Auckland rents
March 15th, 2012 at 12:32 pm by David FarrarIsaac Davidson at NZ Herald reports:
Auckland tenants are furious some landlords are taking advantage of the housing shortage by raising the weekly rent, sometimes as much as 40 per cent.
But property managers say the practice is rare and the high market rent is driven mostly by tenants who will pay anything for a place to live.
They should blame the politicians who are restricting the supply of land. If demand is growing and the supply is near static, of course prices will keep rising.
March 15th, 2012 at 1:44 pm
I am sure the removal of most depreciation on residential rental properties is having an impact as well. Why wouldn’t landlords recover this if there are people willing and able to pay a higher rent.
Vote:March 15th, 2012 at 1:51 pm
If we keep expanding won’t we have the same transport problems as places like Los Angeles requiring an excessive amount of public expenditure on infrastructure connecting these faraway places? Maybe it would be easier to build upwards if not for the NIMBY types and people who want to preserve every historical building ever constructed.
Vote:March 15th, 2012 at 2:02 pm
Price Controls. We did that once. It sucked, please no
http://freedomkeys.com/pricecontrols7.htm
Vote:March 15th, 2012 at 2:08 pm
Auckland has 1/10th the population of london but covers a greater area.
I don’t think Auckland needs more land.
The failure is with the bureaucrats who were unable to put together an integrated development plan.
More outer suburbs means increased traffic congestion .Traffic was bad enough when I lived there 13 years ago.
Vote:March 15th, 2012 at 2:51 pm
“They should blame the politicians who are restricting the supply of land. If demand is growing and the supply is near static, of course prices will keep rising.”
….
So David Farrar is buying the Demographia wisdom?
Pavletich pleased with progress on affordability
by Chris Hutching
Property researcher Hugh Pavletich has good reason to feel pleased with his lobbying of political and industry players about housing affordability.
Only four years after his first annual Demographia survey many of the basic premises have now become an accepted part of the lexicon used by political leaders, property players and researchers.
http://www.nbr.co.nz/home/column_article.asp?id=20225&cid=16&cname=Property
…..
“What may be surprising about Demographia’s analysis is not that it reflects a property developer’s ultimate fantasy, but that the Government is buying its message.
“National understands there’ll be property cycles, but the recent cycle has been so extreme as to suggest there are fundamental problems with how the market is operating, notably around the supply of land,” said Housing Minister Phil Heatley last week.
“This research proves that many first-home buyers are excluded from entering the property market by a number of factors, including restrictive zoning and consent laws, which not only make life difficult for ordinary Kiwis but are major factors in New Zealand’s poor productivity and economic growth levels.”
Actually, the research doesn’t prove anything about restrictive planning. And before jumping on the Demographia bandwagon, the minister might want to take a closer look at the survey. ”
http://www.nzherald.co.nz/property/news/article.cfm?c_id=8&objectid=10554387
……
I don’t suppose population growth (80% from outside NZ and a deliberate policy choice of National/ Labour/ UNF and the Green Party) is part of the problem …..?
Oh no Couldn’t be could it??!!!
http://www.treasury.govt.nz/downloads/pdfs/mi-jarrett-comm.pdf
Vote:March 15th, 2012 at 3:01 pm
Eric Crampton discussing development constraints here:
http://offsettingbehaviour.blogspot.co.nz/2012/03/development-constraints.html
Hugh Pavletich says we can have our cake and eat it: more immigration without house prices if only pesky councils would do away with “planning constraints” and add a fancy way of paying for infrastructure.
Vote:March 15th, 2012 at 3:16 pm
Weihana (1,654) Says:
“Maybe it would be easier to build upwards if not for the NIMBY types and people who want to preserve every historical building ever constructed.”
….
In NZ and Aus a problem of population growth created by power and influence on government.
“A great majority of Americans — in fact, the highest level in six years of Saint Index surveys — oppose new development in their own community. 79 percent said their hometown is fine the way it is or already over-developed. Some 86 percent of suburban Americans do not want new development in their community. Asked, “What type of new development would you most like to see in your community?” the most common answer was “none.”
Vote:People want to get on with life and enjoy their twon and it’s environment. It is just the developers, etc who want eternal population growth.
March 15th, 2012 at 3:20 pm
(where developers = National Party )
Vote:March 15th, 2012 at 3:21 pm
The extreme rents are in the already developed inner suburbs.
You are right it is the politicians fault though. What we need is upzoning and a simplification of consenting in the inner suburbs where the demand is. At the moment we have car yards and WWII era warehouses where we could have apartments.
Vote:March 15th, 2012 at 3:24 pm
NZ Herald runs story on non-issue. Nothing new here.
Vote:March 15th, 2012 at 3:27 pm
hj,
Why do you think you should be able to control what other people do on their own private land?
Vote:March 15th, 2012 at 4:30 pm
Don’t forget to blame the politicians who prevent development of existing land within the urban limits. People don’t generally like a commute that takes 90 minutes in a car.
Vote:March 15th, 2012 at 5:37 pm
Tenants: Don’t pay these stupid rents, move out of the city or to another city.
Move out, people are stupid to pay big rents in the first place and make someone else rich. I would move to a campsite or a tent rather than pay to make some scummy gouging landlord rich.
I smile when I drive past vacant commercial properties knowing that it is probably the consequence of a greedy landlord, who now will suffer because they will have no rent.
Greedy landlords won’t end up with good long term tenants and only have themselves to blame when their house is trashed by bad tenants.If you rip people off then they will also screw you over as well. It’s called Karma
The price is only hiked because idiots pay it. Its also a great way to rent for the rest of your life.
Vote:March 15th, 2012 at 6:19 pm
@swan — the council already controls most of what you can do on private land. Ever tried to build a house without council consent? Or , cut down a prominent tree?
The council needs to rezone land to allow for high density development and simultaneously get the schools, parks & recreation,retail,transportation, and entertainment facilities geared up for high density needs. Building standards need improvement to cope with the additional problems of high density residential.
The developers will move in if everything is done correctly.
No one said it was easy, but, don’t a number of people get paid over 300k per annum on the council? You expect these einsteins to work it out.
Vote:March 15th, 2012 at 6:59 pm
THE TOTALLY UNNECESSARY HOUSING FIASCO
The great tragedy about this on going housing circus is that the politicians know exactly what the problems and solutions are. The issues have been discussed “exhaustively” since early 2005, when the first Annual Demographia International Housing Affordability Survey was released. The 8th (yes 8th !!!) Annual Edition http://www.demographia.com was released in January – showing New Zealand is “severely unfoordable”.
My archival website Performance Urban Planning http://www.PerformanceUrbanPlanning.org (requires updating) illustrates hopefully the extent of the public / political discussions of the issues. They certainly are painfully slow learners!
The Christchurch earthquakes sure are showing up the “flaws” in Local Government and the Cantabrians Unite http://www.cantabriansunite.co.nz hopefully illustrates what needs to be done to sort out the massive Christchurch problems. The sad reality is that a recovery cannot get underway simply because we cant afford to have one – until the Authorities ALLOW affordable housing to be built.
Last year the build rate for Christchurch was a shocking 2 per 1000 population (below normal replacement) – Selwyn 10 / 1000 and Waimakariri 12 / 1000 . Former woodwork teacher and current Recovery Minister Gerry Brownlee has yet to figure out that with Christchurch median household incomes $56,000 – those in the east $46,000 – that there are “problems” with fringe section prices at $200,000 plus and house / land packages about the $500,000 mark.
