No Minister

Posts Tagged ‘House prices

A plague on both your houses!

with 8 comments

The discussion of our terrible housing market – especially the massive and relentless rise in house prices over many years now – is one I’m used to hearing often from the friends of my kids. In fact one of them joked a year ago in Wellington that when she’s at some party and doesn’t know anybody, a sure-fire conversation starter is to talk about how her Generation, Gen Z, may well be screwed when it comes to buying a house, especially those who lack the Bank of Mum and Dad.

Yet as is often the case, it takes the perspective of a foreigner to really bring home the news of just how bad things are. In this case via a Canadian who tried – and failed – to get a foothold here in NZ, New Zealand shows how a housing crisis can become a catastrophe:

I arrived in New Zealand’s capital of Wellington in early 2020 with my fiancée, a New Zealander, to buy a house and start a family. We knew that the Pacific country’s overheated housing market would be a challenge, but we’d lived in Toronto and Vancouver. We considered ourselves prepared. We’d soon learn that New Zealand’s housing problems are similar to Canada’s, just much worse.

Having scrimped and saved for years in Canada, and with a slightly stronger currency to exhange, they decide to have a crack at $750,000 place, all 800 square feet of it with a miserable commute, no backyard, no parking spaces, no grocery store and in one of our worst areas for socio-economic deprivation.

An adviser looked at our bank balances and asked if we were expecting a large donation from family. Our smiles faded. Without at least 20 per cent down, the bank wouldn’t even look at our application papers. A year later, we tried again with the help of a mortgage broker. The result was the same, but house prices had soared by 50 per cent. We started packing our bags for Montreal, which still has relatively affordable homes.

Admittedly he’s a journalist so no great loss for New Zealand, but there are plenty of brighter and more valuable people – and ones younger than him – who are making the same decision. As he puts it:

When my fiancée and I decided to announce we were leaving New Zealand toreturn to Canada, I prepared myself for awkward conversations. I needn’t have worried. Most of our friends beat us to the punch with their own plans to leave, turning the first months of 2022 into a long going-away party. For those who remained, the conversation boiled down to one question: “It’s the housing, isn’t it?”

For those who love history, here’s the bipartisan aspect to this disaster.

Yes, I know that John Key and National were stymied over changing the Resource Management Act by Peter Dunne, but I’ve always had three problems with that excuse.

First, that attempt was not made until late in the Key Administration. A government of National and ACT alone (National/ACT had 63 seats between them) could have made the changes in his first term as PM between 2008-2011.

Second, Key worked on Wall Street and made a fortune. He also ruled the National Party well (preventing Jamie Lee Ross incidents or killing them off quickly if they did happen, re Richard Worthless). Yet we’re supposed to accept that that he didn’t know how to apply a blowtorch to the soft and squishy lower reaches of that preening wanker, Peter Dunne, and others?

Third, in any case the housing crisis is driven by more than just one factor in the form of the RMA, and none of those others were addressed by National either.

In 2017 I thought that Labour’s Phil Twyford had some good ideas for getting the housing market to work better, especially the parts that have driven city land prices, which is the primary component of the overall house price insanity.

But those ideas all vanished and he was left holding a typical Labour/Left Big Government solution in the form of the ill-fated Kiwibuild.

I suspect that the real reason that National and Labour are so helpless in the face of this market failure is that house values now constitute such a part of our “wealth” – feeding our consumerism via increased borrowing against the rising value of housing – and are the only investment in New Zealand that’s “safe”. Dropping those values to levels that are more affordable for young people, let alone crashing them back to where they should be in terms of wage and salaries, would incredibly economically damaging to too many people.

Especially the people who got on board this gravy train years again, like the Boomers and Gen X’rs like me. People who vote. BY contrast this is what our kids and grandkids are facing, courtesy of Michael Reddell’s updated analysis of housing costs in New Zealand, especially in relation to incomes and Price/income ratios, with the key insight:

At best, it takes 33 years for price/income ratios to get back to three – the sort of ratio seen in large chunks of the US, in cities large and small. At best, it would take almost a quarter of a century to get back to a price/income ratio of four.

