Population Growth and Growth in Property Values

[Halebop]

quote:Originally posted by Jess9

Regarding my last comment...and thinking on following comments...it is still likely a factor, for high growth cities, e.g. Auckland, Nelson, Blenheim, Queenstown, Tauranga to name the top few.

Jess those cities are high growth because of demographic factors, not despite of them. Predicting more of the same when demographics urge otherwise requires the assumption that a new external factor will be introduced like sustained spikes in immigration or birth rates? The factors I mentioned in the previous post already consider an average level of success in breeding and migration policies. So if places like Tauranga did continue to grow when the only population segment showing any significant growth was over 65 year olds then those "oldies" have to originate from somewhere... Like Auckland, Wellington etc. Perhaps providing a situational benefit but likely a net zero sum gain.

[rmbbrave]

Population grows 1.1pc in 2006


New Zealand's population rose to 4.17 million at the end of last year, according to Statistics New Zealand.

The estimated figure was a rise of 45,100 on 2005.

Of that natural increase contributed 30,400 and net migration 14,600.

The figures represent a 1.1 per cent growth in the overall population, but growth rates were different for different age groups.

The number of people aged over 65 grew by 2.8 per cent to 519,000, while the number of children under 15 shrank by 0.2 per cent to 874,000.

The number of people aged 15-64 grew by 1.2 per cent.

An updated population estimate based on 2006 census data will be released in August.

http://www.stuff.co.nz/3956408a11.html

One third of NZ population growth is due to immigration - is that high compared to other coutries?

[rmbbrave]

Risks of over-indulgence at home
The Dominion Post | Tuesday, 30 January 2007

BOOM TIME: People have been predicting the bursting of the property bubble for some time and yet it goes on. But analysis of the data shows that it is unsustainable.

Domestic and rural property prices are too high and people are stretching themselves to borrow too much. It can't go on like this much longer, writes Craig Ebert.


If you think New Zealand's house prices are looking incredibly lofty, and debt servicing stretched, then there is evidence to substantiate your concerns.

The ratio of each to household disposable income has pretty much doubled since 2001. And in the past few years the annual increase in household borrowing has more than trebled.

Similar indications of over- indulgence have emerged in the rural sector, with the ratio of farm prices to land-based incomes doubling over the past five years.

These trends are clearly unsustainable. But even where these figures sit right now �Ein such wildly uncharted territory in relation to New Zealand's longer-term history �Eserious questions need to be asked about housing and farm values, and debt servicing, in relation to incomes.

Sure, many have been sounding the death knell for the property boom for a good while now, only for it to keep pressing higher. Yet this doesn't mean it's justified. Remember, there were those who were saying the Nasdaq looked overvalued at 3000, only for it to go to 4000, then 5000, in a relatively short space of time. Of course, the Nasdaq eventually nose-dived to about 1200, returning price- earnings ratios closer to long-term norms. Fundamentals won the day, as they tend to in the end.

Admittedly, that's an extreme example. But the essence of it bears thinking about in relation to New Zealand's housing and rural property markets over recent years. There are clear signs of increasing stretch, though the tipping point for a correction does not appear imminent.

Consider this. Outstanding borrowing by New Zealand households has doubled since 2001, to about $145 billion �Ealmost as large as the nominal economy itself. Debt against the agriculture sector has likewise expanded 100 per cent.

This, in turn, largely explains the approximate doubling in overall interest payments over the period �Einterest rates are not very different to 2001, which puts paid to the notion that "competitive" lending markets have driven the debt accumulation.

To my mind, the drivers have been more overwhelming and persistent �Enotably, an over-low New Zealand interest rate curve established by the Reserve Bank �Erather than any occasional 0.25 per cent discount from the curve, in an admittedly competitive mortgage market which, incidentally, now includes a state- subsidised bank.

Asset valuations have also doubled over the past five or so years. This has been obvious for homes, with no sign of any let-up even now. But it's also been the case for farms.

