Population Growth and Growth in Property Values

[Halebop]

I started browsing the various property related stories linked to the one above.

Unsurprisingly, an investor group "rejects" capital gains tax as it has failed to work in Australia where "property prices are higher", an interesting take from someone accusing the RBNZ of "peddling popular myths"...
http://www.nzherald.co.nz/section/8/...ectid=10446337

Something that is quite clear is that wage growth has not matched house prices, despite both being in boom conditions for the last 6 years. Nobody really needs the CTU to tell us that I imagine...

http://www.nzherald.co.nz/section/8/...ectid=10446401

Hugh Green, credited for his land banking success (I suspect he'd describe himself as a farmer), suggests supply of land is not going to fix much...

http://www.nzherald.co.nz/section/8/...ectid=10447363

...and someone on the reserve bank thread suggests high house prices is attributable to a shortage of houses, never mind macro economic indicators like cheap and abundant liquidity, Baby Boomer demographics inclined towards real estate (especially compared to share investing where 1987 is still obviously a culture defining event for them) and at the peak of their earning (and borrowing) prowess, a tax system that does indeed skew the investment framework*, a balance of payments deficit funded by low local ownership of corporates and high local exports of interest payments (apparently this isn't inflationary?) and a monetary policy and economic framework that have demonstrably restrained inflation except where we can't easily substitute (like housing, major construction inputs, health care workers etc).

* It's flawed to compare housing investment as level pegging with business owners on the tax front. How many business owners claim depreciation on appreciating plant and equipment? Most housing investors earn income from a wage, salary or business drawings and use the rules on deductions to ensure they reduce their taxable income, but obviously not their net wealth position. A business owner has no such luxury as his plant, be it a sawmill, printing press or beer fridge, does in fact depreciate and is required to generate free cash flow to pay for his earnings and tax bill.

...but good luck to those who say rent increases will save them from high interest rates or "punitive" taxes. From the multiples it's clear there is only so much money that can be extracted, so the young couple earning $68,000 gross a year is not going to cough up an extra $10k to meet your post tax mortgage servicing costs. We can argue the reasons back and forward but Property prices are simply ahead of themselves.

[tricha]

Rmbbrave - "NZ house prices are a bubble waiting to burst.

The Ockers have higher wages, better weather and cheaper houses. And NZers can move there to take advantage of these.

If you are thinking with your wallet why stay in NZ?"

You forgot to mention lower taxes, lower interest rates and they even give u $5,000 cash for every new Ocker u have

But theres nothing like home and if global warming increases, no water, no food and a huge desert.

[rmbbrave]

Tricha,

It is a bit pointless comparing tax rates because the lower the taxes the less services you get. So if you actually want these services then you have to pay yourself.

In Japan I pay about 5% income tax but I get no health cover, no pension and if I want to use the highays I have to pay tolls. If I had kids at high school that would cost me too. So low taxes = low services.

The trick is to live in 2 countries. When your young and healthy, you don't need health cover or a pension so live in a low tax country. When your old and need a pension and health services live in a high tax country.

It's a neat trick if you can pull it off.

I have never had a full time job in NZ so have never paid much income tax. But I'll be coming back for my pension and subsidized health care.

[rmbbrave]

Child-free and single - by choice
By LOUISA GAULT - Sunday Star Times | Sunday, 24 June 2007

The paper warns that for New Zealand to retain its fertility rate, the remaining population must average 2.8 children per woman for replacement level fertility to be achieved. However, the authors concede that given social, economic and time constraints on parents, any increases in family size would seem unlikely.

http://www.stuff.co.nz/4106398a19716.html

[rmbbrave]

But as they are choosing to be single - it seems unlikely that they will find you as fascinating as you find them.

[rmbbrave]

Homes now more out of reach

Rising interest rates mean the more than 80 per cent of the average pay cheque is needed to pay a mortgage on an average house.

Interest.co.nz's home loan affordability index worsened in June to 81.2 per cent of pay needed to repay a standard mortgage, up from 79.4 per cent in May and well above the 68.2 per cent of income a year earlier.

Five years ago, it took 45.3 per cent of take-home pay for a weekly mortgage payment on a median house.

While weekly pay rose $28.79 in the past year, that has failed to match the rise in weekly mortgage payments for a median-priced house of $107.12, publisher David Chaston said.

Benchmark interest rates for a two-year fixed mortgage rose 31 basis points over the month to 9.22 per cent in June, as the latest Reserve Bank Official Cash Rate rise to 8.00 per cent took effect.

