Housing supply versus demand

A summary of how we have arrived at the current housing situation from Dene Mackenzie at the ODT:

Supply, demand key factors

Dwelling consents, bank lending and net migration were three of the main factors determining house prices, Milford portfolio manager Brian Gaynor said yesterday.

Supply in the form of dwelling consents, dropped off sharply in 2009 in response to the global financial crisis and the collapse of New Zealand’s finance company sector. The latter was a major supplier of credit for house builders and property developers, he said.

In the four years to 2012, an average of only 14,850 consents a year were issued compared with an average of 26,218 consents in the four years to 2008.

“Consents have picked up dramatically and it will not be long before the annual consents number exceeds 30,000.”

Annual consents in excess of 30,000 had only been achieved five times since records began in 1966. The record high was 39,636 consents in 1974, Mr Gaynor said.

The huge increase in net migration, to 68,432 for the May 2016 year, had a major impact on demand. It represented a net turnaround of 72,085 since the net outflow of 3653 in the May 2012 year.

However, the massive increase in lending to home purchases had also fuelled the housing markets.

There much talk about loan-to-value limits but the lending statistics illustrated the regulation had not been effective, he said.

“The gap between the value of new loans and the value of new dwelling consents has widened dramatically in the past year.”

The housing market took off a few years ago because of the very low build rate after the collapse of the finance company sector, Mr Gaynor said.

Actions by banks could slow down demand. Non resident (overseas) borrowers:

Westpac was one of several banks which stopped lending to non-resident borrowers with overseas income last month, and Bankers Association chief Karen Scott-Howman said lenders were responding to signals in the market and from the Reserve Bank.

And yesterday a cutback on the term allowed for interest-only loans:

Westpac’s New Zealand unit is cutting interest-only lending terms to a maximum of five years, in a market where investors are the driving force.

Interest-only loans were often used by property investors who met the interest repayments and left the principal untouched on the expectation they could pocket a capital gain on a house sale.

Reserve Bank figures showed interest-only mortgages accounted for about 41% of all new lending in May, up from 38% in January when it first started collecting the data. Of existing home loans, interest-only mortgages totalled $60.82billion as at March 31, or 28% of total loans.

A dramatic effect could be coming:

Supply was now increasing and any reduction in immigration and/or banking lending was likely to have a dramatic impact on house prices. Housing bulls should keep a close eye on the rising supply figures, he said.

The pushes to increase supply should eventually work, and with limits put on investors in the market supply may switch from lagging to exceeding demand.

It’s anyone’s guess whether the market will flatten or fall.

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27 Comments

  1. Yes, the big problem is that the media are on a bandwagon appeal to emotions. For example creating a video using actors to show what the “homeless” are going through. I have been unable to find a current statistical assessment of the equation housing demand versus housing availability by regions. The last summary I can find is the 2006 census information although there may be a 2013 update but these only show ownership by ethnicity, not unsatisfied demand. So, forgive me if I continue to ask, where is the smoking gun, which establishes there is a crisis? There are heaps of claims around but backed by what?

    Reply
    • Alan Wilkinson

       /  13th July 2016

      The price curve is indicative of the problem, BJ.

      Reply
    • Gezza

       /  13th July 2016

      Isn’t the main problem the one mentioned in your comment here?:

      “The last summary I can find is the 2006 census information although there may be a 2013 update but these only show ownership by ethnicity, not unsatisfied demand.” o_O

      Reply
      • Gezza

         /  13th July 2016

        Why are these stats so out of date?

        *Are they short of staff or analysts?
        *Are they short of appropriate technical ability, or technical resources?
        *Are they short of up-to-the-present relevant data?

        Would anyone be able to run a successful business enterprise with profit/loss & sales data as out of date as this?

        Reply
    • Blazer

       /  13th July 2016

      they are backed by a house in Auckland costing 10X the ave wage,when it used to be 3X…the govt has its head in the sand,because high house prices and speculation make GDP look good.Homeowners love it and there are plenty of votes in letting things run,while pretending to be concerned and instructing Nat M.P’s never to use the word crisis.The most inept administration since Muldoon.The band aid govt.

      Reply
  2. Blazer

     /  13th July 2016

    A combo of low interest rates,speculators,and lax conditions for non NZ citizen buyers and money laundering are the key drivers.

    Reply
    • Alan Wilkinson

       /  13th July 2016

      If that were the case people would be making fortunes building new houses as fast as they could. Not happening, so you are wrong.

      Reply
      • Blazer

         /  13th July 2016

        why build new ,when you can buy established,provided you have the…..money!People are supposedly ‘building new houses as fast as they can’….ask Nick Smith.