Of course, a doubling of debt, asset prices, and interest payments, would be understandable if incomes had increased by anywhere like the same proportion. But they haven't. Indeed, according to income and outlay accounts published a few weeks ago by Statistics New Zealand, gross household disposable income increased just 23 per cent in the five years to March 2006.

And this measure of income is as comprehensive as they get. It accounts for such fundamentals as wage inflation, employment growth, incomes of the self- employed, immigration, investment returns, welfare, and net of tax.

It also includes a measure of gross farm income, which actually moderated to around $2.9 billion in 2005-06 according to the Statistics NZ data, from $4.5 billion in 2000-01. Incidentally, the peak was $5.4 billion in the 2001-02 March year, when the currency was low and world export prices robust.

Sure, there are notorious measurement issues with the household accounts. Hey, let's be honest, they're not even official, but experimental.

A potentially big blind spot, for example, is income from trus

[rmbbrave]

And AIR NZ has been doing it's utmost to lift NZ's unemployment rate but to no avail.

More "job losses".

Airline jobs in balance
The jobs of 1850 Air New Zealand front-line staff are up in the air as their employer weighs up contracting out the work they do to a Spanish firm. Alan Wood reports.

http://www.stuff.co.nz/3956643a13.html

[rmbbrave]

http://www.stuff.co.nz/3956783a11.html

Tenants in bidding war over rent crisis
By HAYDON DEWES and NICK CHURCHOUSE


Skyrocketing house rental prices have reached crisis point, with tenants locked in bidding wars for accommodation as a shortage of affordable properties fuels demand.


There are also fears that suitable rental properties are slipping out of reach for those trying to save for first-home deposits as rents increase faster than incomes.

Rents nationwide are accelerating ahead of income growth, fuelled by bumper migration figures, the house-price escalator and a scarcity of affordable new homes.

The rental market in Wellington - listed as the second most expensive in the country in a Massey University study - has hit crisis point, with young professionals clambering over each other, offering hefty up-front payments to landlords and bidding for properties by offering to pay above the advertised rental price.

Renters report facing queues of up to 40 people at an open home for a rental property, while landlords are bombarded with e-mails from prospective tenants within minutes of listing houses - often from all over the country.

[rmbbrave]

"Property goes up 10% per year" - dream on !!!

Houses 'way above value'

14 February 2007

House prices have ballooned to a record 42 per cent above what they should be worth, New Zealand's biggest money manager says.


Real house prices, adjusted for inflation, have increased on average about 2 per cent a year since 1960, AMP Capital Investors head of investment strategy Leo Krippner said yesterday.

But prices had gone up 75 per cent since 2001, taking them to more than 40 per cent above their long-term average their "natural" level. "That is unprecedented ... they are massively overvalued," he said.

The last house price-bubble happened in the early 1970s, when strong immigration pushed prices 39 per cent above their fair value by 1974.

Prices slid nearly 40 per cent in the next six years.

Homeowners at the time did not feel the impact in sale prices because inflation running as high as 18 per cent masked falling prices, Mr Krippner said.

However, in today's relatively low inflation environment, a fall in real house prices (adjusting for inflation) toward the long-term trend would hit homeowners through low sale prices.

But he did not expect house values to fall 40 plus per cent.

Demand for housing from first-home buyers would probably limit price falls to about 10 per cent during the next few years.

It was also possible that house prices had found a new level and that a downward adjustment to the previous long-term trend was not needed.

"But history generally shows that when (prices) get this stretched there is some degree of pull-back."

Property investors would be better off buying commercial property, rather than sinking more money into housing.

Bank of New Zealand chief economist Tony Alexander said house prices were likely to keep climbing at above 10 per cent a year "for a while yet".

http://www.stuff.co.nz/3960872a13.html

[rmbbrave]

Immigration could well keep property pices rising. It already accounts for a third of NZ's population growth.

You really can't prdict what will happen with immigration - NZ could increase or decrease it's quota. NZ's competitors for quality immigrants ie US, Canada, OZ could increase or decrease theirs.