After 8 years with the Demographia Surveys the public understands the Median Multiple measure well – but it appears a hugely complex and confusing measure for our politicians and bureaucrats. We obviously need to simplify things further.
When readers of Kiwiblog run in to politicians and housing bureaucrats, please simply ask them “When do you intend to open up land supply and finance infrastructure properly (Texas MUDs model), so that $50,000 serviced sections are ALLOWD to be provided on the fringes of our cities”.
Then if they are still confused – ask them what part of ALLOW they dont understand.
We are not being so cruel asking them to do the actual work. Its all taken long enough trying to get them to understand ALLOW!!!
Vote:March 15th, 2012 at 7:18 pm
TIRING OF HOVEL HUNTING IN NEW ZEALAND?
If you feel you need a little respite from looking at the overpriced and generally poor quality residential stock in New Zealand – for a little “therapy” you might like to quietly leaf your way through the listings on the Houston Association of Realtors http://www.har.com website – where the median house prices are around the $US160,000 mark. Its much the same through the rest of middle North America as well.
I rate the HAR as the best Real Estate Association website in the world…..well at least that Im aware of.
Houston is simply a normal housing market where housing is 2.9 times household incomes. In contrast – New Zealand is abnormal at 5.2 times – with Christchurch at 6.3 and Auckland 6.4.
Shame about the “unaffordable” Christchurch non recovery.
Simply because politicians dont ALLOW affordable new housing to be built in this country. And we let them away with it.
Vote:March 15th, 2012 at 7:30 pm
“if the MUD can finance things more cheaply than homeowner mortgages, it makes sense. Otherwise, you could just bundle everything into a higher selling price for the section and have folks take on higher mortgages in exchange for a lower stream of Council rates going forward.
This all works either if Council wouldn’t face borrowing constraints in underwriting development bonds, or if bonds backed by future tax streams from homeowners in the MUD could find buyers at prices that didn’t make the whole thing unaffordable, or if homeowners could take on sections with higher up-front costs and slightly lower ongoing rates.”
http://offsettingbehaviour.blogspot.co.nz/2012/03/development-constraints.html
at the end of the day someone pays for more infrastructure for more people.
Vote:March 15th, 2012 at 7:38 pm
swan (262) Says:
March 15th, 2012 at 3:27 pm
hj,
Why do you think you should be able to control what other people do on their own private land?
………….
yes, within reason. You didn’t make the land after all you simply occupy it and therefore exclude someone else from occupying it.
Vote:….
Attitudes change:
“Defenders of slavery turned to the courts, who had ruled, with the Dred Scott Decision, that all blacks — not just slaves — had no legal standing as persons in our courts — they were property, and the Constitution protected slave-holders’ rights to their property.”
March 15th, 2012 at 7:48 pm
June 5, 1983
ONCE-BOOMING HOUSTON REAL ESTATE MARKET IS IN DEEP SLUMP
By WAYNE KING, Special to the New York Times
HOUSTON, June 4— Devastated by the sharp slump in oil prices, the Mexican peso’s devaluation and high unemployment, Houston’s superheated market in rental real estate has suddenly plummeted to disastrous levels.
Millions of square feet of new office space and tens of thousands of apartments and hotel rooms, built on a crash basis at premium interest rates when it seemed the boom would never end, are empty. Competition for tenants is intense, and no one knows when or if markets will return to even normal levels.
The city’s office glut is the worst in the nation. Twenty percent of its apartments, many new and expensive, are going begging in a suddenly shattered market; hotels, many also spanking new, do well to reach a break-even 50 percent occupancy, and even the area’s singlefamily housing market, while probably the healthiest in the country, shows signs of overbuilding.
A year ago the apartment hunter in Houston might just as well have been in New York City. Less than 2 percent of the apartments in Houston and surrounding Harris County were vacant, and those that were went for a premium, rents high, leases long and landlords choosy.
http://www.nytimes.com/1983/06/05/us/once-booming-houston-real-estate-market-is-in-deep-slump.html?pagewanted=all
Does the oil market affect the housing market or vice versa?
Vote:March 15th, 2012 at 7:56 pm
I process satellite-generated data on terrain elevation and presence of water bodies
Vote:to precisely estimate the amount of developable land in US metro areas. The data shows
that residential development is effectively curtailed by the presence of steep-sloped
terrain. I also find that most areas in which housing supply is regarded as inelastic are
severely land-constrained by their geography. Econometrically, supply elasticities can
be well-characterized as functions of both physical and regulatory constraints, which
in turn are endogenous to prices and demographic growth. Geography is a key factor
in the contemporaneous urban development of the United States.
real.wharton.upenn.edu/…/GEOGRAPHIC%20DETERMINANTS.pd.
March 15th, 2012 at 8:45 pm
jh – many thanks for your comments. Just touching on a few of them -
(a) Roughly 2.6% of the US is urbanised – UK near 10% – Ireland about 4% – New Zealand 0.70% – Australia 0.12%. Globally less than 1% with now (as of 2008 – UN) 50% of the worlds population urbanised. Check out the Metros Urban Density Tables at http://www.demographia.com .
(b) According to my colleague and Co Author of the Annual Demographia Surveys there are no effective geographical constraints on US cities. In parts yes – but there are none I understand that are completely “hemmed in” as such. I am sure he has written on this issue – and again – there should be information on this issue on the Demographia website.
(c) The 1983 New York Times article on Houston above was through the oil booom, when, if my memory serves me correctly, the S&L fiasco was in full bloom as well.
Dallas Fort Worth at its peak with a population then of about 3 million issued 111,000 residential consents in that year – a whopping 37 consents per 1000 population. If New Zealand got up to those levels with its population of 4.4 million that would mean that we wou;d have to issue 162,800 in one year. Um…..I think we are currently at a little over 13,000 nationally – about 3 / 1000.
At the peak of the bubble Ireland got to 20 / 1000 (90,000 with a similar population to ours) – Spain 15 / 1000. Australia is currently falling off about 7 / 1000.
Leith van Onselen (The Unconventional Economist) of MacroBusiness Australia (search bloggers) http://www.macrobusiness.com.au has written on this Texas “boom”. Interestingly – prices did not bubble – but there was massive over building at the time. It is “seared” in to the Texas political / commercial culture what happened then – which explains why the Texas residential market has remained so stable this last decade.
I am told by Texans this is the main reason – not its Mortgage Consumer Protection legislation. In contrast they went crasy in Georgia – seriously over building – which explains why Atlanta currently has a Median Multiple of an extraordinarily low 1.8. Over building is far less of a problem than a bubble.
(d) The Texas Municipal Utility District (MUD) bond financing model for infrastructure is hugely important for reasons of economic efficiency and intergenerational equity, I sure hope out Productivity Commission discusses these extensively within its final report. In the next little while I will get information on these up on my archival website http://www.PerformanceUrbanPlanning.org . If anyone want further information on them now, just feel free to email me at hugh.pavletich@xtra.co.nz and I will flick the info thrugh to you.
Vote:March 15th, 2012 at 9:11 pm
Empirically, most areas that are widely regarded as supply-inelastic were found, in fact,
to be severely land-constrained by their geography. Deploying a new comprehensive survey
on residential land use regulations, I found that highly-regulated areas tend to also be geo-
graphically constrained. More generally, I found recent housing price and population growth
to be predictive of more restrictive residential land regulations. The results point to the
endogeneity of land use controls with respect to the housing market equilibrium.
