What Is Best To Buy?

[trackers]

quote:Originally posted by Dough Boy

The assumption of property price increases of 7% or more over the last 10 or 20 years is valid but lets remember salaries have not increased to the same degree so what gives?

Well since the 70's society has changed a whole lot with the 1.5 to 2.0 income household now common. So when you look at the traditional 'average salary to house value' ratios they are no longer are valid, rather the 'household income to house value' ratio should be considered.

And this brings us back to how house values have managed to climb ahead of salaries, that is, the second income earner in the household has been the one to allow/push prices to climb as they have.

So can the 7.2% growth continue? Yes, for sometime as the worker participation rate inceases to it theoritcal limit. But not forever, as the need for sleep and relaxation overrides the consumer's addition for money. However the productivity of the household could be extended with drugs that limit the need for sleep (don't laugh people 'need' there coffee to get them thru' the day so its only a small step to medication to limit your sleep).

Then we will have a true or nearly true 24/7 society and property prices will keep rising for the time being, just not forever.

I suspect it also has to do with the Bank's willingness to lend money, and consumer's willingness to take it.

In other matters, I headache by about lunchtime unless I've had at least one coffee [xx(]

[duncan macgregor]

quote:Originally posted by Dough Boy

The assumption of property price increases of 7% or more over the last 10 or 20 years is valid but lets remember salaries have not increased to the same degree so what gives?

I say property increases in value by 10pc pa. What gives you ask, or perhaps why is the increase greater than inflation.
The rules and regulations have changed. The cost of compliance has escalated into the absurd. Building inspectors will no longer make decisions, and force you to get an engineers report for trifleing little matters. Developers are forced to build roads, and contribute to all kinds of stupidity, to be allowed to develop new sites.
We are now going to have builders pay all sorts of money to be registered. The apprenticeships in the industry is a joke.
I can only presume that the price of houses will rise a lot higher than my 10pc pa in the future. macdunk

[Halebop]

quote:Originally posted by duncan macgregor

I say property increases in value by 10pc pa. What gives you ask, or perhaps why is the increase greater than inflation?
The rules and regulations have changed. The cost of compliance has escalated into the absurd. Building inspectors will no longer make decisions, and force you to get an engineers report for trifleing little matters. Developers are forced to build roads, and contribute to all kinds of stupidity, to be allowed to develop new sites...

Duncan these either are inflationary pressures or just a redistribution of expenditures. If developers are "forced" to build roads (why should ratepayers cover their development profits anyway?) then council avoids it. In Macro terms for the end consumer they are paying for it one way or the other. There isn't a realistic model for housing in the CPI index either, with purchase or construction of new dwellings weighted at less than 10% and rent at slightly more than 6%.

If I'm an oldie and paid off my mortgage 17.5 years ago both rent and property values might have near zero influence on my personal inflationary expectations or expenditures. I'm probably more in tune with the price of groceries, petrol, power, prescriptions etc. So property inflation is in practical terms about 0%. They are merely enjoying a price rise that can be swapped for something valued by the same criteria. Bar superior deal making they are getting same for same.

If I'm younger, rent and contruction costs have a much more direct and substantial impact. Mortgage payments might take 40 or 50% of my income, rent payments are less on average but still substantial and most likely to target the youngest / poorest demographics in any case and so present a substantial outgoing. In either case far above 6% or 10% weightings. So inflation for people in this category (more particularly home owners than renters because rents have underperformed capital values) might actually be 10% or more, at present probably higher if interest rates were able to be included. So that then is just the cost of building (irrespective of the reason for the cost escalation) and not a significant criteria for out performance - its just matching it own inflated costs.

I personally think bottlenecks in the construction sector are accounting for the lions share cost escalations, particularly in the form of higher priced labour (and at lower and less efficient skill levels).

In the longer run the total value of housing stock hasn't increased by 10% per annum. So the average value certainly hasn't when the total includes renovations, additions and greenfields development as well.

[duncan macgregor]

What i was trying to say was it costs a very large ammount of money to even start a building more so than it used to. Its not a case of who pays for what that counts its unnecessary costs of late that add up to the total. Labour costs are less percentage cost to a house than they were. The reason being machines which speed up construction.
In the old days they did most things by hand, [digging, sawing, planing etc]so that man hours are greatly reduced. The apprentice boy went to night school, now the employer pays them at day school. we had inspectors that made decisions now we pay an engineer five hundred bucks to get a simple little common sense problem passed.
We have to buy land and gift a portion back to be allowed to proceed.
I think that the way things are going 10pc pa is under estimating the future costs. macdunk

[Snow Leopard]

Totally independent of the trails and tribulations of being a builder in modern day New Zealand and the rise in costs caused by the mindless pen pushers covering their own derrieres:
You can not sell it for more than someone will pay for it and that depends to a large degree upon the ability of the man on the street to borrow money, or the willingness of the lenders to lend money.

I would suggest that is in the long term, unrelated to builders costs but is related to incomes, interest rates and buyer psychological factors.

[duncan macgregor]

Everything is related to building costs. If the costs are to high the market slows down until the buyers play catch up. It is all supply and demand. The building industry is very competative nobody is allowed to make extreme profits. macdunk

[Snow Leopard]

quote:Originally posted by duncan macgregor

Everything is related to building costs. If the costs are to high the market slows down until the buyers play catch up. It is all supply and demand.

My point exactly.

[Halebop]

Its only half the equation. Let's not forget the sellers have to do some slowing down too.

I don't buy the "not allowed to make extreme profits" scenario. Property like all cyclical industries is categorized by extremes - both profits and losses. Developers and their feeder associates like real estate agents and financiers have been making extemely good profits. At some point they will make extremely bad profits too.