Talented Indians and Chinese could realize there are better opportunities at home than in NZ.

Almost anything could happen.

[rmbbrave]

Rents 'kept low by tax breaks for landlords'
By NICK CHURCHOUSE -

Residential tenants are being subsidised by the taxman, with landlords happy to keep rents low and live off tax breaks, an economic report says.

Westpac chief economist Brendan O'Donovan said rents had increased 14 per cent in five years, while house prices had doubled.

The discrepancy had driven down yields (rents as a percentage of capital value) for landlords, but was being mistakenly quoted as evidence that the housing market was overvalued and due to "pop".

The real reason was lower interest rates and tax rebates, Mr O'Donovan said.

The combination meant landlords could afford to leave rents low and make money off capital gains while on low mortgage interest rates and reap tax rebates afforded to investment property owners.

"The pressure on rental growth is low because the price of the house was doing the adjustment for the yield rather than rents themselves. The price went up instead of the rents.

"The tax system is effectively subsidising landlords."

Landlords typically make a loss on rental properties after mortgage interest and expenses, and this can be written off against taxable income. The rebate is linked to the landlord's marginal tax rate and, with the top rate increased to 39 per cent in 1999, a greater incentive was created to use rental property to offset the tax bill, Mr O'Donovan said.

Typically, house prices grew at about 5.5 per cent a year but, with such rapid capital value growth recently, the short-term outlook was for a catch-up period.

"We are due a period where house prices take a breather for a while; you will more likely see rents growing in line with income."

Gail Vietri, from Quinovic Property Management in Ponsonby, said that, with a massive shortage of good rental houses, rent increases of $20-$30 were being tolerated by renters.

Even with increases, some properties were still receiving six inquiries within a day of listing. "It hasn't been like that for years," she said. But big jumps in rents were not likely, with increases constrained by what people could afford.

Vivian St Quinovic Property Management in Wellington had noticed an easing of heavy demand throughout January and February as students arrived in town, but owner Keith Boyd said the pressure on inner-city properties was still high.

Mr O'Donovan said that while rental properties were being sought by high-net-worth buyers looking to take advantage of tax rebates, it would always be hard for new home buyers, but not necessarily for tenants.

"Having a roof over your head is no less affordable than it has been in the past, but it is a lot tougher for the first-home buyer to get in there."

The tax rebates were more valuable to high earners, creating higher competition from those with more buying power. "Not only are more people able to take on more debt, more are willing to as well."

But government interference, as with the Reserve Bank's threats of interest rate rises to settle the property market, was unnecessary, Mr O'Donovan said. "You can't be King Canute and try to stop the tide. Where house prices have gone, they've gone for good reason."

The market had been self- adjusting, but that cycle was more or less complete. "You can think of it as a cyclical beast. You have periods of unders and overs. We're probably due for a period of under."

[Halebop]

Agreed Aspex, some of the analysis is a wee bit too flakey in that one. If property investors could ratchet the rent as well they would. The only thing they have raised is the capital value of property thanks to demand for housing as an investment, easy credit and helpful tax policy. Certainly the unispiring growth in rental income could hardly be the motivator (particularly given the levels of renovation capex that has been sunk into Auckland over the last few years).

Ultimately, an investment is valued by it's cash flows, which is why property investors find housing more affordable than garden variety owner occupier home buyers. The pre tax cash flows of most Auckland residential real estate does not support the capital value. Despite debate on the merits of increasing interest rates, at some point physics will reign true.

Not sure a mortgage levy is a great idea but something that more specifically targets property investors is at least a step in the right direction. Still think a change in tax policy is the easiest and most direct method to impact.

Watching Keiran Trass on Campbell tonight he seemed to claim that property investors were benign and should not be demonized for their borrowings and investment habits. I found it a bit like saying don't blame car drivers for oil imports.

[skinny]

Erm, it may be a bit lost in translation, but I think the essential point that the Wpac economist was making is the same you guys are. The MIL was never a goer, tweaks to the tax system may be a differnt story