Hence I next estimated a model where regulations are both causes and consequences
of housing supply inelasticity. Housing demand, construction, and regulations are all de-
termined endogenously. Housing supply elasticities were found to be well-characterized as
functions of both physical and regulatory land constraints, which in turn are endogenous to
prices and past growth.
Geography was shown to be one of the most important determinants of housing supply
inelasticity: directly, via reductions in the amount of land availability, and indirectly, via
increased land values and higher incentives for anti-growth regulations. The results in the
paper demonstrate that geography is a key factor in the contemporaneous urban development
of the United States, and help us understand why robust national demographic growth and
increased urbanization has translated mostly into higher housing prices in San Diego, New
York, Boston, and LA, but into rapidly growing populations in Atlanta, Phoenix, Houston,
and Charlotte.
The Geographic Determinants of Housing Supply
Vote:Albert Saiz∗
(Forthcoming: Quarterly Journal of Economics)
January 5, 2010
…..
In other words Houston is different from Florida, Auckland and Christchurch.
March 15th, 2012 at 9:20 pm
I think the rising rents are just another part of the housing cycle. Tenants whose living costs were previously subsidised by the landlord (who still making on the deal, through a capital gain) are now having pay the true cost of their accommodation. Basically the cheaper rents were the way people who didn’t own property were taking advantage of the property boom – whether they realised it or not.
Now there are no capital gains on offer, landlords are no longer willing to subsidise rents for their tenants, and housing has come full circle and is becoming cashflow positive again.
People don’t buy houses as investments for any other reason than they’re trying to make money (like any other business). They certainly don’t do it for the benefit of the tenant.
By the way, it costs more to rent virtually anything long term than it does to buy it (that is the nature of rental businesses) and I don’t think property should be any different.
Vote:March 15th, 2012 at 9:57 pm
“I think the rising rents are just another part of the housing cycle. ”
….
Population increase (80% from outside NZ) is government policy and a new norm:
“New Zealand’s change in immigration policy dates back to the early 1990s when the gap in productivity with other nations became pronounced between the years 1970 and 1990. Higher immigration was intended to fix the problem.
In its report, the SWG claims the move backfired.”
Vote:http://www.interest.co.nz/kiwisaver/52140/migration-policy-linked-inflated-housing-prices-government-spending-and-low-savings
March 15th, 2012 at 10:29 pm
hj – I will leave others more familiar with the US to comment on land constraint issues there. My understanding is that with about 2.6% of its total land area urbanised – that there are no geographic constraints where urban areas there are “hemmed in as such. The Albert Saiz paper as I recall was heavily disputed at the time – if my memory serves me correctly.
New Zealand with its land area of about 268,000 square kilometres has about 2,000 sq km of its area urbanised according to the MfE and research I have carried out myself. Some years back I wrote an article “Lifestyle Block Mythology” (accessible via the Highlighted Articles Section at http://www.PerformanceUrbanPlanning.org ) expanding on this. In short – if we openned up fringe land supply, we couldnt develop any more than one hundredth of one percent of our land area annually if we tried. Half a percent over the next fifty years if you like.
A month or two back Alex Tarrant of http://www.interest.co.nz reported on a recently completed Lincoln Iniversity Study, which found that there had been a huge lift in lifestyle blocks. Some 168,000 of them now covering about 8,700 sq km of our land area – about 4.3 times our urban area.
I suspect a good proportion of this trend towards lifestyle blocks is part of the “flight to affordability”. How much – I cant be sure. But I sure would like to see NZ researchers compare the volumes of lifestyle blocks we have here in comparison with the affordable metros of North America. I suspect we would find there is a huge difference.
So by the politicians and planners strangling cities here in endeavouring to reduce so called “sprawl”, it seems likely they are creating massive “splatter” instead – forcing people out to lifestyle blocks and outlying towns in the quest for affordable land.
On a lighter note – I understand Rangiora is now being renamed Ranganui ( ex Aranui) for this very reason!
The “disruption / dislocation” costs must be truly massive. Christchurch is currently being “hollowed out” (note my builds / 1000 population numbers above) because of this nonsense. By my rough cals, we should have had some 18 months following the September 2010 eartyhquake events some 5,000 plus new homes out on the good ground on the fringes of Christchurch by now. But that sure cant happen with Gerry Brownlee essentially running a Protection Service for the fringe land bankers – keeping section prices artificially above $200,000 – when they should be $50,000 or below.
Vote:March 15th, 2012 at 10:48 pm
If councils allowed any existing small block to be urbanized It would stop land banking in its tracks.
Vote:Most life stylers really only desire an acre or so not the ten plus presently mandated.
Ten acres is to time consuming to maintain for most working people.
March 15th, 2012 at 11:09 pm
hj – did you even read my reason for that conclusion?
It is simple economics – businesses have to make a profit, previously they were able to do so with two income streams (rents and capital gains) but now have only one (rents), so the prices rise in the other one (rents) to make up for it. They are able to do this because most landlords are in the same boat, and there are few new landlords entering the market because their investments won’t make a profit in the current market conditions.
I am well aware that immigration has increased since the 1990s – and that there are other factors involved such as the availability of land. That said, there was a housing bubble in the 1970s and that didn’t have immigration as a fuel. Explain that.
Vote:March 15th, 2012 at 11:44 pm
Griff – you are spot on. The “artificial scarcity values” on the fringes are enormous – up to $400,000 in (can you beliebe it) South Rolleston (where even self respecting rabbits refuse to live on the stones!) – up to a million bucks a hectare on the fringes of Christchurch – through to a stratospheric hign of 3 million on parts of the fringes of Auckland.
True rural values for land throughout New Zealand are generally in the $10 – 40,000 per hectare – horticultural stuff higher of course.
Raw land of course is the “residual cost” (after all other development costs are factired in – so the above artificial scarcity values should be treated just as the “nett cost”.
Add all the other humbug costs for development such as Development Contributions, excessive other Council fees, professional fees etc relating to the subdivision – we could refer to as “gross costs”.
But it doesnt end there……..
Factor in the massive degradation to our residential production construction industry as well. The Productivity Commission reported just before Christmas in its Draft Report that there are now ONLY 5 production builders in the country producing in excess of 100 new homes a year. The planners have just about pulverized our consruction industry back in to the Stone Age of cottage building. This is why basic production starter stock costs about $US500 per sq metre within the affordable US markets – $A800 per sq metre in Australia and a stratospheric $NZ1200 – $1600 per sq metre here in New Zealand currently.
This is why I like to break these true costs of strangled land supply and intrusive planning in to (a) nett (b) gross and (c) comprehensive.
Put another way – for starter stock o the fringes of Houston “all up” it costs about $US600 per square metre – fringes of Christchurch about $NZ2,500 per sq metre.
There is a saying in the development industry ‘ If you get the land wrong – everything else is wrong”.
I trust the above illustrates just how “wrong” things are in New Zealand – and why too – on the IMF GDP per capita PPP we are No 32 with our pals the Greeks at 33 . Check out the Angus Maddison Historical GDP per Capita Tables down the left column of my website http://www.PerformanceUrbanPlanning.org where you will find that we were No One in 1920. In highly technical economists lingo, this is described as a “crying shame”!
Vote:March 15th, 2012 at 11:48 pm
Umm, $A800 is $NZ1040 so not exactly a fair comparison.
Vote:I also challenge you to find a block of land bigger than 600sqm anywhere near the main centres in Australia for under $200k. There aren’t any.
