Property bubble on the horizon

[minimoke]

There isn't much room for new greenfields housing subdivisions (Stonefields in Mt Wellington can only house a few thousand people).
So what happens?

Had a chance to go through wellington the other day by bus for a change – not a new house in sight. Just miles of aged stock. At some point this rotting, uninsulated noisy property will be pulled down and replaced with more expensive stock – driving values up. I’d forgotten how tightly packed these 90 year old places were!

[SEC]

Totally agree Kazza and will add net migration to the mix. Property price increases are justified on fundamentals if there is significant net migration. Yet NZ has virtually zero net migration - well qualified young people leaving in record numbers to Australia being replaced by Indians and Phillipinos that simply cannot afford property. Therefore there is significant negative net migration of people who can afford property.

A good indicator of fundamental value for property is the rental PE ratio. This was relatively constant for decades (10 - 15) then rocketed to record highs in this property bubble (20+). This has to come back to long term averages before property an be considered worthwhile for investment purposes.

SEC

[minimoke]

...well qualified young people leaving in record numbers to Australia being replaced by Indians and Phillipinos that simply cannot afford property.

This is presumably your Shrewd Crude demographic. He can’t afford a house either so really there is no difference if these people leave and Indians arrive. Except they still need somewhere to live which is rental property. NZ population will expand over time – increasing demand for housing.

[MrDevine]

The media keeps banging on about people 'leaving in droves' to Australia. Well I was in Sydney last week and talked to 2 or 3 at a party who were unemployed or in unsatisfactory jobs. So I wonder when all these punters will come back to Noo Zealand? Those who leave to Australia thinking they'll escape the recession have rocks in their head, the recession was top of mind in Sydney, I did see a few empty shops too.

I say to these guys I'll stay here and contribute to the economy that you'll then want to participate in when you come back. New Zealanders need to get stuck in and get on with it, not bleat on about how you get paid more in Australia (it has 26 million people! New Zealand is smaller population than Sydney!), because in some professions you get paid the same or less, and you pay more tax, more for booze, more for lots of things.

SO, barring an economic depression which pushes unemployment to 15%+ (like Bruce Sheppard likes to speculate about, will set up another thread to rant about this lunatic, why the **** do the media give this nutter so much air time?) then no property bubble for 10 years. My prediction is for market to head south another 5% and bounce around for some time to come. Focus for punters should be for holding onto jobs, spending money (that they own) in the shops and paying down the mortgage as quickly as possible via lower interest rates that allow them to increase capital repayments. Property speculation should be for the smart or stupid.

Thats my rant for the morning, I just get pissed off when I see people bagging New Zealand, only way to make it better is by engaging in what we have here.

Mr D..

[arco]

You probably cant reply on Indian immigrants to take up any slack. They live many more to a house that we do. I've seen how they live in London - amazing how many they can cram in per dwelling.

The average size of an Indian house is 494 sq ft in rural areas — or 103 sq ft per person — and 504 sq ft in urban areas, or 117 sq ft per person.

39% of rural houses are 312 sq ft or less. Given the average household strength of 4.8 persons, that works out to 65 sq ft per person.

[minimoke]

You probably cant reply on Indian immigrants to take up any slack. They live many more to a house that we do. I've seen how they live in London - amazing how many they can cram in per dwelling.

The average size of an Indian house is 494 sq ft in rural areas — or 103 sq ft per person — and 504 sq ft in urban areas, or 117 sq ft per person.

39% of rural houses are 312 sq ft or less. Given the average household strength of 4.8 persons, that works out to 65 sq ft per person.

Well, there’s the glut of the Auckland shoe box apartments sorted!

[arco]

.

So @ 65 sq ft per person the basic 1200 sq ft Kiwi house could accommodate 18 persons.

Mum, Dad, 6 kids, granny, granddad, uncle, auntie and 6 lodgers

(or maybe 12 lodgers if 6 are on day shift and 6 others on night shift)

[kazza]

2,Shortage of supply will increase demand.
3. Builders will have flown the coup.

Arbritage you also say "Auckland City is growing by around 40,000 people per year at the moment and Forget the bubble, look at supply and demand. I am holding on to my property portfolio thanks."

here are some of the statistics relating to supply and demand:

People in the 30-60 year age bracket are net buyers of housing while people in the 60-90 age bracket are net sellers of property. The older age bracket is getting bigger while the middle age bracket is staying constant so there will be increasing supply of properties on the market with no increasing demand from buyers.

Natural population growth is decreasing as the number of births stay constant but the number of deaths increase. Last year there were 65,000 births and 29,000 deaths, a net increase of 36,000 nationwide

Average net migration since 1967 has been around 10,000 per year, last year net migration was 4000, so a total population increase of 40,000. With competition for new migrants increasing in much larger and more wealthy countries such as America, Japan, Europe and Australia. Chances of net migration increasing above historical averages is very low and may even decrease.

In 2006 there were 1,651,542 dwellings (1,515,642 in 2001) for a population of 4,027,947 That’s 2.44 people per dwelling this number is projected to decrease to 2.1 (it used to be 3). Last year there were 22,000 new dwellings built (down from the average of 27,000) In order to support the current population increase of 40,000 at 2.4 people per dwelling there only needs to be 17,000 new dwellings built to accommodate current population growth.

In 2015 population is expected to increase by only 30,000 (an optimistic 10,000 net migration and 20,000 net births) at 2.1 per dwelling this means only 14,000 new dwellings need to be built. So unless the number of new dwellings decreases over time there will be an over supply of roughly 50,000 (this has happened in the USA already)

It is the same in Australia, Europe, USA, Japan, Canada so I am not sure where all the builders and other tradesmen are going to fly the coup to except maybe China or India. My guess is they will have to retire early

[Arbitrage]

Well the recent "property bubble" has burst and prices are down 5-10%. The sharemarket has a "correction" and drops 30%. So are we saying to get out of property?

[fungus pudding]

Well the recent "property bubble" has burst and prices are down 5-10%. The sharemarket has a "correction" and drops 30%. So are we saying to get out of property?

The property bubble hasn't burst yet. It will though.