Houses in NZ least affordable in world

January 21st, 2008 at 10:18 am by David Farrar

A new study has found NZ now has the least affordable houses in the world, with the largest gap between earnings and house prices.

Comparing median house prices to median wages, in NZ it takes 18 years and six months to pay for a home.

The low ranking is due to three factors.  After tax real wages have increased very slowly in the last few years. House prices have increased a lot, and mortgage rates are the developed world’s highest (off memory).

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76 Responses to “Houses in NZ least affordable in world”

  1. vto (1,128 comments) says:

    This topic has been covered a few times if I recall.

    I have been suspecting lately that NZ cold do with some heavy and aggressive changes in a few of its settings.

    For example, slash taxes and/or interest rates.

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  2. gd (2,286 comments) says:

    Instead of lower house prices why not higher after tax incomes Come on Dr Cullen We know where the money is Give it back you theiving arsehole

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  3. vto (1,128 comments) says:

    and help out the poor old kiwi – snuffling in and out of our burrows.

    reset the settings.

    just do it.

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  4. Gooner (995 comments) says:

    Don’t worry, the tinkering with the edges approach of the government will work. You know WFF will kick in and make us all rich; Chris Carter’s affordable housing policy will kick in we’ll all be able to afford property; and finally unions demands for higher wages, without increase in productivity, will similarly lead us into prosperity.

    Forget making more land available or reforming the RMA or having a low tax, prosperous and progressive society. All that is just right-wing extremism.

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  5. Owen McShane (1,226 comments) says:

    While the report mentions the added impact of our high interest rates the rankings are based solely on the ratio of the median house price in a given market to the median household income. Our high interest rates make the payoff time longer but even if we had low interest rates our housing would still be severely unaffordable according to the index.

    The report makes it clear that the US as a whole has essentially affordable housing (ratio of 3 or less) except for those states which have followed Smart Growth policies which restrict the supply of land and charge development levies.
    New Zealand has widely adopted these policies too and so unsurprisingly we share with Australia the least affordable housing markets in the Anglo world.
    Nothing to do with cheap money, or land speculators or tax regimes.
    Just get the regulations and levies off our backs and housing will once again be affordable as it was in our parents’ time.
    Don Brash writes an excellent introduction.

    Our Main stream media have to stop describing markets like Rodney and Tauranga as our “stellar” performers. They are actually our worst performers.
    If computers were more expensive in NZ than anywhere else in the world would be describe our computer market as a “stellar performer”?

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  6. vto (1,128 comments) says:

    Yes Owen, those settings as well I agree.

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  7. reid (16,290 comments) says:

    Maybe it’s partly because NZers are obsessed with real estate and hardly at all interested in equity investments, possibly based on the 87 experience.

    Not that at this particular point in time I would suggest equity investments are a good idea.

    What I’d do is introduce a capital gains tax on investment properties, each household is exempt from a family home and a holiday home (which they must genuinely establish as such and not a disguised renter). All other properties are subject to it.

    I’d eliminate the regime that allows you to offset earned income against losses (can’t remember what its called).

    I’d take up Gooner’s point about making it much easier to make land more available – apparently in the States that’s one big difference from here.

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  8. bwakile (757 comments) says:

    Step back and ask yourself why a country with only 4 million people and stacks of land and construction materials has the least affordable housing.

    The only possible answer is 8 years of chardonnay socialists running us into the ground.

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  9. Gooner (995 comments) says:

    I urge you all to read the Demographia report. The only two factors that are making housing unaffordable are lack of land supply and household incomes not keeping up with the land price increases (solely due to supply issues). Reid, you are suggesting there is excessive demand. Prices only increase when demand exceeds supply; the suppply of land is the problem, not the demand.

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  10. philu (13,393 comments) says:

    so this is the results of that ‘rightwing revolution’..

    a low-low-wage economy..and the most unaffordable houses in the world..

    hasn’t it all been a raging success..?

    eh..?..

    phil(whoar.co.nz0

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  11. helmet (807 comments) says:

    Yep, phil, the last nine years of this labour-led right wing revolution all right, what a raging success.

    Labour’s really helped out the little guy.

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  12. ben (2,377 comments) says:

    Supply constraints probably derive a good deal of the house prices, and those are squarely the fault of regulation.

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  13. ben (2,377 comments) says:

    Good post, Owen McShane.

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  14. Gooner (995 comments) says:

    What on earth have u been smoking Phil? It is a result of your fellow lefty greenies and their Smart Growth policies. In case you missed it, Labour and Greens have been in charge for nine years! :)

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  15. cha (3,943 comments) says:

    Per metre rates in Sydney,
    http://www.bmtqs.com.au/construction_cost_table.htm

    NZ rates,
    http://www.dbh.govt.nz/bofficials-estimated-building-costs.

    With labour rates higher in Australia it looks to me like we’re being ripped by the material suppliers.

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  16. Ross Nixon (559 comments) says:

    Make it compulsory for all single females, living alone or with children, to take on a male boarder.
    That would reduce housing demand!

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  17. Nigel (512 comments) says:

    Owen McShane had a nice post, though I’d add I think Arthur Grimes tax reform policies would also be of benefit ( http://www.kiwiblog.co.nz/2007/11/the_grimes_proposals.html ), with the added benefit of getting money from non-resident property owners & reducing their impact on property prices.