March 16th, 2012 at 3:35 am
Actually HJ you might have a point if you weren’t totally wrong – net migration for NZ in 2011 was NEGATIVE -8800 – more (long term) people left than arrived and still residential prices rose especially in Auckland.
Gazzmaniac, Hugh P’s point is entirely valid, from the NZ Department of Building & Housing for December 2011: indexed construction cost for the standard small house (145sqm basic group built box) = $1821/sqm + average consent costs = $42/sqm = $270,280 total (plus the land cost).
Vote:Indexed cost for the standard large executive type house (202sqm) = $1663/sqm + consent costs = $30/sqm = $342,000 total.
For Australia from the ABCA for construction cost of equivalent to our indexed executive house = A$789/sqm (total incl consents) = NZ$1011/sqm, for 202sqm house = $204,200 total, thats right a staggering NZ$138,000 cheaper to build the equivalent house in Australia.
March 16th, 2012 at 7:54 am
Few new houses being built, expensive land and building materials, high compliance costs.
Supply and Demand Issues = Shortage of Quality Houses – Leaky Homes + Few New Houses being Built = Higher Prices
Economics 101
Bring back Mickey Savage and get some state house building going get some dolebludgers off the couch and off the P.
Vote:March 16th, 2012 at 8:42 am
You might also find that the cost of building is related to the compliance issues that keep cropping up also – the cavity batten system is a very time consuming (read expensive) way to weatherproof your house.
Vote:March 16th, 2012 at 9:02 am
Joseph Carpenter
Actually HJ you might have a point if you weren’t totally wrong – net migration for NZ in 2011 was NEGATIVE -8800 – more (long term) people left than arrived and still residential prices rose especially in Auckland.
…..
There is still the expectation that Aucklands population will keep rising (john Banks “great opportunity”).. or is that off?
Hugh Pavletich Says:
“The Albert Saiz paper as I recall was heavily disputed at the time – if my memory serves me correctly.”
…
We’ll yes. By non other than Wendell Cox:
“Two recent papers examined the association between house price increases
Vote:and geographical and regulatory restrictions in US metropolitan areas. The first, by
Albert Saiz (2010), reviewed natural geographical constraints—water bodies and
terrain slopes, while the second, by Haifang Huang and Yao Tang (2010) looked at
general regulatory restrictions and also included a natural geographical constraint,
using Saiz. Both papers used the Wharton Residential Land Use Regulatory Index
(WRI) to gauge the extent of land use regulation in the metropolitan areas studied.
The papers offer conclusions about the extent to which house-price in-
creases are determined by natural geographical constraints. Their conclusions are
based on methods suffering from problems analogous to those raised in the
thought experiment about dog-runs.
”
econjwatch.org/file_download/472/CoxJanuary2011.pdf
March 16th, 2012 at 9:13 am
PM says ‘no’
Vote:Prime Minister John Key reiterated later a land tax and broader capital gains tax were still off the cards. Asked whether the implementation of one or the other could allow government to reduce income taxes to give people more income to spend, he replied:
“At the risk of repeating myself from last year, we looked at a land tax, and land taxes, one, reduce the value of land in New Zealand, by definition, and it has an impact on every single homeowner in New Zealand.”
http://www.interest.co.nz/news/52737/imf-recommends-govt-broaden-capital-gains-tax-base-and-introduce-land-tax-your-view
March 16th, 2012 at 9:18 am
Land Supply Wins
Vote:http://www.interest.co.nz/opinion/57226/all-productivity-commission-needed-say-its-housing-affordability-report-quit-whining-a
March 16th, 2012 at 11:26 am
HJ,
What do you see wrong with Wendell Cox’s debunking of Albert Saiz’ paper?
It is pretty conclusive to my mind. Saiz committed a serious error of analytical approach. Drawing a radius the same size in all cases regardless of city size, and analysing the geographic constraints within that radius, means the conclusions will be meaningless.
Have you bothered to actually read this stuff and work out who is right and who is wrong?
Something I want to know, is who is funding “smart growth” advocacy. Cui Bono? Who stands to gain? Why would people like the Rockefellers and George Soros be funding enviro preservation advocacy groups? They care about the environment? Pull the other leg, its got bells on. Perhaps, just perhaps, they have big property portfolios that they make big capital gains on when “growth” is restrained?
So don’t damn Wendell Cox because of who funds him. It is YOUR side of this debate that is corrupt. You can think yourselves as saintly as you like, you are the “Baptists” and there are “Bootleggers” laughing all the way to the bank. The Watermelon Green Left claims to care about poor people, but they are the chief enablers of rackets that transfer wealth up from the bottom, right up to the fattest property investors in the world. The same investors then bankroll the activists and advocates who are their useful idiots. Heck, I hate Karl Marx, but he was right about “monopoly rent” in urban land markets. Back then, rising incomes capitalised into land rents (hence gains passed from workforces to property owners) simply because new development was limited to the distance people could walk, or limited to rail routes. But when pretty much all rural land within miles of cities is the “supply” of land for developers, prices are not what land oligopolists can “hold out” for, they are “as low as developers in competition with each other can make them”, with RURAL land rents as the “base price” of land.
You haven’t a clue how these things work in the USA. Individual municipalities might “constrain” growth but new municipalities are easy to incorporate, and as long as there are municipalities beyond urban fringes that are converting rural land to urban with minimal “planning gain”, affordability is maintained for the entire region because of the existence of the option of low cost fringe land. Furthermore, this low cost prevails across the entire region, making even inner city apartments far cheaper in cities with low cost growth going on at the fringe. Prices have blown out in California, Oregon, and a few other States (and then crashed again) precisely because urban growth containment regulations became a State-wide norm.
If you really want to see what anti growth regulations do to cities, look at Liverpool and Newcastle and most other British cities. Detroit is nicer because Detroit has large affordable houses at low density along with their rusted factories and high unemployment. Britain’s rust belt has had similar unemployment levels, possibly for longer, and their house prices remain stuck at median multiples (relative to income) of 6 and over, for houses that are about one tenth the size of Detroit’s. Detroit’s median multiples are around 2.
You quote so called “boom and bust” from Houston in the 1980′s. These episodes in “free to build” markets (Atlanta had one recently) involve median multiples rising to 3.5 MAX and crashing to 2.5 or so. Big DEAL. A few tens of millions of dollars “too much” building has happened. A couple years of in-migration fixes that. Contrast this with median multiples going over 6.0 and then crashing. The “malinvestment” is not just a few too many buildings, it is EVERY home in the entire market that has changed hands – the amount of excess mortgage debt is easily tens of times as much “malinvestment” as a few too many buildings under “free to build” conditions.
Furthermore, society has “saved” a few million dollars on new fringe infrastructure? And young households have tens of times as much money as this sunk into mortgage debt that has not bought anybody anything? Why don’t you anti growth nutters just fine everyone $100,000 when they reach 25, for being born, and at least use the money to provide infrastructure? This would be MORE equitable than what you have actually done. The young people have paid anyway and we haven’t got the infrastructure. Banks and property speculators have got the money. Well DONE, touchy feely “caring” pinko charlatans.
Vote:March 16th, 2012 at 11:56 am
By the way; David Farrar. You haven’t seen much of me on here for a few years. I just want to say that it is great to see you’re clued up on this issue:
“……They should blame the politicians who are restricting the supply of land. If demand is growing and the supply is near static, of course prices will keep rising……”
HJ is typical of the way the Left and the Greens operate. Us conservatives and enterprising people have lives to live. Lefties, on the other hand, live politics. This means they can spend limitless amounts of time devising arcane B.S. theories to bury us in, and present an APPEARANCE of being better informed and more intelligent.
