Population Growth and Growth in Property Values

[Arbitrage]

No not a good time to buy as the yields are so low, and capital values are stagnating/falling. However, as a long term investor the predicted increase in rents is always welcome.

As for the immigration stats, yes you are right about the trans tasman movement. However many of our immigrants come from the uk, South Africa, and Asia, so the loss to Australia is offset by these. NZ population is predicted to increase and peak at around 5 million so we have a bit of time to go yet. Plus like sydney, much of the population growth occurs in nodes which benefits the local property prices. There are always markets within markets always be suspicious of generalisations which grab attention. They sell newspapers and books.

The tax cuts you mention are interesting. When I lived there a couple of years ago there were a lot of hidden state taxes that tended to offset apparent federal tax reductions. My comparative net income in NZ was actually higher than oz. Also beware of the impact of tax cuts on inflation....

[rmbbrave]

Low unemployment is a key cause of high house price in my opinion.

And it don't get any lower than this.

Unemployment falls to record low
New Zealand's unemployment rate fell to a 20-year low of 3.5 per cent in the September quarter putting New Zealand's jobless rate among the lowest in the world.

Unemployment is down from 3.6 per cent in the June quarter, Statistics New Zealand (SNZ) said today, a fall of 2000, driven by a drop in female unemployment.

But actual employment fell by 0.3 per cent, or down 7000 during the quarter against economists' forecasts of a 0.4 per cent increase.

The number in work was 2.15 million in the September quarter, the second highest level since the survey started in 1986.

In the past three months, 6000 more people moved into part-time work, but 10,000 full time jobs disappeared.

Lower unemployment had been expected to leave Reserve Bank governor Alan Bollard deeply concerned about potential inflation, but the figures present a mixed picture because of the drop in full-time job numbers and a lower participation rate, down to 68.3 per cent, down from 68.8 per cent in the previous quarter.

The central bank had forecast unemployment to remain at 3.6 per cent, the same as the average market pick for the September quarter.

Maori unemployment remained at 8 per cent, with Pacific Islanders on 4.9 per cent, and at just 2.4 per cent for European New Zealanders.

Southland had the lowest unemployment rate at 2.4 per cent, but that was up from 2.0 per cent in the June quarter.

It was followed by Taranaki, down to 2.5 per cent from 3.9 per cent and Canterbury, down to 2.6 per cent from 3.2 per cent and Tasman/Nelson/Marlborough/West Coast, down to 2.6 per cent from 3.3 per cent.

Northland had the highest rate – up to 5.3 per cent from 3.3 per cent, followed by Manawatu/Wanganui, at 5.0 per cent from 5.1 per cent.

Unemployment in the Auckland region rose to 3.7 per cent from 3.3 per cent.

http://www.stuff.co.nz/print/4266247a13.html

[rmbbrave]

Brian Fallow: Housing's high-water mark
5:00AM Thursday November 15, 2007
By Brian Fallow

The housing boom is over and from the standpoint of the average household's finances, it is about time.

Given how stretched the measures of housing affordability have become, it is remarkable that the boom has been as long and as strong as it has.

Over the past 10 years, the share of the average household's disposable income required to pay the mortgage has climbed from 9 per cent to 14 per cent. In Australia it is 12 per cent.

That may not sound like much but it is an average across all households, two-thirds of which either rent or have paid off the mortgage. The burden on the third which have mortgages is correspondingly higher.

And it is 14 per cent of the average household's combined after-tax income, not the average person's income.

Debt has been rising significantly faster than the incomes from which it is serviced.

The ratio of household debt to disposable income has risen from 90 per cent in 1997 to 160 per cent now. It is 140 per cent in Australia.

The average house price has climbed to six times the average household disposable income (Australia is 5.7 times).

"While a range of factors may have driven this," the Reserve Bank says, "some of which may not be expected to reverse, its rapid climb strongly suggests that house prices may be overvalued leading to a correction at some point."

To return the ratio to its long-run average of 3.4, incomes would have to rise by 80 per cent while house prices flatlined, or house prices would need to fall by 44 per cent.

Meanwhile, rental yields have been falling even as interest rates have been climbing.

The weighted average mortgage rate is now twice the average gross rental yield.

So why do people still buy investment properties? Look no further than the tax laws and the ability they afford to shelter income in the short term and derive untaxed capital gains longer term.

No wonder property investors have taken like a cat to water to the idea of ringfencing losses on property investment, so that they could no longer be used to shield other income from tax.