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  18. alongshot (3 comments) says:

    Owen is right house prices have been forced up primarily by restrictions in the supply of land – the MUL [Metropolitan Urban Limit]. The knock on effect is that the Reserve Bank raises interest rates to try and suppress demand. This in turn drives up the exchange rate and makes a lot of exporting unprofitable driving manufacturing jobs overseas and damaging the whole economy. The Green Party and Labour are responsible both through central government policies and through their fellow travellers on City and Regional Councils for this. Building materials and tools have fallen relative to inflation over the last 20 years, only local government resource consent fees and the price of land have risen

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  19. RossK (275 comments) says:

    One of the things I have found interesting are the comments that are starting to come out about how rents need to rise now that the house prices have stopped going up (and, therefore, the propsect of capital gain in the short term has diminished). What has been fascinating about such comments has been the implication they have frequently carried that it is rents which are too low rather than houses which are too high – as if the current house price whatever it may be must be “right” and the current rent prices must be “wrong”. Wishing will not make it so. I for one hope that we are about to see quite a few people take baths on houses. Remember, for every person who became “wealthier” because their house price wne up there were probably 2 or 2 who became “poorer” because their ability to buy a house, at least so far as income levels went, dropped significantly. I say make new zealand wealthier – bring house prices down!!

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  20. Owen McShane (1,226 comments) says:

    I know it is popular to blame our tax and interest policies.
    BUT, Australia has a capital gains tax and their housing is as unaffordable as ours.
    ALSO, the different states of the US are essentially under the same tax and interest regime but the differences in affordability are massive.
    If you move from San Jose to Houston (the new silicon valley) you get a relocation bones of over US$1 million.
    In fact most states of the US mortgage interest payments are deductible as are property taxes.
    Sorry the only variable that explains the state to state variations is the amount of regulation and especially those which impact on land supply and of course the fines which we call development levies.
    In Mangawhai village if you have the cheek to provide a new lot for a new family to move into town then you have to pay a reserve contribution of about 8,000 – 15,000, and Eco Care contribution (for a sewage plan) of about 8,000 and a roading contribution of 12,000. That is about $30,000 in development “fines” on top of about $20,000 for Council compliance costs. So before you can sell the section you will have had to pay $50,000 to Council and other consultants. How can one have affordable housing under these conditions. Remember in Houston your section costs only about $40,000 all up!
    And Houston has 5 mill people and is one of the fastest growing cities in the US.
    The impact of non residents on prices is trivial compared to the impact of the planners and the members of the selfish generation who sit on Councils and are happy to steal from the young to maintain their own interests.

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  21. Richard (130 comments) says:

    Owen McS said “Nothing to do with cheap money, or land speculators or tax regimes.”

    While land restrictions are a significant part of the problem, I don’t think you can write off the effect of other factors. The tax regime regarding rental investments certainly increases the financial incentives to invest in houses relative to other investments. Likewise cheap and easy money has allowed people to engage in the recent real estate hubris in a greater way than they would have otherwise.

    Look who against developing new houses.

    http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10487880

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  22. NoCash (257 comments) says:

    Why we keep talking about the lack of land supply is the main contributor of pushing up the housing market? As I’ve said before, we as a nation have enough houses to put a roof over every family. The population growth in NZ has been slow, so don’t tell me we don’t have enough new houses to match that. If so, where are all the families living on street?

    It’s all about the flood of cheap money over last decade or so. I’m not sure what’s the agenda of Demographia, they keep rubbishing the “Smart Growth” movment…

    The fact is that cheap money has allowed the middle class with good credit history (in NZ at least) to buy up investment properties. The wise and long term investors bought at the beginning of the boom back in 2002/3 but the less savvy and greedy ones keep buying them even when the numbers don’t add up. Along with genuine home buyers also armed with cheap money to bid with the investors, that’s what’s really been pushing up the housing market.

    The credit crunch and the upcoming world recession are going to correct that, the current housing market deflation in the US is going to happen in NZ sometime soon, so please no more talks about dramatic policy changes by the local and central government trying to fix a problem that will soon become a non event.

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  23. Redbaiter (13,197 comments) says:

    Gooner has got it about right (10:41am).

    Just keep sucking in the socialist bullshit. Just keep voting for the lemon sucking power freak and her sycophantic acolytes in parliament and the media. Just keep pounding away on environmental issues. Just keep expanding the regulatory bureaucracy. Just keep kicking the fucking living daylights out of everybody with a spark of intelligence, endeavour, independence, work ethic and hope, and prosperity will come.

    Remember NZers- YOU VOTED YOURSELVES INTO THIS MESS. Its a democratic country. The true power lies within the electorate.

    What happens tho when the electorate, seduced into voting for the party that provides it with the greater amount of other people’s money, is as corrupt as the governing party? Nzers are learning the answer to that question. It will be some time tho before the lesson is fully understood. Unaffordable housing is only the beginning.

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  24. cha (3,943 comments) says:

    Going by the metre rates, to build an average sized house in NZ it’s going to cost $100k more than the same house in Sydney.Sure, NZ standards are tougher but I find it hard to accept that a pile of Lumberlock fittings and the need for more substantial ground work is going to add that sort of money to a project.

