing well the party is over, time to PAY up literally the bank manager isn’t going to be friendly anymore the piper is calling. and as a saver we deserve a higher interest rate we have subsidized speculators since the gfc.

            • Sabine 4.1.1.1.1.2

              so why has National not done this in the nine years they were in power?

              I mean National lost the election in September. You are not saying that it all came crashing down in the last three month, or are you?
              And if it all came crushing down in the last three month would that then be because National is not there to ‘hide’ the mess it created?

              And again, what would Nationals plan be – other then increasing GST for all and cutting taxes for some, while at the same time defunding healthcare, education, infrastructure and so on in order to pay for the tax cuts?

              Please What.Would.National.Do.
              cause nothing you have said would make me consider National as a viable answer to Labour/NZFirst/Greens.

            • Draco T Bastard 4.1.1.1.1.3

              What National did was to promote the housing bubble, insist there wasn’t a housing crisis (after John Key said that there was a housing crisis) and generally push the economy into pre-crash condition.

              Labour/Greens/NZ1st are now trying to undo that damage without causing further damage.

              But make no mistake – the problem is what National did.

        • Jimmy Ramaka 4.1.1.2

          We can’t borrow anymore fool BM the Balance Sheet is maxed out by your little buddies Bill & John ?

          • Nic the NZer 4.1.1.2.1

            “We can’t borrow anymore fool BM the Balance Sheet is maxed out by your little buddies Bill & John ?”

            This is exactly what BM’s ilk would like you to believe but is completely untrue.

            The NZ government can at all times buy absolutely anything for sale in NZ dollars, that is the governments actual budget constraint. This follows from the payments system (where all government taxation and spending happen and also transactions between banks) being operated by the RBNZ and the RBNZ being a subsidiary institution (according to its charter) of the NZ government.

            The same is true of most countries and so we observe most countries have not got any issues with spending or running government deficits. Unfortunately an exception to most countries is the EuroZone countries several of which have got into spending trouble because they can’t simply instruct their shared central bank (the ECB) to fulfill their spending needs. In these cases their spending decisions are only as good as their relationship with the ECB allows (in many countries the ECB has been overseeing what these countries are ‘allowed’ to spend, as you will well understand from the news). This is important because there is an important difference between most countries and the scare stories coming out of the EuroZone which do not apply in most other places.

            This anti-democratic ‘scam’ is essentially the same rort the republican party is running once again by claiming they have given away too many tax breaks and therefore can’t afford social spending programs and must impose austerity of the US poor. In fact the recent US tax cuts will massively increase the US budget deficit (a fact US republicans are fully cogniscent of) but they could absolutely care less because its irrelevant to them unless its useful to scare the wider public with.

        • DoublePlusGood 4.1.1.3

          You missed: print money.

  5. AB 5

    The enormous untaxed (and unearned) capital gain on residential property that has gone to investors/speculators since the GFC through to 2017, has been a major driver of inequality.
    Gradual deflation of housing prices now, while a good thing, will not reverse that inequality, especially where investors/speculators have already cashed up and got away with murder. They are now waiting to swoop back in at the bottom of the next cycle.

    • Ad 5.1

      Agreed market price management is only a part of the solution – but it is a necessary part.

      Those who are about to swoop to reinvest for rental purposes would do well to hold until they have seen the precise shape of the housing legislation coming down the pipeline in the first quarter.

  6. Whispering Kate 6

    Our housing stock in this country is highly inflated in value for the quality of the building materials. Unless your home is a bespoke home and built for millionaires the bulk of the housing stock is just crap. The fixtures and fittings are budget, you could drive a toy car through the walls they are so flimsy. Our kitchens are so so budget its not funny. Why is everything so expensive when the cheapest materials are used.

    I have family who have lived in many countries and the homes they have bought would make you weep. Kitchens to die for, solid timber cabinets, granite benches, high end fittings, proper crown mouldings, solid timber flooring – none of this laminate rubbish, stairwells which could be a piece of art on their own of solid hard wood timber. Thick walls and lots of insulation, some of the homes they have bought have been old but still built like a brick s…. house.