But when the conservative, free market INTUITION says the opposite of what the Lefties are, it is certainly the conservative, free market intuition that is CORRECT. Unfortunately, there are far fewer people on the Right than on the Left, taking time to get their heads around complexities and debunk the other side. The Left long since captured bureaucracy as well as the media. All that is necessary is for bureaucracies to work “for themselves” rather than the public, and left-wing, Statist, bureaucracy-expanding “solutions” will be the ones that get all the traction every time.
Tony Randle’s exposee of the Akl Rail business case was one example. John Robinson’s exposee of bureaucratic control of NZ colonial era history research, is another. So is David Fraser’s exposee of NZ criminal justice bureaucracy. This goes on and on.
Vote:March 16th, 2012 at 11:59 am
WHY THE KEY GOVERNMENT HAS FAILED ON HOUSING AND URBAN ISSUES
A little history……..
We got the Annual Demographia Surveys underway with the first released early 2005. The Planning Institute came on board early 2007, which jolted the Nats in to life soon after. Prior to that they had told me where to get off.
This then led to Heatleys Study Tour to the US and UK and Parliaments Commerce Committee 07 / 08 Housing affordability Inquiry chaired by Brownlee (I had some involvement with both). There was much pontificating by Key and Heatley on these issues in the lead up to the 08 election, and even soon after, with Heatleys media release at the time of the 09 Demographia Survey release late January that year.
Matthew Hooton wrote an article for the NBR around Feb 09 explaining how the key Nat guys were committed to sorting out the bureaucracies and April 09 Mary Kissel of the Wall Street Journals article appeared after interviewing Key – “You cant spend your way out of a recession”.
Key was going to be Mr Fixit at that stage – progmatically unwinding us out of the excesses of the previous Clark Cullen Labour Government. His Banking mates in the lead up to the 08 election in the NZ Herald, spoke glowingly of his leadership skills and how he was just the right man for the job. I do hope the media guys are savvy enough to go back to these people and ask – what went wrong?
By mid 2009 things went badly off track. I called on Heatley who by that stage was kicking everything in to touch – suggesting I go talk to Nick Smith instead. It subsequently transpired of course that Heatley’s mind was elsewhere, enjoying the baubles of office. He was found out – cried like a wimp – and Cactus Kate (google search “Cactus Kate Phil Heatley”) gave her take on it subsequently.
Nick Smiths efforts through that term were a complete waste of time with respect to RMA matters. It could best be described (charitably) as a “kicking the can down the road” Government. Typical old “born to rule” Tories tip toeing through life quietly, hoping to reach death safely. In the case of Key – his sole objective is clearly to get a knighthood – and better still – become Lord Key of Bromley Ponds, in recognition of Christchurch being his home for so many years. The Bank Clerk whos clearly out of his depth.
Smith is up to the “old Tory Tricks” with respect to Christchurch, with Buster Brownlee doing whatever it takes, in a vain endeavour to keep Mayor Bob Parker and his seriously dyfunctional Council on life support. That its seriously stalling the recovery is beside the point. Those of us involved in pressing for long overdue and sorely needed changes to the Christchurch City Council – led by Cantabrians Unite http://www.cantabriansunite.co.nz – will be meeting Dr Smith shortly. It promises to be a fun meeting.
Vote:March 16th, 2012 at 1:06 pm
Hugh,
Thanks for the history lesson. I do recall you being very optimistic in early 2009 about regulatory change.
I can’t believe they havent taken the opportunity of the Canterbury earthquakes and CERA to make serious changes. It shows they dont really care. I remain firm in my belief that 2005 was the election the election the right almost won, and we havent run a horse since.
Vote:March 16th, 2012 at 1:27 pm
Swan,
You’re right about 2005. I think since then NZ’s migration statistics could safely be interpreted as a critical mass of “rightwing” voters departing for good, having seen the last bolt shot. Key National is just a caretaker, right wing in name only, government awaiting the next Labour/radical left onslaught on NZ’s society and economy. I see NZ becoming the first Anglo Saxon Venezuela.
SOMEONE has “taken advantage of the opportunity of the Canterbury earthquakes…..”
Bob Parker et al regard it as a wonderful opportunity to rebuild ChCh on a more compact footprint, with a higher density CBD containing more of the region’s commercial activity; and a light rail system…..!
They have a grand plan with 4000 submissions in favour, after all. Pity developers and insurers don’t want to know anything about it. Parker et al’s response is to scream about “big business interests denying the people of ChCh their dream…..”
It is a shame that it takes natural disasters to show up these tossers to the extent that a revolution might actually happen. Hugh Pavletich for Mayor…..!!!!!!
Meanwhile Canterbury’s GDP actually hasn’t dropped by much and businesses have made do with “temporary” suburban premises quite successfully. Best comment so far (apart from Hugh’s wisdom) has been this from Sir Bob Jones:
http://www.stuff.co.nz/business/rebuilding-christchurch/5696381/CBD-can-t-be-rebuilt-Bob-Jones
There was a response from Parker and a counter response from Jones but I didn’t save the links to those unfortunately. Jones won hands down, in my opinion.
Vote:March 16th, 2012 at 1:43 pm
Roll on Capital Gains tax.
Vote:Rents will rise to pay for the Professional Advisors assisting people to avoid it.
March 16th, 2012 at 3:30 pm
I pay $370 in rent for my room here in San Antonio, Texas.
Did I mention that was for the month?
Hey Kiwis, let me know when you sort out that wet National Party of yours, and that crappy Left wing council there in Auckland, and start freeing up some land, and I might be bothered considering coming back. Do something about the weather as well, and it’s a deal
Vote:March 16th, 2012 at 5:07 pm
BlairM,
ARE you one of NZ’s smartest people or WHAT?
I have been saying for years that Southern USA is about the only place in the world now worth moving to, investing in, or starting a business in.
Evidently quite a lot of the world’s migrants and investors think so too:
Foreign Industrial Investment Is Reshaping America
by Joel Kotkin 03/06/2012
http://www.newgeography.com/content/002709-foreign-industrial-investment-is-reshaping-america
“……Declinism may be all the rage in intellectual salons from Beijing to Barcelona and Boston, but decisions being made in corporate boardrooms suggest that the United States is emerging the world’s biggest winner. Long the world leader as a destination for overseas investment, the U.S. is extending its lead as the favored land of overseas capital.
Since 2008, foreign direct investment to Germany, France, Japan and South Korea has stagnated; in 2009, overall investment in the E.U. dropped 36%. In contrast, in 2010 foreign investment in the U.S. rose 49%, mostly coming from Canada, Europe and Japan. The total was $194 billion, the fourth highest amount on record.
Foreign investment is already reshaping the American economic landscape, shifting wealth and income from differing regions……
“…..even more important has been a surge in industrial investment, which rose $30 billion just between 2009 and 2010. Much of this growth is concentrated in the chemical industry as well as automobile, steel and other transportation sectors. It is also heavily focused on the southeastern states and Texas — the very places that most surveys reveal have the most hospitable business climates. According to a recent study by Site Selection magazine, the five states with the best business climates and 10 of the top 12 are from the old Confederacy.
Foreigners, particularly from large global corporations, are not stupid. They also are not burdened as much as domestic firms with legacy costs or romantic attachments to traditional industrial bailiwicks. “At the end of the day, a company looks at a whole nation and looks at the factors that matter most, like ease of doing business,” notes Bill Taylor, who for 17 years headed up Mercedes’ U.S. operations. “The Southeast has that and has a workforce willing to be engaged. They have found the area to be very fertile ground.”