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  25. alongshot (3 comments) says:

    The irony in this problem is that the Labour/Green land supply restriction policies hurt most those who are young, brown and poor while benefiting those who already have homes – generally older whiter and wealthier. I do not believe house prices are going to drop much in NZ with the exception of apartments [because supply is plentiful in this area] and possibly low cost housing in low income areas. In the past NZ housing booms have collapsed when supply exceeded demand, this time however supply has not exceeded demand instead demand has been artificially suppressed by way of interest rate rises. Everytime the interest rate ease up the market will probably surge forward again. The only way to to ease this pent up demand is to increase the supply of land on the fringes of our main cities. The new Labour Government in Australia is looking at doing just this unlike our Labourites who are frozen in the failed policies of the past -regulation and more regulation

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  26. PaulL (5,971 comments) says:

    Reid: why exempt holiday houses? I would add the capital gains tax, and reduce income tax for the top marginal rate. Most second home buyers would be no worse off, but it would definitely shift some decisions about whether to invest in property (thereby driving up property prices) or to invest in some other area of the economy.

    PM of NZ. If there is already a capital gains tax on property, why would you object to us formalising it? According to you it would be no change. According to me most people avoid it in one way or another.

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  27. side show bob (3,660 comments) says:

    Who the hell is worried by unaffordable housing, I bet the sosicalist suckholes in power are saying to themselves “I’m all right jack the sheep will pay for mine”. If the poeple can’t afford a house the state will be able to provide a nice state house made out of nice strong carboard. The Liarbore party must be rubbing their hands, more beholding to their great and benevolent govenrment, how fucking marvellous.

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  28. Ruth (178 comments) says:

    ‘Housing affordability’ is a meaningless term, much loved by politicians to stir people up and win votes.

    Homes were more expensive in 1988 relative to purchasing power than they are now. Capital was much harder to get hold of for a start.

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  29. uk_kiwi (74 comments) says:

    Have a look at the graphs at http://www.sra.co.nz/pdf/housinghell.pdf

    It is clear that house prices and rents were strongly tied together from 1970 to the early 2000s. Suddenly, house prices nearly tripled within 7 years, while rents and incomes barely moved.

    What caused this hyperinflation? A massive expansion of credit. The big global banks, now totally deregulated, cooked up a way to print money by lending far more than their reserve ratios (i.e. their deposits) would allow. This was done through the financial alchemy of mortgage securitization, where dodgy mortgages and other debt were packaged and on-sold to investors like pension funds, banks and soverign funds.

    These mortgage backed securities were rated and insured by bond insurers at AAA investment grade; however with the massive defaults in the subprime sector, the insurers are close to bankruptcy- the mortgage bonds are worth maybe 10-20% of their nominal value.

    When these “monolines” go bankrupt, TRILLIONS of dollars of these securities and derivatives based on those investments will have to be instantly marked down to their true value on balance sheets of financial institutions worldwide – this is not a US only problem. Banks may actually be technically insolvent, including the big Aussie banks!

    This will basically wipe out the world economy for a while- credit will be very very hard to come by. This could be a crash alright.

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  30. Max Call (212 comments) says:

    I found the report really interesting (tho’ it took me a while to read;-))
    Tauranga (where I live) had the worst housing affordability rating in NZ (of the seven areas in NZ in the survey).
    Tauranga City Council has a ‘Smart Growth’ plan.
    It has recently approved 2 very large developments (‘The Lakes at Tauriko will house 7,000 people when finished and Modena? at Papamoa East I think is going to cater for up to 10,000 when completed – both city fringes).
    I think maybe the problem in Tga has been that these developments have somewhat missed the boat with the very high population growth Tga has experienced which meant that the demand far exceeded the supply.
    So while the report blames ‘Smart Growth’ policies I think the fault is more in that the planning and approval of this development took too long (not responsive and flexible enough). While this can be blamed on the Council, to be fair the population growth was pretty explosive. What i am trying to say is that i think Smart Growth plan (in Tga) is a good plan but the council took too long to develop and implement it and also the processes needed to be followed by developers take too much time. If, for example, the developers who bought the farms to develop ‘The Lakes’ had been able to get consent quickly this would have opened up a whole lot of land a lot earlier to Tga and would have relieved some of the pressure on the local housing market.
    the council here have also recently increased the levy for building new houses. the infrastructure in tga is woeful and this levy is to help pay for infrastructure required.
    I agree with the report that these costs should be borne by the whole community.
    But good luck getting local ratepayers here to agree to that.
    Despite having low rates compared to other cities of a comparable size there is a very active section of the community who oppose any rate increases for basic community ammenities.

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  31. Gooner (995 comments) says:

    But the massive expansion of credit was also available to purchases in the areas where affordability has remained stagnant.

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  32. uk_kiwi (74 comments) says:

    “But the massive expansion of credit was also available to purchases in the areas where affordability has remained stagnant.”

    In these areas, due to lax planning laws, developers simply sprawled like crazy. Vast new subdivisions of identical houses built cheaply by illegal immigrants popped up in the middle of nowhere- hours drive from jobs and societies. The overbuild has been astonishing in some parts of the US, and this is now coming back to bite them, as no-one wants to live there even if it is “affordable”.

    There are now ghost towns where these houses are all bank-owned and will soon be torn down- it’s a disaster. Hardly an argument for allowing a developer free-for-all!

