Housing promises don’t compute

Vernon Small points out that political rhetoric on housing does not match reality, and it simply does not compute when you look at some basic numbers.

Stuff: Promises houses can be more expensive – and more affordable – do not compute

But whether it is a crisis or not, it is certainly becoming a farce.

No more so than in the mutually-exclusive policy aims that Building and Housing Minister Nick Smith has to trot out on behalf of all his colleagues – and he was at it again over the weekend.

Policy goal one is that house prices should not fall, but should rise by single digit percentages.

Policy goal two is that the ratio of house prices to income should fall from the current nine time (going on 12 times) to an average of four to five times across the country.

Policy goal three is that incomes should rise steadily, but not in a highly unsustainable or inflationary way. That will not, for yonks, deliver the $200,000-$250,000 a year household income needed to ensure the average $1 million Auckland home is around five times the average household income.  

Play around with the figures, and give Auckland a price margin over the rest of the country (shall we say six times household income?) and you still have a very long wait.

Then add in percentage house price increases that even in single digit percentages are likely to outpace wage increases and  … well you get the picture.

The picture is very clear.

Unless house prices come down a lot or wages go up a lot then ‘policy goals’ are way off the mark. They don’t compute.

And not just for the Government.

Labour MPs are hoist on a similar petard by refusing to publicly admit they would like to see a fall in prices. They have one mitigating grace; that they are prepared to use Government cash to build a swag of affordable houses; but refuse to face the inevitable (perhaps even desirable) truth that house prices must soften – not just rise more slowly.

But Labour’s policy of providing tens of thousands of ‘affordable houses’ comes nowhere near close to making what is actually affordable to people on modest wages possible in Auckland and other cities and regions.

Only Green co-leader Metiria Turei – and a raft of clear-eyed economists – seem prepared to utter the unlovely truth; only a big dive in house prices, especially in Auckland, will provide a significant easing in home affordability in the next 10 to 20 years.

Many may not agree with what Turei has proposed but at least she is being honest about the numbers.

We either need significant housing deflation, or some honesty from National and Labour.

They don’t seem to be inclined towards either.

 

 

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26 Comments

  1. Blazer

     /  29th August 2016

    the 15% surtax on foreign buyers is working in Vancouver.That ,preventing all foreign buyers from buying existing stock,increasing the brightline restriction to 5 years,and taxing landbanking=problem solved.

    Reply
    • David

       /  29th August 2016

      That tax has been in place days, how on earth can you claim it’s ‘working’?

      Reply
      • Blazer

         /  29th August 2016

        prices have dropped by 20% already and you can confirm that info yourself very easily.

        Reply
        • Kitty Catkin

           /  29th August 2016

          That would be very bad news for anyone who wants to sell their house and is now in negative equity.

          Reply
          • Kitty Catkin

             /  29th August 2016

            Vernon Small doesn’t seem to know what a petard is. One is hoist with one, not on one-it’s a device for blowing things up.

            Reply
    • PDB

       /  29th August 2016

      “The main conclusion of the existing research is that the best way to fight housing speculation is actually to increase supply rather than pursuing anti-speculation taxes”.

      http://www.theglobeandmail.com/report-on-business/rob-commentary/the-foreign-buyer-tax-leaves-uswith-the-wrong-kind-of-speculator/article31199781/

      Reply
      • Blazer

         /  29th August 2016

        thats one opinion…he forgets to mention how effective the measures were…

        ‘The idea of a surtax applying to foreign buyers in an effort to curb prices is not novel. In fact, the B.C. surtax appears to be directly modelled after a Hong Kong tax that was implemented in 2012, in an effort to reduce foreign speculation. A similar tax also exists in Singapore, which applies an 18-per-cent surtax on foreign buyers.’

        Reply
        • PDB

           /  29th August 2016

          Is that the same Hong Kong that is currently (2016) the most unaffordable city in the world with median house prices at 19 times median annual pre-tax household income, which is a new record all-time high for any city in the history of the unaffordability study?

          Reply
  2. David

     /  29th August 2016

    The 4 times income calculation is a really strange way of measuring affordability given todays interest rates a 500k mortgage over 25 years will cost 628 bucks a week and when Labour were last running the place that same mortgage would cost you 1089 a week. The Roost home affordability index takes into account all the factors but doesnt suit the current media theme as its pretty stable.
    Auckland prices are where they are because the lefty council in Auckland has made it too difficult to build, compare it with Christchurch where the government forced the council to open up more land and took over its consenting department..flat prices for 18 months and falling rents.