This has certainly been true for companies such as Mercedes, whose largest U.S. plant is in Tuscaloosa, Ala. Last year the company invested $350 million in the facility.
Nor is Mercedes alone. Arch competitor Volkswagen last year announced it will build a new assembly plant in Chattanooga, Tenn. Nissan, Toyota and Kia have all announced major new plant openings or expansions over the past three years throughout the region.
These are not inconsequential investments. With the average cost of building these facilities at over $1 billion, and the higher-paying manufacturing jobs they represent, such plants represent major employment generators. They also bring with them parts suppliers and other industries related to auto manufacturing. Alabama, for example, has seen major steel mill investments, including $4.6 billion from Germany’s Thyssen Krupp.
Over the next decade, these investments could transform the nation’s industrial structure……”
Hear, hear.
Vote:March 16th, 2012 at 5:18 pm
HJ also quoted some absurd statistics on Auckland’s density. Simply not true.
Numerous errors are made regarding populations and “boundaries” that are political – municipality ones, that include unused land in them. Of course Greenies use incorrect data that suits their mythology.
There ARE better data bases where the REAL sizes of built up areas are used:
http://www.demographia.com/db-worldua.pdf
Auckland is one of the DENSEST cities in the “NEW” world. It is certainly one of the very densest cities in the world of its population level. Wellington is one of the densest cities in the world of ITS population level.
AKL: 2,300 per sq km
LA: 2,400 per sq km (DENSEST in the USA)
London: 5,100 per sq km due to being a pre-automobile city, long standing green belt policies, and a truly “global” city.
Vote:March 16th, 2012 at 5:21 pm
Here is some more data sources for the Greenie charlatans to suck on:
Europe’s cities have sub-optimal outcomes in more recent data on traffic congestion.
http://www.newgeography.com/content/002169-united-states-less-congestion-europe-inrix
Europe’s cities have longer commute times than low density US ones
http://economix.blogs.nytimes.com/2011/10/14/world-of-commuters/
(NZ’s cities have some of the first world’s worst congestion and commute times for cities their SIZE)
Higher density cities tend to have the worst air pollution – again NZ’s cities are shameful:
http://www.who.int/phe/health_topics/outdoorair/databases/en/index.html
Michael Newman in “The Compact City Fallacy” comprehensively dismissed the assertion that there is a causative relationship between urban density itself and environmental index outcomes. There are simply too many other factors that have a far stronger causal relationship.
http://sustainableurbanism.tamu.edu/papers/CompactCityFallacy.pdf
Anthony Downs in “Still Stuck in Traffic” likened the use of urban form regulations to achieve these objectives, to adjusting the position of a picture on a wall by shifting the wall rather than the picture!
Vote:March 16th, 2012 at 6:42 pm
I don’t think Professor Saiz and Huang and Tang (2010)
would be caught out so easily by Wendell Cox.
http://www.bowdoin.edu/~ytang/HuangTangJanuary2011.pdf
I note Hugh always starts with NZ is only .07% urbanised, Britain is only 8% and is about the same size (blah , blah). But people get out of Britain for a country that is less crowded and the sort of country NZr’s live in ought to be a democratic choice not something dictated by property developers. realestate agents and their minions*. Hughs message isn’t just about fixing constrained land supply he is saying you can keep increasing the population and no one will suffer any loss in quality of life. Phil Best believes NZ could and should have 40 million people. NZ is the most far away country on earth and our comparative advantage is not to be a high population country (I would have thought).
Hugh doesn’t see infrastructure cost as an impediment to growth. I tend to trust the Savings Working Group (rather than an industry lobby group) who claim that we have a problem when large numbers of migrants arrive as we don’t have a highly paid population to keep adding rooms (as it were) for new arrivals.
Vote:March 16th, 2012 at 7:50 pm
Huang and Tang didn’t defend Saiz, all they said was that THEIR study would not have been materially affected by the defects in Saiz’ analysis.
They DO find that growth constraint POLICIES have an effect on urban land price volatility.
Huang and Tang are listed on Hugh’s site among voluminous amounts of research that shows up the effects of urban growth constraints.
http://www.performanceurbanplanning.org/academics.html
Re NZ “wanting” to “stay 0.7% urbanised”. I recall a movie a few years ago about an elderly East German Commie who had been in a coma since about 1985, and their family went to great lengths when the person emerged from the coma, to try and hide the fact that Communism had collapsed.
We could do something like that with NZ. We could easily plonk 20 to 30 million people somewhere where no Kiwis would need to even notice. Holland has about 20 million people in a space the size of Canterbury.
3 centuries of enlightenment has completely passed by a country where the people can’t even use Google Earth for themselves to see what a pack of charlatans the Green theocracy is. The medieval papists were LESS of an obstacle to progress.
Vote:March 16th, 2012 at 7:59 pm
Great comments all……and much appreciated including yours hj, obviously petrified that if we had affordable housing, we would be swamped with people! Somehow I dont think so.
The great tragedy is that the Nationals didnt do what they said they would do in 2008. And yes Swan you are correct in that I was “optimistc” early 2009. “Optimism” alas is a disease developers suffer from!
The National Party left me – I didnt leave them.
Naively I thought the Nats would have had enough between the ears to recognise the huge importance of pragmatically getting on so that progressively we openned up a major “affordability gap” with Australia – and that from this New Zealand would reap enormous benefits. For one thing arresting the hugely destructive migration flows to Australia…….and the rest of it.
But at that early stage through 2008 / 09 I just didnt appreciate how politically incompetent Key was. Indeed the 2008 NZ Herald articles on Key with his Banker mates extoling his virtues and capacity to perform. Well…..silly old me bought the bull – hook, line and sinker!
It wasnt really until I read the Vanity Fair article on the failed Merrill Lynch “The Blundering Herd” (google it) that I got a better understanding of the culture that shaped Key. Its a must read.
John Armstrong in the NZ Herald just a few weeks ago noted how the “smile and wave” days of Key are over and that he is becoming increasingly grumpier. It is very clear to me now that the guy is completely out of his depth. And sadly – that his incompetent leadership will sink the Coalition National Government, as the wider public pays the price for his failed leadership.
Vote:March 16th, 2012 at 10:02 pm
PhilBest (5,029) Says:
March 16th, 2012 at 7:50 pm
Huang and Tang didn’t defend Saiz, all they said was that THEIR study would not have been materially affected by the defects in Saiz’ analysis.
They DO find that growth constraint POLICIES have an effect on urban land price volatility.
=============================================================================================
Their work builds on Saiz.
Regulations affect price but geography affects regulation and price.
———-
The measure of geographic land constraint, obtained from Saiz (2010), is the proportion of undevelopable land that is lost to water bodies, wetlands and slopes within 50-kilometer radii from metropolitan central cities. The latter measure is at the metropolitan level; we assigned different cities the same value if they are within the same metropolitan area. From the regressions, we find that more restrictive residential land use regulations and geographic land constraints are linked to greater booms and busts in housing prices. We also interact the measures of supply constraints with
Vote:variables proxying for the local impact of subprime mortgage credit expansion on housing demand. We find that both the geographic and the regulatory constraints amplify price responses to the subprime expansion in the decade, leading to greater price increases in the boom and subsequently bigger losses.3 Both kinds of constraints are found to intensify the local boom-bust experience.