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  33. ropata (117 comments) says:

    Since Muldoon and then the 1984 Labour govt, then National’s raping and pillaging of the 90’s, the people of New Zealand have been thoroughly screwed over by those who were elected to serve. A squalid underclass has emerged and even current economic conditions make it very difficult for the asset-poor to share the fruits which NZ has enjoyed over the last decade or so. Basically the rich have been ripping off the poor with gusto. Labour has failed to make the simplest changes that any “social justice” party would make. With that bunch it’s just lip service and pandering to interest groups. Our national character has become selfish, nasty, impatient, and greedy. The “god” of growth has wrecked the gentler nation which I knew as a child.

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  34. vto (1,128 comments) says:

    ropata, stop talking shit. You said “Basically the rich have been ripping off the poor with gusto”

    Give some solid proof for this ridiculous statement.

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  35. Owen McShane (1,226 comments) says:

    When I first looked at this problem for the Reserve Bank in 1996/97 construction costs were falling while land costs were rising.
    However, of late construction costs have been rising too.
    The first reason is the increase in specs and consent fees. We are gold plating and will soon be green plating as well. This is a wrong response to the leaky home crisis. Sadly in 1995 the Privy Council had to endorse the indefinite liability of councils for permitted buildings in spite of warning us that we were daft. In most jurisdiction the councils liability ends after say seven years or the first purchase and buyers and owners then depend on surveys etc and insurance and guarantees.
    But also the effect of the niggardly and arbitrary release of land means that our builders can no longer be mass builders (as they used to be) but are all cottage builders building each house to spec for a designer owner. They can no longer achieve any economies of scale. Prior to the RMA if land was zoned for residential you just went down and applied to subdivide another bundle and in a few weeks you had your subdivision approved. Now you struggle to get each lot one at a time.
    Imagine if we still built cars like this. They would 100 tonnes, would consume 10 gallons per mile and would have a top speed of 10 mph and would cost 100,000 each.
    As regards Tauranga, the sad thing is that slow consenting comes with the Smart Growth package. Smart Growth means slow consenting because everyone gets their oar in. Fast Smart Growth consenting is an oxymoron.

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  36. Max Call (212 comments) says:

    “Fast Smart Growth consenting is an oxymoron.”

    well, yes.
    but it has (eventually) provided the city-fringe developments the report recommended.
    and the pop’n growth in Tga was SUPER fast.
    it has also provided for high-density housing in different strategic pockets in and around Tga.
    and HOPEFULLY will provide for Tga to grow in a way that is sustainable to the whole community – not just the developers.
    I do believe that the levies put upon new home builders to subsidise infrastructure development is wrong though.

    as for building costs being high – maybe a simple case of demand exceeding supply.

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  37. alongshot (3 comments) says:

    New home buyers are the only people not directly consulted by the ‘Smart Growth’ consent process, instead they are indirectly represented by the developer and thus disadvantaged by the unfair odium attached to developers by the rest of the public. Notwithstanding this under the stupid provisions of the RMA an extremist nutter in Russel can and frequently do object to a development in say Wanaka, further more he can trot off to the Ministry for the Environment and gain funding to fight the project in the Environment Court. The whole process is captured by a few motivated and often government funded Luddites. The delays eat up profits, raise costs for the new home owners and fund a gravy train for lawyers and consultants

    The levies placed on the developer are really a tax passed on and paid by the new home buyer. No tax without representation

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  38. Waymad (136 comments) says:

    For a working example of what UK_Kiwi was pointing to (Gawd, wish these comments could be numbered, DPF, pretty please?) see the sad fate of Will County, from the inimitable Mish.

    Plus, if construction cost scapegoating is your thang, try these we-know-best regulations and their cost increments:

    – Working at Heights. Scaffolding everywhere. I have helped build houses since I was 10, (over 50 now) and never saw scaffolding until the last 5 years.

    – checking of every power tool, every year. No wonder cordless (like the DeWalt 36v series) is going gangbusters.

    – fencing of sites. Again, unheard of until a very few years ago.

    – and coming round the corner, compulsory licensing of tradies.

    – cost of employing staff. Holidays Act, Kiwisaver, PG’s and all that kerfuffle, anyone? Noticed a tradie with an apprentice in tow recently, anyone?

    Death of a thousand cuts? No, just the simple compounding of well-intentioned but objectively unnecessary impostions, and all done at cost-plus.

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  39. vto (1,128 comments) says:

    alongshot and others. I am a developer and have been for near 20 years.

    I can confirm that we developers (nasty, greedy and destructive that we are) merely squeeze ourselves in amongst all of the forces that operate. We squeeze in amongst the huge amount of planning regulations and factor in a risk/cost factor for dealing with that and the uncertainty with Councils and the RMA process.

    We also of course squeeze in amongst the market forces. We know what people want – they want a home that is as large as is feasibly possible for their dollar and that is also warm, comfortable and loaded with as many features as is feasibly possible for their dollar. We try to give people what they want – if we don’t the people will simply not buy what we build.

    And finally we squeeze in amongst all the other ‘hard’ costs like building costs and land costs. If, after adding up all those costs and factors, there appears to be a margin at the end then we try to get the project up and running and go like a bat out of hell for completion before any market changes occur.