        Reply
        • Alan Wilkinson

           /  13th July 2016

          They are building as fast as the costs, delays and obstructions created by the usurpation of property rights by politicians and bureaucrats will allow, and that has been, and remains, vastly slower than demand – so making a few people wealthy and many poor.

          Reply
          • Blazer

             /  13th July 2016

            do you know what a …ponzi scheme is …Al?p.s…Auckland property mkt!

            Reply
          • Gezza

             /  13th July 2016

            Costs (to some extent, depending what you’re including that), obstruction (perhaps) by too many unnecessary requirements,restrictions, and regulations, & delays by inefficient bureaucracies—those I can understand,.

            But exactly how have property rights been usurped & thus are the cause of these specific problems?

            Reply
            • Alan Wilkinson

               /  13th July 2016

              The right to subdivide as you wish and build as you wish subject only to not infringing your neighbours’ legitimate and universal property rights or anyone else’s health and safety.

            • Gezza

               /  13th July 2016

              If your neighbours were to subdivide and spoil your view (for the sake of argument) is that the sort of thing you would regard as infringing your legitimate property rights?

            • Alan Wilkinson

               /  13th July 2016

              That would depend on whether view was established as a standard property right which is probably unlikely – hard to define. You do know that it is not under present regulations? I recall being told by the planning bureaucracy that they were explicitly not allowed to take that into account when permitting. Standard setbacks and sunlight rules are more likely to apply.,

            • Gezza

               /  13th July 2016

              No I don’t know what’s in the current regulations because I don’t own multiple properties and my own is unlikely to be built out or in some way suffer a loss of enjoyment of some kind by anything I can think of at the moment. I seem to be pretty ok – nobody seems to be usurping my property rights in any way that seems to cause me distress.

              Can you give me specific examples of particular property right usurpations you wish to stop happening? Like – in a numbered list?

            • Alan Wilkinson

               /  13th July 2016

              1. Resource Management Act
              2. Building Act
              3. Heritage Act

            • Gezza

               /  13th July 2016

              You want to get rid of all of those & have none of their provisions in force anywhere?

            • Alan Wilkinson

               /  13th July 2016

              The RMA needs to be scrapped entirely and replaced by a national definition of tradeable property rights and pollution standards. The Building Act needs to be gutted of all requirements other than those needed for health and safety and local government needs to be absolved from any responsibility for quality and durability. It should also be required to fund permanent infrastructure via borrowing and future income like all other businesses. The Heritage Act should be stripped of its powers to coerce and constrain property owners.

            • Gezza

               /  13th July 2016

              Have you put submissions in or written to Ministers about any of these?

            • Alan Wilkinson

               /  13th July 2016

              Every one of those creates and maintains a massive vested interest industry sector of bureaucrats and professional “expert” paper pushers supported by an ignorant, misinformed and paranoid public fed scare stories by a bad-news manufacturing and dependent MSM. Rational decision-making is not an option for a minority government. It is reduced to the politically possible = bugger all.

            • Gezza

               /  13th July 2016

              I hear you. (Well, I read you—but you know what I mean.)
              But I have a point in asking.

              If you want these replaced with something better, and the people who produce and maintain the current Acts are a massive vested interest industry sector of bureaucrats and professional “expert” paper pushers, and they produce 3, A5, multi-page, collections of legalistic excreta—have you ever thought of writing out the exact requirements that you think are all that is required & should be in force—and sending those in for comments?

            • Alan Wilkinson

               /  13th July 2016

              I’m not sure that you quite understand that the vested interests are not just those who draft the laws but the vastly greater number whose jobs depend on them – and are effectively paid by and dependent on our inflated development and building costs.

            • Gezza

               /  13th July 2016

              Somebody’s got to start somewhere with a simpler version.

              Departmental Legal Counsel & Parliamentary Law Drafting Office are an abominable combination whose labours can produce mountains when sandcastles were in the original plan. The tome then revealed is then given to deparments to enlarge. And then to Parliament where the Parliamentarians one sees in Question Time, and/or who include minors not fit for portfolios, whom nobody has ever heard of, sift through numerous submissions, some of which range from those that amount to “I don’t like it: get rid of it”–to–“it’s not big enough: what about the rocks?”

            • Alan Wilkinson

               /  13th July 2016

              I think I despair of any rationality. The last glimmer of hope died when Winston won Northland. This crisis will just produce more bureaucracy, not less. The country will stagnate and slowly decline I expect. It will be surpassed by Asian nations that hunger to catch up and put progress ahead of paranoia.

            • Gezza

               /  13th July 2016

              Sigh, I know. Ranting about it doesn’t help. I’ll do some thinks. I’m not hopeful, but I’ll do some.

  3. Blazer

     /  14th July 2016

    at least Al acknowledges its a crisis.Btw Al I’m sure everyone sympathises with your present situation where you can’t carve up your land, and build on the….cheap!

    Reply

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