web analytics

What goes up

Written By: - Date published: 5:21 am, July 7th, 2009 - 15 comments
Categories: economy, housing - Tags: ,

There’s a lot of empty, over-optimistic talk around at the moment about ‘green-shoots’ in the economy. Supposedly, these are little early signs of recovery which mean that soon everything will be back to normal and we can go back to getting rich selling each other houses with money we borrowed from the Japanese. Things will get better in time but this green-shoots mantra is more of the economic utopianism that got us into this mess in the first place.

The favourite ‘green-shoot’ is stabilisation of house prices. Unsurprisingly, the chief cheerleaders of the housing green-shoots theory are the banks and the newspapers that gleefully any industry report that claims house prices are stabilising. It’s in their financial interest to talk up the housing market as much as possible. The banks make money by lending it to you so you can buy a house, plus they stand to lose big-time if house prices drop too much and they’re left trying to make back their losses on mortgagee sale . The newspapers depend on advertising for their existence, principally (now that jobs and classifieds are online) house ads.

They’re forgetting the fundamentals. Usually, the growth in value of the housing stock tracks reasonably close to GDP growth over the medium-term, little booms, little dead patches. Then, over five years (2002-2007) the value of NZ’s housing stock grew (on paper) by 100%, while the economy grew just 34%. The graph shows just how huge that bubble was

housing stock vs gdp

(I’ve gone back as far as the Stats data will let me, infoshare is cool btw)

The housing bubble has deflated at bit but there’s still a long way back down before we can say the over-valuation has unwound completely.

Effectively, the banks, the newspapers, and the other housing ‘green-shoots’ promoters are trying to re-inflate the bubble for their own short-term financial interests. But an economy cannot survive on bubblenomics forever. Eventually, reality prevails and what went up comes down again. We can’t avoid the fact that house prices still need to come down a long way, rapidly or slowly. Trying to forestall that will only makes things worse in the end.

Still, at least we’re not in the States – they went up higher, they’ve come down harder, and now government and the financiers are colluding to take huge risks with their economy’s future in an effort to breathe air back into the bubble. But that’s a topic for another post.
– Marty G

15 comments on “What goes up ”

  1. djp 1

    Actually I pretty much agree with this.

    Here is a rent or buy calculator from the NY Times: http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

  2. stephen 2

    The only thing I see going up real fast is unemployment.

  3. jcuknz 3

    As an owner of a fully paid for house, I built it myself to reduce costs, I welcome the stabilisation of the market becuase it reassures me that my efforts were not wasted.

    What IS wrong with the system is the beaurocratic nighmare of consents inflicted on the person trying to get ahead on their own efforts by the previous Labour Government.

    • felix 3.1

      I have a pony, it’s a pink pony ‘cos that’s my favourite colour for ponies.

      The trouble is the damn pony club won’t let me join ‘cos I like to veer wildly from the pony track and ruin the races.

      • djp 3.1.1

        Actually the pony club wont let you ride the way you like in your own paddock because they reckon they know how to ride best.

        Oh and by the way I hope you have a pony registration? You cant just get a pony any time you want now can you.

  4. aj 4

    They also ignore the Japan experience.

  5. Pat 5

    I think the Auckland house prices come down to a simple issue of supply and demand.

    On the Supply side:
    • With the collapse of the finance companies, property developers lost their source of funding. So there are very few new housing developments being completed.
    • New home construction is well down, and section sales are very slow. As house prices have fallen, buying an existing home has become more cost effective than building a new home. Also construction loans have become more difficult to obtain as the Banks tightened their lending criteria.

    On the Demand side:
    • Kiwis are returning from overseas as they lose their jobs in the UK and elsewhere.
    • Immigration to NZ will increase as our unemployment rate is lower than most other countries. New immigrants tend to gravitate to the big cities like Auckland where the jobs are.
    • As job losses mount in small NZ towns e.g. Wellsford then people tend to head to the big cities in search of work.

    So Demand is increasing as Supply is decreasing, which points to house prices creeping up rather than falling.

    The other critical factor affecting house sales is the availability of Bank finance. This practically dried up late last year as the Banks recoiled from the Credit Crunch shock. Most lenders reduced lending to 80% and this instantly wiped out a huge number of potential buyers. However, at the moment there are currently 5 first mortgage lenders providing finance of between 85% to 95%. On top of that some finance companies who have got their deposit guarantees in place are back in the market providing second mortgages of up to 15% behind a Bank first mortgage of 80%.