    What finally appears as a built structure in the community is a result of all of those forces.

    It is in fact very simple. If people want lest costly houses then those are the parameters that need to be attended to. Speculation and cheap money have little to do with it.

    These are the hard parameters. Go to it and attack them as you see fit. We developers will simply squeeze in amongst whatever the parameters are at the time. If it works, we will build. If it does not, we will not.

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  40. ropata (117 comments) says:

    Rich : property speculators, baby boomers, currency traders, oil barons, foreign investors, wellington bureaucrats, usurious bankers, gated-community developers, established families getting more handouts.
    Poor : wage earners whose every spare cent is sucked up by the greedies listed above.

    Pull your head in vto. Re-read uk_kiwi’s comment.

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  41. vto (1,128 comments) says:

    Waymad, absoutely correct. Could not agree more.

    The kneejerk reaction to leaky homes was a bad thing to do. It was over the top and unnecessary and as a result house costs have probably had to rise 5-10% to cover it.

    Scaffolding, power tools, fencing, etc etc etc. They all add to the cost as waymad said

    So people, it is over to you. Vote in a govt that knows nothing but regulation and you will get the increased costs and burdens that go with it.

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  42. vto (1,128 comments) says:

    pull you own head ropata. Your post is a joke…

    1. how does a baby boomer suck up every cent from a wage earner? Give an example.

    2. How does a gated-community developer suck up a cent from a wage earner? If anything they employ plenty of wage earners to build such things thereby putting money into their pockets.

    Put some substance in your posts. You just sound like a typical rich-hating envious selfish prick.

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  43. gd (2,286 comments) says:

    UK Kiwi Right on The fraudsters and hucksters who have walked away with 10s of millions in payouts whilst destroying billions of shareholder wealth plus the wrecking million of home owners lives are the villians.And dumb or corrupt governments that allow this to happen like ours re the finance company disasters.

    Owen IMHO there is plenty of land in Auckland city that could be subdivided and built on to provide reasonable priced dwellings and allow for better utilized public transport but as you say the greedy Councils want to tax the hell out of this land so its not viable.

    So the owners sit on it watching the value increase pay the rates and legally avoid any CGT thru the passing of time.

    talk about dumb and dumber councils

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  44. ropata (117 comments) says:

    vto, I am a hard working wage earner who has been priced out of the market by his fellow kiwis. Thanks a lot mate. Even tho NZ has paid for my expensive education, healthcare, etc — my future is probably in Aussie, because at least there I can keep enough of my earnings to decide my own future. No wonder lotto has become the main investment for a lot of the poor. They have been treated like shit

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  45. PaulL (5,971 comments) says:

    gd: or the dumb shareholders who let these idiots run their companies? The dumb shareholders who in fact encourage these idiots to push things to the limit – because if the company they own isn’t returning more than the average of the market they get upset. The fact that it is impossible for every company to return more than average is completely ignored, and so every CEO sets a goal to do it. Shit, any CEO who said “actually, for where we are at the moment and the business we are in, we’ll return less than the market average” would get fired straight away. You do actually get what you vote for/pay for in this world.

    Of course, I have no problem whatsoever with those shareholders losing all their money if they are too damn lazy to control what happens in the company they own. Shares can go down as well as up, and the people impacted will be the shareholders, not the poor houseowning public in NZ. I don’t see a problem here that needs govt regulation.

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  46. NoCash (257 comments) says:

    The NZ housing market boom is the same as any other asset bubbles around the world recently started by the Fed during the tenure of Greenspan. All bubbles will eventually burst. When property owners have to refinance in the coming years while the world is in a recession, many will not be able to afford and will be forced to sell, house prices will fall and people who have been patient will find bargains. The nominal price may not drop by 15 – 20% in the next 3 – 5 years, but a flat nominal price coupled with above average inflation will ensure a 15 – 20% drop in real term over the next 3 to 5 years.

    Will housing then be affordable? I bet.

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  47. PhilBest (5,121 comments) says:

    It is just plain absurd to try and weasel out of blaming “smart growth” policies for this debacle, as the usual socialist “we know what is good for you” deadheads are trying to do. I’ve suspected for a while that NZ was on its way to the top in the “least affordable homes” stakes, and well, here we are.

    Now what counts, is whether DUMB-ASS Kiwis will keep voting for DUMB-ASS little Napoleon Socialist leaders who keep stuffing their lives up for them.

    Of course, our bookstores won’t sell many copies of THIS, will they?

    http://www.catostore.org/index.asp?fa=ProductDetails&method=cats&scid=43&pid=1441366

    (The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future
    By Randal O’Toole)

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  48. gd (2,286 comments) says:

    PaulL Yes but in this case as in most there are a lot of good people (house owners) who get punished because of the greed and dumb arse actions of the CEOs directors etc etc who all as I say walk away with millions.

    It one of my crusades (even as a right winger) to see pay equal performance Alas in the USofA it doesnt, not so bad in NZ but we still have too many getting paid too much for medium or bad performance

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  49. Waymad (136 comments) says:

    Ropata – you echo a ‘cri-de-coeur’ which is quite common. But the villains aren’t the ones you list. It’s much simpler and more tragic (and more comedic) than that.

