A profound inflection point?

[SEC]

1) NZ housing stock amount to 1,550,000 residential properties (this clearly excludes productive farms –around 14,000- and commercial properties), and the average number of people per property is around 2.45. Given that the average NZ immigration over the past 5 years (the property boom) has been around 12,000 per annum, I cannot see how such a small relative number can have any significant effect on property prices. If the net number of immigrants followed the same people-per-property ratio, then every year there would be in average demand for 5,000 properties (round figures), which would mean an impact of 0.3% on the housing stock. Even if every immigrant lived by him/herself, the impact would be less than 1%. This is insignificant and cannot be the driver for some 12% annual compounded property price growth over the past five years. I trust these figures kill the conventional notion that immigration is behind, and can sustain, high property prices. (SEC – your example of Australian commodity-based cities may be true but we cannot transplant such conclusions to NZ given the figures above).

Your number of residential properties used to come up with the conclusion that immigration has not led to price rises is a little misleading. Sure there might be 1.5M+ residential properties, but how many of those are actually available? From memory the turnaround time for residential property is approx 7 - 8 years - so about 200K properties per annum were actually available to the 12,000 net immigrants - actual demand perhaps 6,000 properties (3%). Still a small fraction though but since the majority of them move to Auckland it might be 7 - 8% of demand there. It's a moot point now since net migration in NZ is now zero and moving into the negative.

For the Australian resource rich states, net migration has been running at up to 3% of population (cf 0.3% for NZ). Running the numbers for WA and QLD like I've done for NZ would show definitively how net migration on that scale can impact house prices.

SEC

[Jess9]

Check out Kieran Trass's key drivers of the residential property cycle. Those make sense to me at least.

[Jess9]

http://www.hybridgroup.co.nz/MarketI...etInfluencers/

[patsy]

So the MP's who have periodically spoken out over the last 5 years, blaming the 'foreigners' for the decline in housing affordability for home-grown kiwis, have got their facts wrong?!

Of course! It's just the usual populist, xenophobic, hate-rich response that the NZ proles love. Just try to explain to them how increasing the top tax rate plus the implementation of development (Keynessian) economics has led to a property bubble.

[Arbitrage]

[QUOTE=patsy;191132]CONCLUSION: Property prices have increased because of the increase in money supply and credit during 2002 to 2007 has created a generation of property investors. Immigration has had limited, if any, effect. Property prices should decline by 25% when they revert to the mean, also assisted by the negative effect of leverage on households.


Patsy,

The following link provides a fairly strong correlation between immigration and property prices. In light of your conclusion, do you have any comments?

http://img.photobucket.com/albums/v2...mmigration.gif

[patsy]

[

The following link provides a fairly strong correlation between immigration and property prices. In light of your conclusion, do you have any comments?

http://img.photobucket.com/albums/v2...mmigration.gif

Yes, I do have a few comments:

1) The chart shows the fluctuation of "number of properties sold", not the fluctuation of property prices. Housing stock turnover is not necessarily an indicator of price changes. If you still don't believe this, then you just have to read the latest figures of January house sales in the USA - sales increased by 1.2%, prices decreased by more than 11%.

2) From my Statistics 101 course: correlation does not imply causation. If the chart tries to "demonstrate" that immigration is the cause for price increase, then this is a typical case of How to Lie With Statistics.

3) Also from my Statistics 101 book: Both variables may be driven by a third influencer (a "mediating" variable): the strength of the economy. The strength of the economy may be behind both turnover and immigration numbers.

[patsy]

Following from my previous message, implying that immigration is the cause of property turnover (as it appears to be suggested by the chart) is as silly as implying that property turnover is the cause of immigration - one could also draw this (wrong) conclusion from the chart. Both conclusions are invalid - again, correlation doesn't imply causation.

In any case, let's keep in mind Dimebag's original question: will/can property prices fall by a significant percentage in months to come? The suggestion was that, as a result of the decrease in immigration, property prices will fall. The tacit conclusion from this was that the property price increase we've experienced in NZ was the direct result of immigration numbers.

If we were talking about the generic and theoretical drivers of property prices (whether in NZ or elsewhere), immigration numbers do have an effect on property prices. However, as the data presented showed, this effect was marginal, at best, in NZ.

The driver of property price increase in NZ has been the implementation of expansionary policies, in particular during 2002 to 2007.

[patsy]

Some more interesting food for thought for this thread:

"Bernard Hickey: Capital gain? Forget it - for quite a while"

http://www.nzherald.co.nz/section/3/...ectid=10500252

[Arbitrage]

Patsy,
You say immigration has marginal effect on propoerty prices and yet one of Bernard Hickeys caveats is that prices could strengthen if the govt boosted immigration. Good way to advertise his website with a headline like that.

For the last 3 years many pundits were predicting a fall in property prices. It got delayed a few years and now looks like it may have arrived in some places.
So now we have the same pundits trying to predict how big that fall will be.

Since everyone including my taxi driver is doing it, I thought I would put in my prediction. I personally believe that the property market is a complex beast and averages and medians across the country have limited value. Some numbers are based on very small data sets of stock. So some of my picks for the next 12 months are:
Invercargill: -8% (low demand negative popn growth)
Queenstown: -15% (descretionary second properties)
Christchurch East: +2% (popular area away from the Easterly winds)
Wellington Central +5% (election coming, influx of new staff and politicians)
Coromandel beachfront -15% (see Queenstown)
West Auckland -10% (low income, low equity, interest rates hurting)
Central Auckland apartments +5% (still affordable, and supply reducing)

If anyone would like to correct these figures or add their own predictions, I would welcome their comments.

[The Great Gold Guru]

Great thread , Dimebag always was a class act ! ... although could never agree with him that Pacific Retail Group was the best stock on the NZX !!.

I've purchased 8 residential investments over the last 24 months , 4 in Wanganui all under $175,000 ... 1 in Maori Hill, Dunedin for $367,500 and 3 here in Blenheim where I live for $290,000 , $380,000 and $325,000. All are villa's or California bungalow 1930's style houses.

A new housebuilding company ( Highmark Homes ) has just arrived in Blenheim and have been advertising heavily on the local radio ... 160sqm brick and tile for $187,000 , the chaepest in the market they say ... the average section price here in Blenheim is around $160,000 so with a bit of land-scaping, fencing, drapes and appliances there is not going to be much change out of say $375,000 ... add in the carry cost of owning the section for approx 9 months before you move in and paying for half the house for 3 months before you can use it and you could see with a few delays just the financing of the thing before you move in could easily be $25,000. So there you have it a small bog stand 2.4 stud 3 bed brick and tile piece of boring rubbish in a sub-division where everyone is trying to "keep up with the Joneses" for $400k.

I cannot see how my well located in nice suburbs , beautiful character villa's with heaps of charm all well under $400k generating rent instantly the day I buy them can fall 25-30% in value. There is no way the major cost components of that new house such as land, wood, wiring, glass, brick and labour is going to fall 25% in cost in this environment. So will new houses just stop being built ... possibly .... great , the demand for all existing homes will exceed supply and guess what happens when that most basic of economic principles occurs ....

Just my 2c worth.

PS , The listed property trusts are the cheapest place to buy property at present. KIP nav about $1.70 at last reval ... current SP ... $1.21 ... ridiculous.

Disc: Bgt 25,000 KIP today at 120