    So I don’t subscribe to the theory that Auckland house prices will keep falling.

    • Draco T Bastard 5.1

      So Demand is increasing as Supply is decreasing, which points to house prices creeping up rather than falling.

      And all of those people you listed can’t afford the inflated prices. Puts a bit of a damper on things wouldn’t you say?

      • Pat 5.1.1

        No Draco. If they can’t buy a house, they will still rent one. If the population of Auckland increases faster than the housing supply, house prices can only go one way.

        Now that other investment returns are poor, investment property is back in vogue.

  6. roger nome 6

    David Farrar says:

    “Incresase suburban sprawl to reduce house prices – market good, local govt regs bad.”

    Repeat ad-nauseam for Nact’s answer to this post…

  7. As I have explained on many occasions to people like Owen McShane (he doesn’t argue with me about it anymore so I guess it got through) is that what matter is housing supply, not land supply.

    What matters is that so little intensification has been possible in Auckland over the last decade because councils have been so utterly useless at rezoning land for intensification. Just have a look around the Auckland City Council District Plan and see how much “Residential 8” zone you can find. Barely any. This was meant to be the main tool in providing for intensification in Auckland City, but the council got scared off by a few Panmure residents and has basically abandoned the project.

    Planning rules are also designed around encouraging sprawl and not intensification – basically as soon as you want to put more than 4 units on a site (no matter how bit the site is) you get chucked into the deep end of an enormously long and complex consenting process. While ensuring good urban design outcomes via a consenting process is essential – so much more could be done to streamline this process and make it easier for developers to undertake intensification.

    The last, and potentially most important factor in rising house prices has been the withdrawal from the public provision of housing – both from central government and local government. Provision of housing is a basic human need, and when not enough housing is provided what is left becomes more scarce and less affordable. So what’s the government doing to address this problem? Building significantly more housing – no. If we ever want to do something about housing affordability in NZ we need to have significantly greater government (central or local) involvement in land development – let’s start with areas around our train stations in Auckland.

    The government wouldn’t need to keep ownership of the houses once built (in fact the last thing you’d want is for all these new intensified neighbourhoods to be subsidised housing). We’re OK with government stepping in to provide roads, hospitals, schools and so forth. Why not housing?

  8. George Darroch 8

    A massive inflation of stupidity. I blame Cullen.

