Property rocks

[duncan macgregor]

HALETOP, property is not for you stick with what you understand. macdunk

[skinny]

One thing I have been pondering is the extent to which people negatively gear for taxation purposes.

Under the Nats tax policy, the shift out in the tax bands will reduce the tax incentives on property investment for most investors (tho not at all for those whose tax losses do not reduce their taxable income below 100k).

Interestingly the Oz housing market slowdown pretty much coincided with the Howard govt's shift out in the tax bands......perhaps we should be careful what we wish for [:o)]

[Halebop]

Not sure what impact it would have Skinny but I've always agreed with the mantra that government legislation often achieves the opposite to its intent. Maybe tax cuts are no exception either?

[Halebop]

QVNZ and treasury data aggregates the value of total housing stock in New Zealand at $452bn as of August 2005. This derives an average gross 9.7% increase in total housing stock values since Q4 1980. The data does not account for maintenance, improvements and new dwellings (current data indicates the $452b includes $9bn in new dwellings over the last 12 months or +2%).

There are around 1,350,000 dwellings counted in the current survey. The increase in dwelling numbers accounts for 1% or so in annual aggregate value rises.

Inflation was around 5.3% per annum for the same 25 year period.

The amount spent on maintenance and improvements is unknown but at a guess is also substantial. Given the size of the building and DIY industries an annual figure between 0.5% and 1% would seem conservative.

The average floating interest rate since 1980 was 12.4%.

It all makes 10% from property look a bit hard really. I don't discount the ability of a careful investor to buy individual properties well or a builder/developer/trader to trade well. But 10% on property is fantasy. A good run in any asset category always make people forget the risk premium that should be applied. Property presents no exception.

[PGL]

Good analysis Halebop, I do think you have overlooked one factor though - the shrinking of average section size. The comparisons of total property values are not comparing like with like when you consider the large amount of infill housing over the 25 year period and the move towards apartment/unit title housing stock.

[Halebop]

I did not consider shrinking section or perversely larger houses (!).

Nor did I consider that it often takes two incomes to buy where once one did the job. So standard of living is not factored either. At least gardening should be easier.

[PGL]

quote:Originally posted by Halebop

I did not consider shrinking section or perversely larger houses (!).

Nor did I consider that it often takes two incomes to buy where once one did the job. So standard of living is not factored either. At least gardening should be easier.

Well I guess no-one has time for gardening when they are working to pay the mortgage.

The whole recent property price surge seems to me to be a con-job by the banks

Cheap Money = housing inflation (more easily available money chasing an essentially fixed supply)

The result is a transfer of wealth from some NZers (the buyers) to other NZers(the sellers) with the Aussie banks taking a healthy cut along the way.

Net effect Banks-1 NZ-nil

[Halebop]

I can remember reading something from Gareth Morgan (I think) a couple of years back. His contention was that the gradual shift from 1 Full Time income families to 2 Full Time Income families merely resulted in higher house prices and due to mortgage commitments and inflated values lower net disposable incomes (despite the 2nd income!).

I really wonder how many people sit down and consider alternatives? There mostly seems to be two camps and neither appeal to me... Buy a house/land/property/properties at all costs or spend today and do nothing.

[PGL]

quote:Originally posted by Halebop

I can remember reading something from Gareth Morgan (I think) a couple of years back. His contention was that the gradual shift from 1 Full Time income families to 2 Full Time Income families merely resulted in higher house prices and due to mortgage commitments and inflated values lower net disposable incomes (despite the 2nd income!).

I really wonder how many people sit down and consider alternatives? There mostly seems to be two camps and neither appeal to me... Buy a house/land/property/properties at all costs or spend today and do nothing.

Its even worse than that for most - buy a house which increases in value, so now you are rich, so you can borrow against your equity, and pay more interest so work end up working harder and longer.

You've got to ask where this leads for us as a society.

[Cooper]

quote:Originally posted by PGL
You've got to ask where this leads for us as a society.

Well, under the basic scenario you've been describing, under which the demand for capital increases, and the supply of labour similarly increases... All else held constant that results in the relative returns for capital goods growing, and those who hold capital becoming wealthier. Meanwhile the relative returns on Labour have decreased due to increased supply, so those who contribute labour receive less return for their input, in a relative sense. So under that scenario, you work more for relatively less, and those who are already wealthy grow wealthier as the proportion of return for capital input increases and labour costs decrease.

Not an analysis of the current situation, just an extension of the example discussed here.