    Reply
    • Blazer

       /  29th August 2016

      Roost are hardly neutral.Your under Labour scenario is mischievous.Thre Reserve bank sets rates as you know.This govt has borrowed over 100 billion of interest bearing debt to give an illusion of prosperity.The property ponzi hides the so called low inflation climate.The Council is part of the problem.You can thank the Nats for this Super City b/s that has increased expenditure not reduced it as promised.

      Reply
    • Blazer

       /  29th August 2016

      in 2008 a $300k mortgage had repayments of $557 per week (30yr at 9%)

      Today a $475k mortgage has repayments of $557 per week. (30yr at 4.5%)

      you making up things Dave.Big diff.

      Reply
  3. Another half truth from the Blazing wit. The Reserve Bank sets the official rate for inter-bank transactions. Finance Companies make their own decisions on mortgage rates so they can maximise profits. The market is the only constraint because when financial institutions place the price of a mortgage beyond the buyers marginal utility for a mortgage, buyers leave the market. Compare what has happened to vehicle prices in NZ in the 50s and 60s they were overpriced and you had to pay a deposit and sit on a list for a year to get a new car. Now the prices are very low and you can het a small new town and around for under $20,000. How? Because there are enough cars to meet the demand, new and used. The same principles apply for the housing market.

    Reply
    • Blazer

       /  29th August 2016

      You are all at sea with your brand of ‘logic’ Colonel.Apples with apples please.The car mkt in the 50’s and 60’s was subject to a number of restrictive practices.A pint of milk was 4c years ago,its now $3 ,yet there are now 5million dairy cows in NZ!Amazingly easy to provide silly comparisons isn’t it.Your efficient free market is all theory and does not exist.

      Reply
    • Blazer

       /  29th August 2016

      It is no surprise.Every single one of the countries mentioned is reacting to private central bankers rampant ‘money printing’ and the flight of capital to safe assets =land and RE.The small % of the population ,the very wealthy are buying up everywhere.The man in the street suffers…as usual.Every time banks make a loan,they create money out of thin air.The best game in town,has been for many years.

      Reply
      • Alan Wilkinson

         /  29th August 2016

        Nope, none of that nonsense is reported. Instead the article notes all are strong economies with development-strangling and cost-boosting planning and building bureaucracies.

        Reply
        • Blazer

           /  29th August 2016

          of course its not …reported!I see Irelands house prices are still 33% below their highs.

          Reply
          • Alan Wilkinson

             /  29th August 2016

            My guess is that is because the average price is lowered by the excess houses noted far away from Dublin where the demand is.

            Your fantasies are not reported because they are fantasies, just like Ugly’s.

            Reply
            • Kitty Catkin

               /  29th August 2016

              Anyone could see that Ireland’s bubble would burst. Too many very ordinary houses being built and sold at ridiculous prices that they were unlikely to hold..At least, that’s how I remember it !

          • According to this:
            https://www.daft.ie/report/ronan-lyons-2016q1-houseprice
            Dublin house prices went up over 40% in the eighteen months. When the Central Bank changed the rules and tightened credit, house prices stopped rising – because no-one was selling! So the homeless gap is increasing.

            Reply
            • @ Miss Kitty – “Anyone could see that Ireland’s bubble would burst. Too many very ordinary houses being built and sold at ridiculous prices that they were unlikely to hold …”

              You should see what a VERY ordinary 60s or 70s Keith Hay home goes for in West-Central or South-Central Auckland nowadays, or a 30s worker’s bungalow or old 50s Statey … or a brand new 2.4m wide ‘Terrace’ …

              I wonder if this means the bubble will burst?

              I saw an old Statey down the back of Sandringham/St Lukes the other day which, despite being ramshackle, because it had room for another dwelling on the back of the section, sold for over $2million … to Chinese investors …

  4. Kitty Catkin

     /  29th August 2016

    Did anyone else hear ‘That does not compute ! That does not compute !’ ?

    Reply
  5. Blazer

     /  30th August 2016

    median house price in TUAKAU=$535,000…………madness!

    Reply

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