    Their latest house is in the US and they paid $425,000 US for it – its sickening what the cost of homes are here. Our home, when they visit, is just a cheap and chatty dump and its only 20 years old and considered a “lovely family home” – it is valued at 1.3 million and its not worth half that – its utter rubbish in comparison..

    Somebody is rorting and rorting well here in NZ with the building of our homes.

    It may be nice to have homes worth so much but its wrong, utter wrong and the market has failed young buyers of first homes. If the market corrects then so be it – it shouldn’t have elevated like it has done in the first place.

    Taking into account our small population (and I am sure commentators will come back with this) is still not an excuse for using such cheap and nasty building materials and fixtures and fittings.

    • BM 6.1

      I agree NZ housing is grossly overvalued.

      Just to rub salt in the wounds, I expect to see rental prices increase significantly over the next few years as we’ll have an acute rental shortage as well as many landlords desperately trying to improve their return on their investment

      With no chance of a capital gain, added compliance costs and hassles, the rate of return has to rise significantly to make their investment remotely viable.

      If you’re renting and financially struggling at the moment, then I feel sorry for you as life is about to get notably tougher.

      • Sabine 6.1.1

        so where was you pity when it happened under National over the last several years?

        oh you pity is selective?

        I would have no issues with a principled conservative, but this party line bullshit is just that bullshit.

    • Sabine 6.2

      my ex mother in law – a fairly successful women with a property in Remuera came to visit my family in Germany during a congress she attended in Belgium.

      she was very very jealous of the kitchen my mother had in the tent attached to teh caravan.

      She would have broken out in tears had she seen the kitchen my Mum had in her rental. lol.

      But yeah, kitchens and bathrooms in NZ are just a joke.

    • SpaceMonkey 6.3

      “Someone is rorting and rorting well here…”

      I was talking about exactly this with a mate of mine who has been in the building industry for decades. He said ond word… Fletchers. And its a racket that goes all the way to Government.

    • mikesh 6.4

      It’s not the house that is worth $1.3 million, but the land. The same house in, say, Taumarunui would be worth stuff all. We badly need a land tax, with no exemptions except possibly for unused Maori land, and offset by reductions in income tax. This would be far more effective than a capital gains tax, especially one that exempts private homes.

  7. Jimmy Ramaka 7

    Having worked in the Real Estate Industry here in Auckland I have seen a lot of Rat’s Nests going for big money $800-$900k. You are really only buying the land value which has been over inflated by over zealous Asian real estate agents and Asian buyers parking money in NZ in safe havens like Residential Housing ?

  8. roy cartland 8

    Selling at a loss is perfectly fair. You buy what you can afford, not leverage against future capital gain. Whether my mortgage is higher or lower than the ‘market’ value is irrelevant – because I’m still living in the damn thing.

  9. Gabby 9

    Get out of Auckland you muppets.

    • greg 9.1

      They cant there all panicking at the same time they will sell at a loss they cant clear there debts and the bank will come after them for the difference and to make matters worse on default the bank can take there kiwi saver as well. national changed the rules hahahahh! its only just began

  10. cleangreen 10

    Yes we need a correction alright as this the property bubble was just a Ponzi scheme and john key knew it would end so he got out and left his lackie to face the music.

    Key will now be engineering another “run on the NZ Dollar” as he did in 1987 when he teamed up with Alex Krieger to force the NZ dollar down and then made a packet of money.

    He will be wanting to repeat this again now since the partnership he had then with Krieger was so ‘profitable and he knows how to make another ‘killing’ on the NZ dollar it is likely he will do it again and not remember afterwards.

    http://www.stuff.co.nz/national/politics/250525/Who-is-John-Key

  11. SPC 11

    Dumb questions

    No 1.

    1. when landlords sell who will provide the rentals?

    The person buying the property will no longer be renting. 1 less landlord 1 less person renting, nothing has changed.

    • BM 11.1

      From above

      The number of houses isn’t going to disappear, the issue is that nothing stays static.

      Populations will increase, more rentals will be needed, so who’s going to build and supply those rentals?

      Even at the moment, we’ve got a shortage of rental housing does the government intend to make up that shortfall? you make property so unattractive to the investor then that’s the only option left.

      Do you believe the government has the ability to fill the void left by all the private landlords leaving the market?