Regarding the empirical approach in Huang and Tang (2010), Cox (2010) raises the concern that the inclusion of both geographic and regulatory constraints could underestimate the effect of regulations on housing prices:
…any approach that includes natural geographical constraints where
there are interior regulatory geographical restrictions would have the potential to virtually negate coefficients for the restrictions and
exaggerate coefficients for the natural geographical constraints. (Cox,2010, 3)
Our view is that geography does not respond to regulations, so the variable
of geographic constraints is unlikely to intermediate the effect of regulatory
constraints on house prices. To the contrary, we believe that omitting geographic
constraints has the potential to over-estimate the effect of regulations. The reason
is that geographic constraints lead to higher land values, which in turn give
homeowners stronger incentives to protect their housing investments by im-
posing constraints on new development (see Saiz 2010 and the references within
for more discussion). Empirically, Saiz (2010) found that the measure of
geographic constraints is correlated with more restrictive land use regulations. In
the unlikely extreme case when regulations respond perfectly to geography
constraints, the regulatory constraints themselves would simply intermediate the
effect of geography and should not be included in the regressions at all.
Uncertainty in theory should be admitted. We can nevertheless assess the
empirical relevance of Cox’s concern by removing the geography variable from
the regressions. This way, we give regulatory constraints all the benefit of the
doubt. We report the regression outputs in Table 1 and compare them to regres-
sions in which the geography variable is present.
geographic constraints on the right-hand side; column 2 does not. The spec-
ifications in the two columns are otherwise identical. The common dependent
variable in columns 3 and 4 is the price bust (changes from 2006 to 2009). The
specifications of the two columns are again identical except that the geographic
measure is present in column 3 but not in column 4. The comparisons between
columns show little difference in the point estimates of the coefficients on
regulation. When the measure of geographic constraints is included, a one stand-
ard deviation increase in WRLURI, holding other variables fixed at the sample
means, raises the size of price boom by 5.64 percent and deepens the price bust by
4.55 percent. When the geographic measure is removed, the same increase in
WRLURI raises the boom by 6.64 percent and worsens the bust by 5.78 percent.4
Thus, removing the geographic measure changes the results in the direction
suggested by Cox, but the changes are very minor.
Cox also raises questions about the measure of regulatory constraints (the
Wharton Residential Land Use Regulatory Index (WRLURI) from Gyourko, Saiz
and Summers 2008). We are not in a position to address those concerns. But given
the measures available to us, we do not find evidence for Cox’s concern that the
geographic-constraints measure soaks up, and thus masks, much of the impact of
the regulatory-constraints measure.
March 17th, 2012 at 3:05 am
HJ, piss weak answer, what John Banks thinks in a brainfart is not a fact.
Here’s some Facts:
- Last year (2011) despite large inwards immigration NZ’s population dropped because outwards emigration was even larger.
- Last year had extremely low demand for new property lending, in fact 2011 had the lowest amount of new mortgage paper written in 24 years and total bank lending dropped for the first time since records were kept.
- Last year investment properties were hit with the triple whammy of: no depreciation allowed at all; LAQC and LTC look-thru companies all taken out; trust and (top) income tax rates the same.
Arguably the lowest property “demand” side in decades.
And yet fact: PROPERTY PRICES ROSE last year, and not just in Auckland, the average and median increased in 11 out of 13 provinces.
Therefore it HAS to be a “supply” side problem.
The problem is this market is not a normal one, it has to obey economic market laws but it has very unusual characteristics (of the supply & demand curves):
- The pricing signals are excellent despite the low turnover, so this is not the issue.
However:
- On the demand side it’s quite elastic/normal curve down to a certain threshold and then it becomes totally inelastic/near flat line (you have to have shelter or you die but: you simply can’t build cheaper than the Building Code/you can’t squeeze more people or families into a single dwelling/all the caravans and garages are occupied).
- On the supply side it’s totally inelastic/near vertical line: if the average priced doubled tomorrow it would still take more than 10 years for the supply to ramp up to met/clear the price and thats assuming Local Authorities grant consent for new land – if they don’t then the supply curve is fucked (curves don’t even cross) – the classic socialist shortage/queue forms, except you can wait a few hours in the street for bread/petrol/shoes/etc but you can’t wait 10 years in the street for an abode.
If you graph these supply & demand “curves” you will see even a slight alteration in the supply has a massive effect on the price (the intersection point with the demand curve), it’s an inescapable mathematical fact. Therefore you have make sure there are as few constraints as possible on the supply side to flatten/reduce the gradient of the supply curve as much as possible to get closer to the normal “X” shape of market curves (i.e. allow normal market pricing/clearing to happen).
Vote:March 17th, 2012 at 7:28 am
I don’t know where things are going here in Auckland, expensive Real Estate and massive transport problems.
It appears the boffins in Wellington don’t give a Rats Ar**.
Vote:March 17th, 2012 at 9:26 am
Joseph Carpenter (108) Says:
HJ, piss weak answer, what John Banks thinks in a brainfart is not a fact.
……………
I was reading this last night:
Understanding the evolution of real-time beliefs about house price appreciation is central to understanding the U.S. housing crisis.
http://www.bos.frb.org/economic/ppdp/2010/ppdp1005.pdf
I think people believe there is a grand highway to China (or anywhere we can flog the country off to) and she’s “all on”!
and I should add that the growth predictions come from official (reputable) sources.
Vote:March 17th, 2012 at 9:36 am
Why is it that when Cambell live discusses Aucklands growing pains and the interviewee says “but you can’t stop people coming here” the journalist doesn’t have the geographic noose to point out that 80% of population growth is from outside NZ???
hint: the same reason the Greens, Labour and InterNational are allergic to Winston Peters. The view of the world is manipulated by those who control the media (the powerful and influential elites)
Vote:March 17th, 2012 at 9:57 am
With regard Auckland rents and house prices, where did the unearned capital gains go??? Those that power someones super yacht or anothers cruising or just sit at home and enjoy retirement???
As in:
“Listen, folks, you’re here to learn why you’re poor!” an ebullient Dolf de Roos tells a packed audience of 500 well-heeled people – including an 11-year-old boy writing down every word – at the Sheraton ballroom for his $79 a head Real Estate Riches seminar last week.
“The deal of the decade comes along once a week!” says de Roos. “If you believe that, you will find deal after deal after deal.” But you will only amass money, he says, when you come from an abundance consciousness instead of a poverty consciousness; when you tell yourself, “I am a magnet for money!”
Tonight, a pumped de Roos tells his audience that he wants people to invest in property and write to him 12 months down the track and tell him they’ve “made one million or three million, or you’ve got 16 properties, or we’re taking six months off because our cash flow now exceeds our outflow!” He says, “I don’t know any other activity where the rewards are so huge. If you want to invest a million dollars in the sharemarket, you need a million dollars. If you want to invest a million in real estate, you only need $100,000.”
You can buy one property, get it revalued, use the equity to buy another property and then buy another and another. “And you do it all with OPM. Other people’s money. OPM. It’s like being high on drugs!” What’s more, the wonder of depreciation claims on the building and contents means “the government subsidises your investment! It’s delightful!”
http://www.listener.co.nz/uncategorized/house-of-the-rising-sum/
Demographia shifts the emphasis to “Greenies holding up developers”, doesn’t it?
Vote:March 17th, 2012 at 10:00 am
Some of that money should have been attracted to another “magnet” (i.e) public amenities, infrastructure…no???
Vote:Yes!!!