    The villains are the planners and Gummint elites who Know Best. By regulating everything that moves, that moving stuff gets more expensive. And the economic deadweight added by essentially non-productive use of scarce resources to do the regulating, leads rather inevitably to slow or no growth in real wages. Which acts upon the other (income) side of the price-to-income multiple. What you might call a Vicious Circle, in fact. More costs, less real income.

    The tragedy (at least, Act I thereof) is that all this is done with the absolute best intentions. Motherhood stuff. No-one’s going to deny that a scratched power cord is dangerous? Best to check them all every year, at a Modest Fee, so as to be sure. And so the compounding of cost ratchets up. As vto says, at least 5-10% of pure build cost is this sort of carry-on.

    The tragedy (Act II) is that it’s very hard to stop this trend. Every single case can be justified by some horrific real-world example. But a more dispassionate weighting of risk versus cost, would see that most of this stuff is pure State of Fear hysteria, and none is really necessary. But how to fire all those Certifiers, Planners, Compliance Checkers, RMA law specialists, and Telephone Hand-set Sanitisers?

    And of course Act III is that the Gummint which set off this whole VC, has so many of the population as clients, that the effort to:

    (a) ensure that there is growth in both client numbers And per-client dependence on the Public Purse, so as to lock in this vote (turkeys don’t vote for Thanksgivings…) and

    (b) legislate so that it becomes very hard for non-clients to electorally deflect the drive to continue in office by such silly means as elections and all that other democratic hoo-ha

    will very likely succeed.

    (Sorry about the rather Germanic sentence form there, volks.)

    Someone once said that life’s a tragedy for those who feel (and clearly, you do. Entirely understandable.) but a comedy for those who think. Housing affordability and perhaps many other aspects of life in NZ are a slow train wreck, and it will take many many firings and a complete change in direction to change things.

    But there’s much comedy to be observed from the sidelines….

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  50. NoCash (257 comments) says:

    Why people blame the government for a problem that is global? Be it Labour or National, the housing bubble would not have turned out much differently. Worldwide monetary inflation over the past decade or so is the main driver.

    No doubt local & central government policies might have contributed to a certain % of housing price increase during the boom, but that cannot be used to explain the more than double increase in housing values over the past 6 or so years.

    So please stop turning this into a political issue.

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  51. PaulL (5,971 comments) says:

    gd: how do the homeowners get punished by getting easy money and no deposit terms? Seems to me like the home owners are making out just fine taking advantage of the international idiots who are prepared to lend money into NZ without taking risk into account. If you have a no deposit home loan and the market drops, how are you worse off? The bank can have the house back and write off the difference, you can buy it back in the mortgagee sale for 70% of the cost, and with no loss of your own capital.

    I’m worried we’ll end up like Air NZ where people got all excited about “our airline” and the government basically bailed out the shareholders. What they should have done was to underwrite the ticket holders, and to organise for an orderly bankruptcy and then sale of the assets to someone who would keep the airline going. The shareholders would have learned why buying airlines in Australia is a bad idea, and the government would not have needed to take on risk.

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  52. Dale (32 comments) says:

    I heard Helen this morning dismiss the artical cause it didnt include enough countries. So dont expect anything to change anytime soon. It is also lying green ecoarseholes like Bob Harvey and his mate Chris Carter who dictate what people can and cant do with their own land out west. Idont know about other counsels,but their is plenty of land that the owners want to develope but are prevented by the ecoarseholes. They insist on high compact development and have created some of the worst slums in the country in areas such as Ranui. These slums breed poverty which leads to discontent and crime. I still cant work out how this prick still gets voted in.

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  53. uk_kiwi (74 comments) says:

    “But a more dispassionate weighting of risk versus cost, would see that most of this stuff is pure State of Fear hysteria, and none is really necessary.”

    I can’t see how bringing back risky working conditions is going to make houses more affordable when the credit bubble is the main driver of it.

    And if regulations are so unneccessary, were so many leaky homes built after National deregulated the building industry?

    According to your theory, the market should have provided without the need for “red tape”. But it failed, dismally, which proved the absolute necessity of a solid building code and a strong enforcement of it.

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  54. ropata (117 comments) says:

    I don’t _want_ to go to Aussie but it seems like it’s the only way to get ahead. vto and his mates in the construction business are doing very nicely thankyou very much from the excessive amounts of capital sloshing around and looking for a place to grow. Our illustrious overlords in Wellington have done nothing to protect the housing market from all that cash, and everyone who is already in the game is very happy to sell up the silver to the US, Japan etc. I guess it’s human nature but it still sucks. Those are hard legal and moral decisions to be made by the powers that be.

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  55. Manolo (13,580 comments) says:

    “Rich : property speculators, baby boomers, foreign investors,…”

    You surely are a bitter and twisted individual. What’s your problem with wealth if people have accumulated it after years of hard work (baby boomers)? What do you have against those investing in property, which wasn’t hot in the 90s? What against foreign investors whose capital help our country?

    Are you one of those paper socilalists who claim every person deserves the same, regardless of ability, intellect or effort/dedication?

    Your attitude calls for less talk and more work.

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  56. ropata (117 comments) says:

    You surely are a bitter and twisted individual
    Maybe it’s because after studying at Uni for 6 years, and working for 6 years, wages in this second-rate banana republic are STILL about 1/3 of what my skills are worth.