Some economists have attributed the doubling of house prices over the past six years at least in part to the increased value of that tax shelter since the Government introduced the new top tax rate of 39c in the dollar in 2000.

The Reserve Bank warns that "sustaining cash flows could become problematic if economic conditions were to weaken. Also capital gains are becoming increasingly uncertain as a means for investors to break even".

Interest rates are at an eight-year high and even if the official cash rate goes no higher in this cycle, a lot of borrowers face higher mortgage bills as fixed-rate mortgages come up for an interest rate reset - by an average of a full percentage point over the coming year, the central bank reckons.

It also notes, no doubt with some satisfaction, that there is little sign of a repeat of the mortgage wars where banks sacrificed interest margins in the contest for market share. That helped to frustrate earlier attempts by Governor Alan Bollard to cool the market.

Interest margins have increased to more "sustainable" levels over the past six months, it says, though they are still a full percentage point below their levels in the early 1990s.

In the face of these headwinds it would be little wonder if the housing market was going nowhere fast.

Pundits' confident predictions that the market was running out of steam have been wrong before, of course, but this time the statistical evidence is pretty compelling.

The Real Estate Institute's median price has been going sideways for the past six months.

Turnover on the other hand has been dropping like a stone. Sales last month were 23 per cent down on October last year.

For properties worth less than $400,000, turnover was down 30 per cent compared with a year earlier.

"This suggests the squeeze is coming most of all where cashflow is paramount - for investors and low-to-middle income households," Bank of New Zealand economist Craig Ebert said.

The average number of days it takes to sell has been creeping higher - 34 last month compared with 28 in May.

ASB's quarterly survey of housing market sentiment reflects the shift from a seller's to a buyer's market, with fewer people expecting prices to rise over the year ahead.

History suggests they are right.

If the past relationship between housing market turnover and prices holds, then house price inflation, which has been in double digits for the past five years, will have dropped to around 4 per cent by early next year.

The flattening off of house prices is likely to turn off the wealth effect, which has turbocharged consumer spending over the past few years.

The wealth effect occurs when people borrow and spend some portion of the increase in the value of an asset, notably the equity in their homes.

It may only be a few cents in the dollar of the paper gain, but past Reserve Bank research would suggest that the 15 per cent rise in house prices in the year ended June - $80 billion - explains almost 40 per cent of the increase in private consumption over the period.

Firms selling to the domestic market will miss that.

But the increase in housing wealth delivered by the boom has come at a social cost. Like other forms of inflation it creates both winners and losers.

Losers are those young couples (the single can pretty much forget it) who cannot scrape together the deposit on even a heroically geared starter property. How much more likely are they to emigrate?

Or those who do manage to get a foot on the property ladder but have to defer having children for years.

Then there are middle-aged people who face a shrinking window between getting out from under the mortgage and retirement in which to accumulate a nest egg.

Last year's census found the proportion of households with mortgages almost unchanged on 2001, at just under a third.

That tells us nothing, however, about the composition of those households and how it may have changed. It will take a lot more data and analysis for that.

One suspects, a priori, that they have got older.

[rmbbrave]

Inflated home prices are here to stay

House prices are grossly overvalued, by as much as $90,000 on average and prices could stay flat for five years, according to Westpac Bank economists.

The house price boom is over and a long-expected housing market downturn is under way, they say.
But a strong economy, unemployment at a 20-year low, high job security and growing wages meant there was not likely to be a big fall in house prices.

National median house prices have not moved for the past seven months, stopping dead in April after rising about $8000 a month earlier in the year.

Prices are expected to "wallow" a few points either side of zero and in five years prices will be much the same as they are today, Westpac forecasts. Prices were flat for four years till 2001.

This year the market was hit by rising fixed-term interest rates and there is no relief in sight.

Mortgage rates were expected to move even higher next year, putting even more pressure on the market.

For investors, rents are averaging just 4 per cent of a property's value while interest rates are about 9 per cent, making property less attractive.

On Westpac's "investor value" of housing measure, the average home is worth about $260,000, slumping from $328,000 at the end of last year. The investor value of property has been dragged down sharply by rising interest rates. That value is based on interest rates, marginal tax rates, rents and expected capital gains. While the value to investors has fallen sharply, the median price rose to about $350,000 earlier this year but has stagnated since then.

Westpac stressed that the investor value was not a price forecast. "We are not saying the median house price will fall to $260,000," Westpac's latest market report said.

But that value would exert slow and steady pressure on the market price, so the overvaluation could persist for many years.