      • SPC 11.1.1

        Can you read? Landlords leaving the market changes nothing – just increases the level of home ownership.

        As to levels of supply and demand.

        1. Migration to Oz is resuming as their economy improves – less demand
        2. Immigration is being reduced – less demand
        3. Foreign investment is channelled into new builds – increased supply
        4. Government funded building is increasing – increased supply (this will be of both state housing for rent and also housing on-sold to homeowners).
        5. The government is bring back onto the market homes that Nationals shonky P testing regime took out of the market.
        6. The governments plan for higher rental standards does not apply to newly built rental property (that would meet those standards as new builds).

        • BM 11.1.1.1

          Fuckwit, private investment drives the rental market.

          If people see no reason to invest in the rental market, people won’t invest.

          If people don’t invest, the government will have to step in and make up the shortfall.

          From what I’ve seen this government has well and truly signalled they don’t want people investing in property and being landlords.

          So, they better have a watertight plan otherwise this government is going to bring down a world of hurt on the people they are trying to help.

          • SPC 11.1.1.1.1

            Very few landlords build new property, the great majority just buy up existing flats or houses. If they sell that on to someone not a landlord (because they do not want to provide good standard properties), it is to someone renting, who will now own – and they will improve them. The only change would be higher levels of housing ownership.

            The government has done nothing to discourage new builds for rent, all new builds meet the new rental standard – and have encouraged more new investment in this sector by limiting foreign investors to new builds.

            And as I have noted, all changes in demand and supply on the horizon look positive.

            • eco maori 11.1.1.1.1.1

              + 100 SPC people don t listen to the neo liberal trolls on this site. One has to remember that these trolls have shonkys $$$$$$$$ in there back pockets distorting there dum ass views on reality so ignore them . shonky and his trolls are wishing that the Auckland house price could crash there motive is to damage the Mana of OUR new coalition Government and shonky does not care whom get hurt in the process .I say that the regional housing market will still inflate a bit this is logical as people target cheaper housing. Its good to be home in Rotorua with my computer. Ana to kai

          • SpaceMonkey 11.1.1.1.2

            Private investment drives the whole housing market in the form of banks.

    • mikesh 11.2

      There will always be a market for rentals; not everybody wants to own their dwelling place.

  12. SPC 12

    Smart questions

    No 1.

    1. When landlords making a loss on their rental can no longer reduce their tax liability on other income, what will they do?

    They will sell their rental. One less landlord, 1 less person renting.

    • Hornet 12.1

      …only if the purchaser is a person previously renting. If the purchaser is a new home buyer not previously renting, then the result of your scenario could be one less rental.

      • SPC 12.1.1

        And if they were owning elsewhere, who now lives where they did?

        Most upgrades to family home ownership comes from those living in smaller units (some couples own these first). Something someone renting might be able to afford to buy.

        • Hornet 12.1.1.1

          “And if they were owning elsewhere, who now lives where they did?”

          Sorry, when i said ‘new home buyer’ I meant ‘first home buyer’. For example – I am MC at a friends daughter wedding in June. Both bride and groom live with parents. They want to purchase a property before the wedding to move in to. If they buy one of my rental properties to occupy, that is one less rental.

          Every home owner has to start with their first home. If that first home was previously tenanted, that is one less rental.

  13. SPC 13

    Smart questions

    No 2.

    What happens to those who bought property at near the peak and the value falls below what they paid for it?

    At first nothing, provided they can still make their repayments, the only change is their level of equity falls below the original amount at purchase (for first home buyers 20% and or higher for landlords).

    It gets most interesting for the bank if the equity gets (is getting) wiped out and the borrower can only meet interest payments.

    • Hornet 13.1

      The trigger points are:

      1. House owner can’t meet mortgage payments. Outcomes – Bank either refinances, or forces mortgagee sale.
      2. Market value falls below bank lending (or within a margin of it). Outcomes – Bank calls up additional equity from house owner, or forces mortgagee sale.

      The current government has inherited an already cooling market, so in my view they should tread warily. I’m not too interested in property speculators, but I am sympathetic to families and owners of small businesses wo have given security over the homes.