    Your attitude calls for less talk and more work
    It’s pretty clear there is a cultural divide in NZ with millionaires on one side supported by all sorts of tax breaks and handouts, and productive, hard working suckers on the other who have missed out on all the supposed gains of the glorious economic boom times. Why should I spend my life enslaved to parasitic foreign bankers and speculators??

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  57. bwakile (757 comments) says:

    Ropata
    Becoming an overnight success normally involves 20 years of hard work.

    Time is still your best friend.

    The economic boom times that you bemoan missing out on were just smoke and mirrors . We can only fool ourselves for so long that rising house prices are true wealth creation. Wealth creation actually requires the production of some goods or skill that you can sell to someone else for a profit.

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  58. vto (1,128 comments) says:

    I have just got back from a wee chore and ropata you really have very little idea how things work.

    Example; “with millionaires on one side supported by all sorts of tax breaks and handouts,” Please name what those tax breaks and handouts are Ropata, because I have no idea and would appreciate knowing.

    Example – “vto and his mates in the construction business are doing very nicely thankyou very much” Oh right. Me and my family face oblivion actually and quite frankly over the years I would have been better off sticking money in the bank. Ropata how do you know we are “doing very nicely”? Back yourself and explain.

    Example – “vto, I am a hard working wage earner who has been priced out of the market by his fellow kiwis. Thanks a lot mate”. Again Ropata, please explain how fellow kiwis have done you in and what you would rather have had them do.

    Ropata, you have not made any post with any substance. Try substantiating some of your claims with facts.

    “Why should I spend my life enslaved to parasitic foreign bankers and speculators??” Well then, Ropata, DONT! Its your life, get on with it you whinger.

    You spent 6 years at uni and then the rest of the time working for someone else. Perhaps that is why you have such a tiny understanding of how business and in fact the world works. Wise up.

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  59. vto (1,128 comments) says:

    uk-kiwi,

    Further back you questioned how a reduction in regulation could improve ‘leaky home syndrome’ when it mostly occurred due to earlier de-regulation.

    That is not quite right. The leaky homes occurred due to the coming together of a number of factors;

    1. Architectural style of the time, namely mediterranean (sp?) with internal gutters and the monolithic plaster style.

    2. Builders (and developers) through the 90s were really struggling to make a dollar and some shortcuts and poor workmanship was involved.

    3. Some deregulation and lack of checking by Councils of new materials and their installation and new building styles.

    In the past you could get a very well built house (think e.g. something built in the 50s to 70s) with a simple set of say 4 sheets of A3 plans which showed the most basic of details. So, uk_kiwi a lack of regulation in the 90s is a simplistic answer and not correct.

    Increased regulation = increased cost plus.

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  60. kiki (425 comments) says:

    There is a problem with the idea of making houses affordable. Would the people who own a house now like the idea that with freeing up land and reducing costs their house prices would potentially drop.

    This argument is like school zoning, are the people who paid $50000 to $80000 to prepared to lose that value so outsiders could go to the local school.

    NZ like Aussie, US and England have such convoluted tax and subsidy structures that unwinding would cause pain for certain groups that have political clout.

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  61. Tina (687 comments) says:

    The comrades don’t like supply/demand equationsl.

    Hint for smurfs: It’s all about tax.

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  62. Manolo (13,580 comments) says:

    “..wages in this second-rate banana republic are STILL about 1/3 of what my skills are worth.”

    Unfortunately, the market establishes the price of your skills you like it or not. It’s called supply and demand. Maybe you should’ve studied something different.

    “Why should I spend my life enslaved to parasitic foreign bankers and speculators?”

    You shouldn’t. The moment you take your life in your own hands and do whatever its necessary to forge ahead you will be on your way to success.

    It’s easy to blames others, but you need to harden up and own your life.
    Envy is not going to take you anywhere.

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  63. Spoff (275 comments) says:

    I predicted that the Building Act 2004 would inflate the cost of a dwelling by 40%. Was I right? Can I now be forgiven for questioning the fitness of a gay teacher turned chicken farmer for the task of heading off the pressure from developers, Architects, James Hardie et al to offload responsibility for the leaky building clusterf**k?

    The Canadian White Paper on the subject that Carter was supposed to study opens with this statement:
    “Residential construction, during the past 15 years, has become an industry dependent more upon business finesse and marketing techniques than on down to earth building basics.”

    Carter’s remedy (dictated by corporate interests and paper builders) :

    1. Rewrite the code to include very expensive pieces of plastic, sticky tape and cartons of goop, none of which were used in the thousands of sound homes built last century.

    2. Triple the number of inspections (ignoring the fact that the problem buildings had all been thoroughly inspected).

    3. Invoke a loony licensing scheme copied from and now abhorred in the State of Victoria which immediately eliminated 60% of the most experienced workforce .

    4. Impose penalties 200 times what a drunk driver faces on a homeowner who builds his own deck.

    I may be a bitter old chippy but I can’t see anything basic about that.

    I walked out of a meeting of the Certified Builders Association when the chairman gleefully told the members to expect charge-out rates rivalling that of Lawyers.
    Despite the fact that I could be making more money than I ever dreamed a tradesman could, I hung up my nail-bag because the new code forces me to build in a manner I consider unsound.