Most economists polled by Reuters expect the Reserve Bank to raise rates next week for a fourth consecutive time, to 8.25 per cent, as it tries to dampen inflation pressures, particularly in the housing market.

Median house prices fell 0.7 per cent to $347,500 in June, but were up 12 per cent on a year earlier.

The most affordable region was Southland at 43.4 per cent of the average pay, against the benchmark for affordability of 40 per cent. Auckland was the most unaffordable region at 104.1 per cent of income.

An average buyer would need to allocate 9.9 years of their current annual income to afford a median-priced house, up from 9.3 years in June 2006, Mr Chaston said.

"We seem stuck with an affordability crisis for a very long time unless major public policy changes are made," he said.

"Urgent actions attacking housing supply inhibitors and new-build rates are required."

The index was based on individual pay, but the reality was that most buyers relied on more than one income to buy a mortgage, Mr Chaston said. It assumed a 20 per cent deposit.

[George]

This news item seems to be at odds to the current negative view about property.
Just like shares if everyone is saying something, the opposite may be closer to the reality.

http://www.theage.com.au/news/busine...559956043.html

[George]

Another positive view

http://www.theage.com.au/news/Busine...560039648.html

[rmbbrave]

Property will double in price in decade: marketers

Could property prices continue to double every 10 years? Investment property marketers believe so, but economists doubt it.

"What you will find is a small group of people who are very wealthy owning the majority of the property and most other people will not be able to afford to own," says property author and founder of the Hybrid property services group, Kieran Trass.

"That's going to happen in New Zealand over time."

Trass is imagining how the future would look should property prices double every 10 years, a scenario those selling investment properties to mum and dad investors are telling their clients will happen.

"I think we are going back to where we came (from). Back to the days where a few landlords owned all the land in the country and other people worked but never expected to own property."

Perhaps new ways of buying into the housing market will emerge as a result of the repeated doubling of property values he and his peers predict, he says. "Maybe there will be ownership-sharing loans where the bank takes a share in the houses people buy. "Instead of owning a property, people will invest a little money in a fund which happens to own the suburb of Mt Eden, or wherever. They might buy shares in the fund for the right to live in their home, and share in the growth."

It's an image of the future to which most New Zealanders would react with horror; the antithesis of the Kiwi dream. It raises the spectre of home affordability getting worse until only the richest can afford property, and the rest are consigned to tenancy-slavery.

But it's the kind of New Zealand that would have to emerge, if - and it's a big if - house price growth rates pan out to be as high as investment property marketers predict.

We asked 10 of the best-known investment property sales organisations to tell us the capital growth predictions they put to investors thinking about buying properties from them.

We got answers from Hybrid Group, Key2, Safe as Houses, Catalyst2 and NZ Invest, all of which said they believed property values would double in the next 10 years, although a number said they preferred to use more conservative projections of 5% growth each year with prospective clients, rather than the 7.2% needed for prices to double.

Russell Benshaw, of Key2, said: "When we do a financial analysis with clients, we stick to a standard 5% per annum, but we do a sensitivity analysis with 6%, 7% and 8%. If we told them we were going to get them 10% per annum, they would say you have got rocks in your head because the figures would look crazy."

Nevertheless, Benshaw says he expected the properties Key2 sold to outperform the 5% figure over the next 10 years.

Benshaw predicted the market would see only flat to modest growth in the next couple of years, but would then push on again, a view shared by many, although some, such as David Orrell of Safe As Houses, which specialises in building or buying properties for investors and then leasing them to Housing New Zealand, says older hands like himself remember beyond seven years ago, when the country experienced a period of no growth which lasted five years.

But even if that happened again, those buying now and holding on for 10 years - the minimum he suggests is reasonable - would still get that doubling effect. "I haven't got one customer who wouldn't say they were glad they bought a property from me five years ago," Orrell said. "I would definitely say in 10 years' time, that'll be true of people buying today."

Like Key2, Safe As Houses uses a 5% projected growth rate.

Tanya Kwasza, of Catalyst2, says her firm uses just 4.65% capital growth rates from projections as a worst-case scenario.

NZ Invest uses a rate of 7% in projections.

Few of the firms give credence to a possible drop in prices.

But is the continued doubling of house prices possible?

Jeff Matthews from Spicers is pretty clear on that. "It just won't happen," he says. Forward projections of 7.2% per annum can be sho

[rmbbrave]

The sh!t is very near the fan now.

Very near indeed.