Population Growth and Growth in Property Values

[Halebop]

Can someone explain to me what they think it means?

Arbitrage I'm sure affordability is not meaningless to the large proportion of borrowers who pay a substantial proportion of personal income just to live in a home.

I've recently moved back to Auckland after a year away in the (not so) winterless north. I'm not renting the same house that I rented when I left but there isn't a material difference in the rent I'm paying yet property values are about 10% higher (REINZ and RBNZ statistics tell me that my rent is actually around 3% higher but the house is worth around 12% more - 'course the stats are skewed by reporting what is selling rather than what your house is actually worth but it provides an indicator).

Now in any market where I've participated there is a name for low income growth and high capital growth and it isn't great fundamentals. The same trends appear when comparing house values with incomes. The trends are simply not sustainable. A well known property figure was recently quoted as saying house values will double in the next 10 years. This is easily achievable if incomes also double. A dubious value proposition if they don't. At some point in the property pyramid you need someone who can buy your 350 metres of suburban paradise. At 9% fixed rates the average Auckland house price is now costing around half the average joint medium income (pre tax!). Ask those poor sods if affordability is meaningful or meaningless?

[Arbitrage]

Okay try this.
In the mid 1980's capital was hard to get hold of through a tight mortgage market. Therefore the ability to buy a house was difficult as the level of deposit required was much higher than it is now. Interest rates were much higher too. As capital has become easier to get hold of, access to buying houses has become easier. Does this mean affordability has got worse as they say (based only on % salary and property cost) or better? Are these variables the only relevant measures?

[Halebop]

Check out Bob Hargreaves work at Massey University. When people quote home affordability data they are typically quoting his reports. He includes income levels, interest rates and derived capital values to determine a rating. His system wasn't around for most of the 80s so we don't know if values were better or worse.

Home affordability (measured as a percentage, higher being worse) was a terrible 55% or so in 1988, bottoming out at 20% in 1992 as interest rates plummeted along with economic activity.

I would be hopeful his data quality has improved since early reports in the 90s. Affordability is now at 40%. This compares with 35% in 97 at the peak of the last property boom.

While we can suggest from his data that homes were indeed more expensive in 1988 relative to purchasing power, the outcome was also catastrophic with a recession that lasted years and resulted in the loss of hundreds of thousand of jobs (also due to some economic restructuring). Conditions are presently tighter for us than those that preceded the last mini property bust and recession, which should be enough to show caution. Few would suggest we need to get to 1988s levels to be worried, although that would indeed be reason to worry.

[Arbitrage]

http://property-group.massey.ac.nz/f...portDec_06.pdf

[rmbbrave]

Skills drain hits housing
Skilled Kiwi workers are flocking to Australia in the biggest rush for six years, with a net loss of almost 26,000 in the past year.

Despite the flood across the Tasman, there are still more migrants coming to New Zealand than people leaving long- term. The net gains are just a shadow, however, of the peak migration four years ago which drove up house prices. Statistics New Zealand figures out yesterday showed a seasonally adjusted net gain of 750 people in August, the biggest monthly gain this year, taking the annual gain to 8730.

The annual gain is down to levels where it is no longer pushing up house prices or consumer spending, economists said.

"The continuing easing in net migration will take the pressure off the housing market and see slower consumer demand growth, a development that will be welcomed by the Reserve Bank," ANZ Bank economists said.

The annual gain is well down on the net gain of almost 12,500 in the previous 12 months to August, and a fraction of the 42,000 net gain at the peak in 2003, which was a big factor in rapid house price rises.

The falling net migration gain reflects 5000 more people leaving for Australia than the 20,000 or so last year, with a relatively steady number of new migrants coming here.

The Reserve Bank expects net migration to get even weaker, hitting a trough of just 5000 in the first half of 2008. It remains uncertain if that will turn to a net loss next year, Citigroup economist Annette Beacher said.

House prices have been closely linked to migration for the past 50 years, with a new Reserve Bank study showing a 1 per cent increase in population from migration leads to a rise in house prices of roughly 10 per cent. During the 1970s house boom, inflation- adjusted prices jumped 40 per cent after 124,000 migrants arrived in just two years. In the late 1970s, 350,000 people left over five years and real house prices slumped 30 per cent, the Reserve Bank migration study shows.

Slowing net migration this year is expected to take more steam out of the housing market, with a big slump in sales volumes in the face of four increases in official interest rates this year.

There was a similar skills and brain drain from New Zealand which peaked in 2001, before dropping off rapidly after the September 11 terrorist attacks that year.

Ms Beacher said the brain drain in 2000 was well documented, covering all skill types from professionals to machinery operators, and there could be a repeat.

"More policy response is urgently required in this area," she said.