    I am sorry for anyone building a house today. They are paying 40% more for an inferior product while the manufacturers are laughing their tits off.

    Expect similar results in Education now Carter is at the helm.

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  64. kiki (425 comments) says:

    The first known building code was a decree from some king that went something like– if the house collapses and kills the occupants then the builder is put to death.

    Personal accountability is the best guarantee

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  65. uk_kiwi (74 comments) says:

    “I predicted that the Building Act 2004 would inflate the cost of a dwelling by 40%. Was I right? ”

    No, according to the Dept of building and housing costs page (second graph down):

    http://www.dbh.govt.nz/prices-and-costs

    Costs seem to only be increasing marginally above the rate of inflation, 4.8% for 2007, although it did spike up immediately after the 2004 Act was passed.

    But it is interesting to hear your side of this story- why do you say so many experienced people left?

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  66. vto (1,128 comments) says:

    Kiki, your comment re political pressure opposing anything which may cause house values to drop by even 10% is spot on.

    And Spoff, your Carters Remedy list re the leaky home solution is also spot on.

    My conclusion re all of the above postings: Very very little will change.

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  67. Tina (687 comments) says:

    The Kiwi sheeple need to understand a few things to stay afloat.

    No4 of 20 is that the capital gains tax free status of a personal home is the best deal yet in long term wealth accumulation.

    Followed closely by Australian Superannuation…..but you guys aren’t allowed to have that….the socialists don’t like people who become independent of their control.

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  68. Spoff (275 comments) says:

    “No, according to the Dept of building and housing costs page (second graph down”

    The graph shows the annual increase in building cost. If you add the annual percentages you’ll find I’m correct. Also, I doubt that the data includes compliance cost which was in my estimate.

    “why do you say so many experienced people left?”
    The sixties and seventies threw up a lot of uncertified tradesmen for various reasons which I won’t go into now. Many worked in the smaller towns in one and two man gangs. They comprised 60% of the workforce. Next year they will be faced with a choice of working for someone else or quitting. As many are in their late fifties they are getting out. Not one leaky building has been attributed to such a crew.

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  69. ropata (117 comments) says:

    I would like to take this opportunity to thank all the asset-rich oligarchs in this forum for blaming myself and all other first home buyers and wage earners stuck in the rental trap, as they sit back and reap the rewards of other peoples hard work, aided by a lax IRD and a gutless Labour govt. Aussie is more equitable because they didn’t sell all their national assets, rip up the social contract, and dismantle workers rights. It must all be my fault.

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  70. Waymad (136 comments) says:

    Good thread – again, look who’s here and who ain’t’….

    uk_kiwi said “According to your theory, the market should have provided without the need for “red tape”. But it failed, dismally, which proved the absolute necessity of a solid building code and a strong enforcement of it.”

    I don’t recall advancing this theory. Less kack-handed regulation does not equal no regulation. Like bitter old chippy Spoff, I can recall the old carpentering days, when you worked in the rain with metal-cased electrical tools (no double insulation then), wet native timber for framing, ladders for heights, and boys like me plus apprentices to do the gofer-ing. As Stewart Brand (of Whole Earth Catalogue fame ) has said, the good old stuff is mostly crap.

    The point is that the Gummints – national and local – have altered incentives (see vto’s first, excellent post for a primer on this). And people always, always react to incentives. So what are the incentives in operation at present?

    – build for the top half of the market. More demands but more certain profit.
    – avoid delays because time=money, and money is increasingly expensive.
    – avoid liability by suitable choice of company structures etc
    – avoid employing people – too much hassle. Sole traders.
    – cash is king (always was) so cashies are always acceptable.
    – avoid costs – go cordless (no inspections), use a lock-up container (secure storage, no fencing cost), cut corners on materials that won’t or can’t be inspected.
    – avoid bad-news Councils – there’s always an easier choice over the boundary line, and news gets around fast in the trade.
    – avoid untested methods and materials. Once bitten, twice shy. This may be good for leaky buildings but is bad for innovation.
    – avoid the industry, in the last resort. There are easier ways to make a bundle, and certainly ways that leave you with your knees intact at 50.

    And so on. By now, if you’re thinking, hell, that’s no way to run a long-term housing industry, you’re probably right. But that industry is only, as always, reacting to the set of incentives in place.

    Change the incentives, change the behaviour.

    And as old Rees-Mogg said over at the Times, if you manage to strangle supply against a fixed demand, then tip in lots of easy credit, a’bubbling you will go.

    To be sure, our knows-best elites are not the only culprits in this whole sorry mess. They aren’t responsible for the wave of cheap money that has characterised the aughties.

    But they are responsible for crimping supply in the housing market, doing stoopid things like guaranteeing NINJA loans (first $100K) and then wondering why all house prices start at $120K overnight, and altering incentives via Holidays Act, a host of regulations, licensing schemes and the like.

    Because the Demographia materials (see the submission to the Select Committee last year ) do note that there are simply less houses being built than there should be.

    As other commenters aver, there may well be a roof over every head. But no-one’s claiming that said roof belongs to a well-built, well-insulated dwelling. There’s a need for housing stock upgrading. Just as we are beginning not to tolerate old clunker cars on the autobahns of Auckland, we should be looking sideways at a lot of the present housing stock.

    But given the present set of incentives, who ya gonna call?

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