The big jump in interest rates has also made housing much less affordable this year.

The cost of servicing an 80 per cent mortgage on a median home, based on a five-year fixed mortgage rate, has risen from 34 per cent of average household disposable income to 39 per cent this year. The historical average is just 25 per cent of the average household disposable income.

If house prices remained steady, it would take eight years before affordability returned to normal levels, based on incomes rising 5 per cent a year. If house prices stagnated or fell slightly, it would take four or five years for house prices to come back into line with the return from rents for investors.

http://www.stuff.co.nz/print/4275367a13.html

[JBmurc]

Looks like I might be new holder of some lovely southland sections have an accepted offer of 45,000 for 2000sqm of land two titles G.v 68,000

[Arbitrage]

What are you going to do with them? Sections produce no rental returns.

[JBmurc]

I'm not after rental returns atm I'm not going to have to get a loan at 45k- may transport some cheap houses later -There not making anymore land atm certainly not at 22500 per qutr arce 5mins walk to the beach

[MrDevine]

Where are you buying JB? Otatara or something? I'm a Southern Man myself.

MrD.

[JBmurc]

at riverton certainly not the best of sections still not 100% sure if I will buy need to do some more investaging when time allows ,also keen on keeping some cash in high interest deposit and just wait for bargin in Qutown major pressure on some sellers atm BUYERS MARKET

[rmbbrave]

NZ houses world's least affordable
5:00AM Monday January 21, 2008
By Anne Gibson


New Zealand has the least affordable houses in the world.

It scores worst in an international survey of the world's six most expensive housing markets, passing Australia for the first time.

Demographia, an international survey business run by Hugh Pavletich of Christchurch and Wendell Cox of the United States, today issued its fourth annual report, showing New Zealand has slipped drastically on an international scale.

The United States, Australia, Britain, Ireland, Canada and New Zealand were studied, and the results reveal NZ house hunters face the biggest gap between earnings and house prices.

Wages are so low and house prices are so high that it takes 18 years and six months of a household's entire annual income to pay for a home, Demographia found. That measure is based on median house prices compared to median wages.

Australia had been the least affordable country of the six, but New Zealand has overtaken it, partly because of high mortgage interest rates.

But in Aucklanders are no longer the worst-off New Zealanders. Tauranga is now the country's most expensive city compared to its wages, ranking 20th of 227 cities in the survey, followed by Auckland in 31st place and Christchurch in 34th.

"New Zealand has the highest-cost housing among the surveyed nations in relation to incomes. It also has the highest interest rates," the study said.

Houses in Los Angeles remained the world's most expensive, and California was the most expensive area.

The most affordable houses are in Canada's remote Thunder Bay, followed by Youngstown in Ohio and Fort Wayne in Indiana.

Demographia's authors say town planners should solve New Zealand's housing crisis by freeing more land on city fringes.

Mr Pavletich and Mr Cox cited former National leader Don Brash, who in an introduction to the study called for the abolition of urban limits.

"Despite all the evidence, governments continue to pretend they are powerless to make housing more affordable or, worse still, implement futile interventions which make the situation worse as the New Zealand Government is proposing," Dr Brash said.

He was referring to Housing Minister Maryan Street's Housing Affordability Bill, which would require developers to include cheap houses in new estates or to make compulsory gifts of money or land to councils.

The bill, introduced to Parliament last month, aims to stimulate the provision of affordable housing for first home buyers and low-income families.

But the Property Council and Master Builders Federation say the proposed law would push up the cost of houses. Other homebuyers would pay the price as developers put up the cost of mid- and upper-range homes to compensate for profits lost in building the cheaper homes for first-time buyers.

Real Estate Institute national president Murray Cleland said he was shocked to hear of New Zealand's ranking. First home buyers were being hardest hit.

He said tax rates were too high - "and that's an area that needs to be looked at" - but territorial authorities also had to take a good share of the blame.

Councils had restricted land supply unnecessarily at a time when people desperately needed more sections for building.

"You look at small provincial towns where the councils have freed up land - it's been swept up."

As well, exorbitant council fees and charges were making new housing developments unaffordable.

"A large part of this problem is the cost of getting building permits," Mr Cleland said.

Property Council national director Connal Townsend said yesterday he was not surprised by the Demographia survey and he criticised the Auckland Regional Council for its growth policy which restricted city limits.

No one wanted urban sprawl, he said, but "if people can't afford to live in the city, what's the point of the policy?"