Net annual migration hit a recent trough in late 2005 at around 6000, under the impact of tighter immigration rules, a fall in the number of foreign students studying in New Zealand, fewer Kiwis returning home and more moving overseas. Net migration peaked in 2003 at 42,500, boosting economic growth and house prices.

[rmbbrave]

NZ net migration slows
New Zealand's net migration is slowing, with the growth in population through immigrants dipping for the year to September.

The net inflow from permanent and long-term migration eased nearly 40 per cent compared with the year to September 2006, to 8300.

Statistics New Zealand figures showed the latest number was also more than 30 per cent less than the average net inflow of 12,200 for the 17 years since 1990.

The main source of immigration, Britain, was down on last year, with 8215 immigrants compared with about 11,000.

The Philippines provided the next largest inflow of people, 3396 arriving to live in New Zealand in the past 12 months, almost double the previous year. Filipino immigrants have increased almost fourfold since 2005.

Statistics New Zealand population analysts said the growth from the Philippines was due to unemployment in that country and opportunities here, as well as more families than individuals arriving.

Immigration from India was up by 1125 people for the year to September, compared with the previous year. More than 2400 immigrants from Fiji also arrived.

ASB Bank economist Daniel Wills said the moderating numbers would be pleasing for the Reserve Bank of New Zealand, because they would ease pressure on the housing market.

The bank would need further signs of sustained moderation in demand, however, before it relaxed its watching brief on inflation.

"The data does not alter our view that official cash rate cuts remain a distant prospect, with the first cut unlikely till late 2008."

Kiwis departing for Australia were at their second highest level for the past 10 years, with about 26,200 permanent net departures in the year to September.

The highest net loss across the Tasman since 1997 was 28,359 in 2001.

ANZ analysts said that could increase over the next 12 to 18 months, with the New Zealand and Australian economies following diverging paths.

Further declines in net migration could accentuate an already tight labour market, they said.

[Dr_Who]

It is game over for the property investors and developers. I sold 80% of my properties when I started hearing the taxi driver, my hairdresser and everyone else talk about how much money they are making from their investment property. The sad part is that these guys still have their highly leveraged property thinking the market will always go up and wont slow.

The party is over with alot of bad hang overs to come.

[rmbbrave]

Population growth slows as country ages
New Zealand's population is expected to grow for some time yet, but the rate of expansion will drop as the number of deaths catches up, then overtakes the national birth rate.

Statistics New Zealand projections show population growth beginning to slow, with the population peaking at just over the five million in the late 2020s but not heading any higher.

The growth rate has sat around 1.4 percent a year since 2001 but this will drop off as the number of deaths each year soars to match births.

Statistics NZ predicts births will stay at around 60,000 a year through to 2061 and net migration will remain around 10,000 per year.

In the same period annual deaths should more than double from 28,000 to 62,000, caused by a greater number of elderly due to the large number of people born from the 1950s through to the 1970s . By the mid-2020s people aged 65-and-over were expected to outnumber those aged under 15 - children currently outnumber the elderly by almost 2 to 1.

By the late 2020s footpaths could be crowded with walking frames and mobility scooters as the number of pensioners shuffles over the one million mark - on its way to about 1.4 million in the 2050s.

[Arbitrage]

RMB and DR Who, you guys seem to think the glass is half empty when it comes to property investment. Look over the tassy and you will see rents thru the roof in sydney. Houses are less affordable and people rent longer.

Here in NZ I haven't sold property and am looking forward to the increased cahflow from higher rents over the next 12 months.

As is usual with the property cycle, property values will fall or stabilise for a while. The media will soon shreak on the front page about that and then complain about rents being too high. As yields from rents increase, property will start to look like a good buy again etc etc.

As for population growth, general stats are meaningless. Sure the population of taihape may be falling, but auckland is growing as usual. Which city do most of the immigrants go? Where are most of the students? So where do you invest in rental property? With a bit of research, the glass is half full and as usual heading for overflowing in the property investment game.

[tricha]

RMB and DR Who, you guys seem to think the glass is half empty when it comes to property investment. Look over the tassy and you will see rents thru the roof in sydney. Houses are less affordable and people rent longer.

Here in NZ I haven't sold property and am looking forward to the increased cahflow from higher rents over the next 12 months.

So u are saying its a good time to buy property Abritrage, hmm.

With more big juicy tax cuts and all the other fruit over here in OZ , I'm picking there will be a stampede over here soon and it will be mainly the younger ones.
This is what will bite the NZ property market unless immigration picks up to cover it.

( Kiwis departing for Australia were at their second highest level for the past 10 years, with about 26,200 permanent net departures in the year to September.
The highest net loss across the Tasman since 1997 was 28,359 in 2001 )