Links to post

Recent Comments

Recent Posts

  • New Public Housing Plan announced
    The Government has released its Public Housing Plan 2021-2024 which outlines the intention of where 8,000 additional public and transitional housing places announced in Budget 2020, will go. “The Government is committed to continuing its public house build programme at pace and scale. The extra 8,000 homes – 6000 public ...
    BeehiveBy beehive.govt.nz
    3 hours ago
  • Prime Minister congratulates President Joe Biden on his inauguration
    Prime Minister Jacinda Ardern has congratulated President Joe Biden on his inauguration as the 46th President of the United States of America. “I look forward to building a close relationship with President Biden and working with him on issues that matter to both our countries,” Jacinda Ardern said. “New Zealand ...
    BeehiveBy beehive.govt.nz
    5 hours ago
  • Jobs for Nature funding will create training and employment opportunities
    A major investment to tackle wilding pines in Mt Richmond will create jobs and help protect the area’s unique ecosystems, Biosecurity Minister Damien O’Connor says. The Mt Richmond Forest Park has unique ecosystems developed on mineral-rich geology, including taonga plant species found nowhere else in the country. “These special plant ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Pre-departure testing extended to all passengers to New Zealand
    To further protect New Zealand from COVID-19, the Government is extending pre-departure testing to all passengers to New Zealand except from Australia, Antarctica and most Pacific Islands, COVID-19 Response Minister Chris Hipkins said today. “The change will come into force for all flights arriving in New Zealand after 11:59pm (NZT) on Monday ...
    BeehiveBy beehive.govt.nz
    2 days ago
  • Bay Cadets learn skills to protect environment
    Bay Conservation Cadets launched with first intake Supported with $3.5 million grant Part of $1.245b Jobs for Nature programme to accelerate recover from Covid Cadets will learn skills to protect and enhance environment Environment Minister David Parker today welcomed the first intake of cadets at the launch of the Bay ...
    BeehiveBy beehive.govt.nz
    3 days ago
  • Cook Islanders to resume travel to New Zealand
    The Prime Minister of New Zealand Jacinda Ardern and the Prime Minister of the Cook Islands Mark Brown have announced passengers from the Cook Islands can resume quarantine-free travel into New Zealand from 21 January, enabling access to essential services such as health. “Following confirmation of the Cook Islands’ COVID ...
    BeehiveBy beehive.govt.nz
    6 days ago
  • Supporting communities and landowners to grow employment opportunities
    Jobs for Nature funding is being made available to conservation groups and landowners to employ staff and contractors in a move aimed at boosting local biodiversity-focused projects, Conservation Minister Kiritapu Allan has announced. It is estimated some 400-plus jobs will be created with employment opportunities in ecology, restoration, trapping, ...
    BeehiveBy beehive.govt.nz
    7 days ago
  • Border exception for some returning international tertiary students
    The Government has approved an exception class for 1000 international tertiary students, degree level and above, who began their study in New Zealand but were caught offshore when border restrictions began. The exception will allow students to return to New Zealand in stages from April 2021. “Our top priority continues ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Tiwai deal gives time for managed transition
    Today’s deal between Meridian and Rio Tinto for the Tiwai smelter to remain open another four years provides time for a managed transition for Southland. “The deal provides welcome certainty to the Southland community by protecting jobs and incomes as the region plans for the future. The Government is committed ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • New member for APEC Business Advisory Council
    Prime Minister Jacinda Ardern has appointed Anna Curzon to the APEC Business Advisory Council (ABAC). The leader of each APEC economy appoints three private sector representatives to ABAC. ABAC provides advice to leaders annually on business priorities. “ABAC helps ensure that APEC’s work programme is informed by business community perspectives ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Govt’s careful economic management recognised
    The Government’s prudent fiscal management and strong policy programme in the face of the COVID-19 global pandemic have been acknowledged by the credit rating agency Fitch. Fitch has today affirmed New Zealand’s local currency rating at AA+ with a stable outlook and foreign currency rating at AA with a positive ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • Additional actions to keep COVID-19 out of NZ
    The Government is putting in place a suite of additional actions to protect New Zealand from COVID-19, including new emerging variants, COVID-19 Response Minister Chris Hipkins said today. “Given the high rates of infection in many countries and evidence of the global spread of more transmissible variants, it’s clear that ...
    BeehiveBy beehive.govt.nz
    1 week ago
  • 19 projects will clean up and protect waterways
    $36 million of Government funding alongside councils and others for 19 projects Investment will clean up and protect waterways and create local jobs Boots on the ground expected in Q2 of 2021 Funding part of the Jobs for Nature policy package A package of 19 projects will help clean up ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • New Zealand Government acknowledges 175th anniversary of Battle of Ruapekapeka
    The commemoration of the 175th anniversary of the Battle of Ruapekapeka represents an opportunity for all New Zealanders to reflect on the role these conflicts have had in creating our modern nation, says Associate Minister for Arts, Culture and Heritage Kiri Allan. “The Battle at Te Ruapekapeka Pā, which took ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Better care for babies with tongue-tie
    Babies born with tongue-tie will be assessed and treated consistently under new guidelines released by the Ministry of Health, Associate Minister of Health Dr Ayesha Verrall announced today. Around 5% to 10% of babies are born with a tongue-tie, or ankyloglossia, in New Zealand each year. At least half can ...
    BeehiveBy beehive.govt.nz
    2 weeks ago
  • Prisoner disorder event at Waikeria Prison over
    The prisoner disorder event at Waikeria Prison is over, with all remaining prisoners now safely and securely detained, Corrections Minister Kelvin Davis says. The majority of those involved in the event are members of the Mongols and Comancheros. Five of the men are deportees from Australia, with three subject to ...
    BeehiveBy beehive.govt.nz
    3 weeks ago
  • Pre-departure COVID-19 test for travellers from the UK and the US from 15 January
    Travellers from the United Kingdom or the United States bound for New Zealand will be required to get a negative test result for COVID-19 before departing, and work is underway to extend the requirement to other long haul flights to New Zealand, COVID-19 Response Minister Chris Hipkins confirmed today. “The new PCR test requirement, foreshadowed last ...
    BeehiveBy beehive.govt.nz
    3 weeks ago