Frankly I can no longer see this being resolved, given that, as Michael Reddell points out, both the leaders of the National and Labour Parties have said that significant price drops – say 25% – would not be acceptable.

Why? It would simply put us back two years. Although buyers in the last two years would be looking at negative equity, that’s a temporary situation that can be worked out of and has been in the past.

If you’re not willing to unwind a clearly screwed-up marketplace by even a small amount because some recent entrants will feel some (book-value) pain then you’re basically admitting that the current situation of relentless and ever larger price increases will continue, which will lock out a lot more potential entrants, particularly the young. The graph above is a “best-case” scenario if price drops are not permitted – and it shows an awful situation for people wanting to enter the housing market.

In a sense our housing market has become rather like any welfare system or drug addiction: the more people who are hooked on it the less chance there is of changing it. The only difference is that with housing it’s the newest entrants who have the most to lose.

Which means that what we have here is a Ponzi scheme, and they never end well. But they do end, irrespective of the authorities.

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Written by Tom Hunter

August 15, 2022 at 4:09 pm

Moby Dick

with 3 comments

It seems appropriate to thus start this little Wednesday morning collection of tasty graph and cartoon bites with something published two years ago that has turned out to be very accurate.

Call him Ishmael.

You can see why the MSM misses Trump. Now they have to put their double standards on full display.

In other predictions of the future this one for 2020, written in 1988 is awesome (RPG stands for Role Player Game).

When forecasting the future though it’s usually good to look at the past as well, as this graph of disease pandemics in Sweden does.

Here’s a graph about vaccine passports and mandates, since we seem to be moving on from lockdown mandates and mask mandates, which show similar failures. Here’s the detailed article from which the graph is taken, An inconvenient truth – vaccine passports don’t work:

Sometimes the future is entirely predictable, as with German power prices, courtesy of almost twenty years and €500 billion spent on the fabulous Energiewende (“Energy Transition”) project to get all that juicy renewable power from the wind and the sun. In such latitudes it’s more the wind but it makes no difference anyway. If your question in response to this is, “But the wind is free, why is power so expensive now?”, then you should SFTU on this subject for the rest of time. Also see this as New Zealand circa 2035 if we keep pushing the same stuff. Of course we could go nuclear?

Finally I’ll leave you with this graph, courtesy of Michael Reddell’s latest updated analysis of housing costs in New Zealand, especially in relation to incomes, Price/income ratios, with the key insight:

At best, it takes 33 years for price/income ratios to get back to three – the sort of ratio seen in large chunks of the US, in cities large and small. At best, it would take almost a quarter of a century to get back to a price/income ratio of four.

Basically the only way my kids are going to be able to buy a house is if we leverage the hell out of our existing one, and even then it may mean not living in Auckland. As Bob Jones has pointed out, now linking to BNZ economist Tony Alexander, they may not be living in NZ at all once the Chinese Xi Snot controls are gone and they get the chance at higher incomes, lower costs and not being locked up.

You should check out Reddell’s earlier posts on the housing problem, which I’ve quoted a few times here.

Frankly I can no longer see this being resolved, given that, as he points out, both the leaders of the National and Labour Parties said the other day that significant price drops – say 25% – would not be acceptable. Why? It would simply put us back two years. Although buyers in the last two years would be looking at negative equity, that’s a temporary situation that can be worked out of and has been in the past.

If you’re not willing to unwind a clearly screwed-up marketplace by even a small amount because some recent entrants will feel some (book-value) pain then you’re basically admitting that the current situation of relentless and ever larger price increases will continue, which will lock out a lot more potential entrants, particularly the young. The graph above is a “best-case” scenario if price drops are not permitted – and it shows an awful situation for people wanting to enter the housing market.

In a sense our housing market has become rather like any welfare system or drug addiction: the more people who are hooked on it the less chance there is of changing it. The only difference is that with housing it’s the newest entrants who have the most to lose.