      • SPC 13.1.1

        2. Banks do not force a sale where mortgage payments are being made, even if the value of the property falls below the outstanding mortgage.

        The only real risk is of a rise of interest rates impacting on the ability to meet mortgage payments.

        Government policy related to property is not going have any impact in that area. Whether rental standards or ending the ability of to offset losses against other income (or next term CGT).

        • Hornet 13.1.1.1

          “2. Banks do not force a sale where mortgage payments are being made, even if the value of the property falls below the outstanding mortgage.”
          That’s generally true. My two points above really need to go hand in hand.

          “The only real risk is of a rise of interest rates impacting on the ability to meet mortgage payments.”
          There are other risks, including a reduction in income.

          “Government policy related to property is not going have any impact in that area.”
          Not necessarily. For example, lets say (purely hypothetically of course) that the government initiates a large scale house building program. Then lets add the dynamic that those houses have to meet an ‘affordability’ criteria that results in the government selling said houses below cost. That increases government debt, which potentially increases interest rates. A lot of hypotheticals, but economics tends to be quite a holistic beast, where a tweak here can have unintended consequences over there.

          “Whether rental standards or ending the ability of to offset losses against other income (or next term CGT).”
          Rental standards are a cost of landlords providing the service they get paid for. They are no excuse for getting out of the business, although they may be a factor in rents increasing. The removal of tax deductibility is a similar beast. Either being a landlord is a business or it isn’t.

  14. Tricledrown 14

    Nationals minion’s trying very hard to spread cynical fake news.
    Demand and supply.
    Landlords sell to whom .
    The NZ property market will take years to meet supply.
    Speculaters will jump ship before market crashes then home buyers will be able to buy at reasonable prices.
    Auckland prices will plateau but not drop because big Cities bring migration.
    It may slow private construction which will allow govt to build its 100,000 affordable homes.

  15. timeforacupoftea 15

    The Key is to sell at the top like John Key.

    I will buy into the Auckland market to fulfil my dream but only on a 50% drop, meantime Queenstown (holiday home and Dunedin residence will have to do.

    Then again nearly every time I was in Auckland 2017 it rained.
    Is that normal for Auckland’s climate change, will it get worse, what are the predictions.

  16. savenz 16

    There is a huge shortage of rental properties and apparently those being sold are not going for rentals therefore even more shortages and homelessness.

    If increasing supply is the idea, I don’t think Labour is on the right track.

    Labour has not gone far enough in stopping foreign ownership by only targeting existing residential housing, not all housing and assets. They are not doing enough on the demand side either.

    In spite of capital gains taxes and stamp duty, countries like the UK have a major housing shortage. A tax 15% tax on foreign owners in Vancouver was more effective in bring down prices. Labour has not gone far enough in stopping foreign ownership by only targeting existing residential housing, not all housing and assets.

    They should be looking at the demand side, closing immigration loopholes and actually making residency and citizenship not only much harder to obtain but also taking 20 years to achieve free social security, so that only committed new migrants qualify.

    Globalism has totally changed immigration from the type of migrant coming to NZ 30 years ago who actually lived in NZ, worked exclusively here, learnt the language and were happy to migrate here.

    Nowadays we are getting citizens like Peter Thiel who stay for 11 days and get citizenship and their application states they won’t be expected to live here. WTF?

    Or people coming for slave wages until getting citizenship and family over and then leaving NZ to work overseas for decent money while the non working dependants stay behind. Who can blame migrants if the loophole is there and we offer wages 30% below Australia and cheap labour seems to be our focus not quality, but we do have “free’ schools, hospitals and social welfare to offer?

    Who can blame migrants who come here when they are actively advised to invest in property as part of the rich investment category (which clearly property should be removed from).

    You shouldn’t have to be a genius to work out that if we have 200,000+ new people with citizenship, residency or work permits each year, then you will get a housing shortage. It was designed to happen by National.

    And with climate change and national disasters, housing is getting more and more destroyed and it’s the uninsured that suffer most. Those making housing materials are raking it in, often multinational corporations.

    A catch 22 made to be a catch 22 by National that’s only economic achievement was to sell off NZ and give away citizenship as quickly and quietly as possible to keep their failings masked, the economy only focused on development, and to change the demographics in their favour.

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