Which means that what we have here is a Ponzi scheme, and they never end well. But they do end, irrespective of the authorities.

Written by Tom Hunter

December 15, 2021 at 11:04 am

Inflation heading this way in 2022

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In effect we’ve already been seeing inflation in New Zealand for a year now, as the huge flush of government created / borrowed money, designed to keep businesses and people afloat, has flowed into a New Zealand economy that could not absorb it thanks to lockdowns and other restrictions imposed by the government to fight the great Chinese Xi Snot pandemic. It’s just that our inflation has mainly been in the form of insane increases in house prices across the nation, none more so than in Auckland (Refer to the chart at the end of this article).

But in the US inflation is not showing up in house prices – yet. Over there it’s crashing into people’s consciousness in the prices they’re paying for everyday products.

Inflation hit 6.8% for November, which is the worst mark since 1982 when the country was still recovering from the Jimmy Carter years.

That’s just the generic figure and its calculation quite deliberately misses some everyday things. For ordinary people the following is the real inflation they’re facing.

Incidentally that article points out that this shocking piece of economic news is the likely reason why the following happened…

Earlier in the week, news broke that the White House had been colluding with mainstream media outlets in order to change the narrative surrounding Joe Biden’s fledgling economy. That collusion quickly produced results, with outlets such as CNN, MSNBC, and CNBC complaining that the administration was being treated unfairly.

Inflation for some of these things are already flowing into NZ, starting with the price of petrol. But the rest will be along soon enough to add to our already unaffordable homes, as pointed out by Mr Reddell at Croaking Cassandra:

If house price inflation slowed to 1 per cent per annum, year in year out and incomes rose by 2.6 per cent per annum, in 20 years time the nationwide price/income ratio would be 5.85.

And if by some chance you think a price/income of 6 doesn’t sound too bad. well (a) you’ve just too used to latter day New Zealand, and (b) check the table on page 15 of the Demographia report for the metropolitan areas (most of them) with ratios lower than 6, in lots of cases much much lower. New York – never really thought of as a cheap place to live – shows at 5.9, Montreal at 5.6, Manchester (UK) at 4.8, Nashville at 4.2, Edmonton at 3.8, and on downwards.

Graph from an older post, A Distorted Economy:

Written by Tom Hunter

December 11, 2021 at 5:00 pm

Thought for the day

with 2 comments

I wonder if these three things are linked? Like, even at all, just a little bit.

This, Quantatative Easing and then this (below).

Written by Nick K

September 15, 2021 at 8:02 am

Posted in New Zealand

Tagged with

I’M INTERESTED IN YOUR REACTION

with 2 comments

Written by The Veteran

May 21, 2021 at 2:44 pm

Posted in New Zealand

Tagged with ,

Why Is It So?

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Today’s  Herald runs a breathless story by a useless reporter who lacks the brains to ask ‘Why is it so?

(Does anyone remember the remarkable professor Julius Sumner-Miller whose catch phrase was ‘Why is it so?’)

Image result for julius sumner miller

Apparently there are many high end residential properties in Auckland which have remained empty for many months and in some cases years.   I read the article, hoping for enlightenment but there was none.  Just some dreary statistics regurgitated by a tired scribe.

Of course there had to be a sensational picture.

A Spanish-style, turret-topped Herne Bay house at 81 Sarsfield St has stood empty for years and is now being demolished. Photo / Jason Oxenham

Auckland’s most high-profile empty mansion is the Spanish-style, turret-topped Herne Bay house at 81 Sarsfield St, which is thought to be worth about $15 million. It has stood empty for years and is now being demolished.

It’s pretty easy to figure out why so many high priced properties are vacant.  Nobody wants to buy the bloody things because the rice is too high.  Pretty simple really.  And as for the property pictured above, it’s not worth $15 million or any where near it.  It is worth land value less demolition costs.

Written by adolffinkensen

July 17, 2016 at 10:55 pm

Posted in New Zealand

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