March 17th, 2012 at 10:03 am
This might be a quite uniformed comment, and if so I hope someone will correct me. I was told some years ago that one of the main constraints on development was the ownership of large blocks of land on the fringes of cities and that the owners of those blocks were simply content to hold the land until prices rose sufficiently, i.e., there is an artificial choking of the supply in the interests of a few.
Vote:March 17th, 2012 at 10:31 am
Land banking mike
Vote:That and the zoning will not allow intensive development, hence the ten acre,4.4 hectare block. If the councils allowed ten acre blocks to be developed into more intensive housing It would free up massive amounts of land for subdivision. Also it would burn those that seek to profit by land banking some thing I relate to scalping .
The green zone maintained around cities is bullshit the land is broken into small lifestyle blocks that cost to much due to a zoning imposed shortage.
If you price a ten acre block you pay say 300,000 for the first half an acre then 30,000 per acre from there. This implies that the section price is high due to zoning being at multiples of the per acre land price.
March 17th, 2012 at 11:24 am
The Rent Trap
Vote:For the housing market’s winners, the gains have been spectacular.
Infometrics director Gareth Morgan calculates that between 1989 and 2005, the residential property market has provided investors – and owners – with a tax-free 319% gain.
http://www.catalyst2.co.nz/blog/news/the-rent-trap/
March 17th, 2012 at 11:55 am
FLIGHT TO AFFORDABILITY – THE LIFESTYLE BLOCK FIASCO
24 January there was a report by Gerald Piddock on BusinessDay Stuff
http://www.stuff.co.nz/business/farming/6302202/Issues-on-both-sides-of-the-fence-over-lifestyle-land
with a follow up one by Tony Chaston of Interest Co NZ…….
http://www.interest.co.nz/rural-news/57591/issues-both-sides-fence-lifestyle-land
……reporting on the explosion of so called lifestyle blocks and the research by Landcare researchers Robbie Andrew and John Diamond, showing that there were 175,000 now – an increase of 78,000 over the past 13 years covering an area of 8,700 square kilometres.
Now our urban areas cover just 2,000 square kilometres – so haven’t the urban planners done exceptionally well creating all this splatter out in to the rural areas. What is not factored in on this lifestyle block centred research by Landcare (which is most helpful) is the “flight to affordability” to outlying towns – and this is truly massive and unnecessarily disruptive.
What these planners forget in their quest for control, is that our urban areas are the drivers of a modern economy – and that it is in the wider national interest to allow them to function normally. I could be wrong on this – but would not be surprised with 80% of our people urbanised if our urban areas generate something in the order of 90% of our GDP. The “normal” trend if for people to migrate from rural to urban areas in their quest for greater opportunities and higher incomes.
But with the planners artificially ramping up housing prices so that they are 6.3 times household income in Christchurch and 6.4 times income in Auckland, all they are doing in reality is creating greater poverty and splatter – so that today these lifestyle / lifesentence blocks cover about 4.3 times our urban areas. It doesnt make an ounce of sense.
Some years ago I wrote “Lifestyle Block Mythology” -
http://www.scoop.co.nz/stories/PO200711/S00183.htm
The whole thing is a nonsense – and its well past time the Authorities openned up fringe urban land and financed infrastructure properly, to ALLOW $50,000 serviced sections to be provided.
Urban planning has sadly degenerated in to the “poverty creation profession”. If its a failure – you can be sure they will advocate it. It is simply a case of “following the numbers” to illustrate this clearly.
Vote:March 17th, 2012 at 12:05 pm
HJ, thanks for quoting at length from the Huang and Tang paper. It is saying exactly what I said it did. They are not defending Saiz from Cox’s criticisms, they are saying the flaws identified by Cox would not have affected THEIR findings by much.
There is a correlation between “terrain” and hence “views”, and the desire of the local population to “restrain growth”. This is how the “terrain” effect actually works to correlate with price inflation. If terrain ITSELF acted to increase housing prices, then that is a REASON for cities WITH “geographic constraints” NOT to have growth boundaries etc.
Malpezzi and Wachter; and one of many Glaeser and Gyourko papers; showed that “speculative demand” has to be made ENDOGENOUS to a low elasticity of “supply”, or it is impossible to establish a formula that can cope with markets with the same conditions of easy credit, tax advantages, rapid population growth, monetary easing, etc etc when MANY of these markets had no price inflation at all.
In contrast, South Korea had a massive house price spike when they introduced Green Belt policies in the 1970′s, in spite of the fact that they had almost no mortgage finance system at all, and young people traditionally saved the price of their first home. Korea’s national savings boomed for 10 years as young people saved and saved and saved towards a rising target. There were demographic consequences to this, marriage and birth rates dropped.
As for capital gains; when the prices crash (as they will), good luck with the capital gains thing. Those who advocate capital gains taxes; would you advocate refunds too in the years when prices drop? Capital gains tax advocates have the woolly idea that some assett class can provide capital gains forever. Impossible. And taxes that are not “net of inflation”, such as taxes on interest rates, as well as CGT’s, are immoral.
The Productivity Commission’s discussion of the tax aspect was wholly convincing. The fact that taxes on interest are not net of inflation, already represents a tax penalty on mortgage-financed housing. Local body rates are already a tax on housing. Any “tax advantage” is far less than mythology holds. The fact that INSTITUTIONS have NOT been involved in housing speculation, but “mom and pop” investors have, suggests that the institutions are better at doing “due diligence” and the moms and pops are basing their activities on coffee-table myths. For everyone who “sold out at the peak”, there are a corresponding class of people losing their shirts by the time the crash has bottomed out, not to mention that the whole economy is trashed in the process.
HJ and I have had a little argument over how many people NZ could hold (tens of millions, actually). But this is an unhelpful diversion. HJ would use “running out of nature space and countryside” as an excuse to deny a few thousand young Kiwis per year, affordable housing. People have to live somewhere. NZ will not end up with millions of immigrants just because we reform development regulations to allow housing for 4 million Kiwis to resume affordable, stable prices. Immigration levels are a separate issue. Of course HJ wants to stop young Kiwis bearing children, like all the filthy eco Nazi human-hating eugenicists, so these people love imposing unaffordable housing and conditions unsuitable to raise children in.
But meanwhile, “Housing NZ” is building SEVEN BEDROOM HOUSES for THEIR “clients” who “need them” (and for whom high density apartments would be “unsuitable” – Housing NZ is knocking some of these down). We can’t have PARASITES denied the full dignity of the right to bear as many children as THEY want, can we?.
Vote:March 17th, 2012 at 12:20 pm
Joseph Carpenter and Griff are both onto it. The reason housing is affordable anywhere, is that there is minimal “uplift” between the RURAL price of land, and the “raw land” cost component in new developments. This “uplift” is often called “planning gain” – in Britain for years now, “planning gain” has been the subject of frank and open negotiation between farming land owners, developers, consultants, local government, and special interest groups, re “who is going to get what share”. The stupid Poms understand “planning gain” THIS WELL yet the politicians who CLAIM to care about “poor people” i.e. politicians on the Left; are the biggest cheerleaders of the lot for “planning” – and their terminally stupid constituents keep voting for them decade after decade and grizzling about “greedy landlords” and “greedy developers”. But the “Tories”, like our Nats, seem to have their own reasons for perpetuating the racket.
Academic analysis should be focusing on this, because it would explain a lot, not just about housing affordability, but about economic cyclical volatility.
I said above, to HJ, that all the “corruption” and “vested interests” and advocates “bought and paid for” is on HIS side of this argument. How much money do “greedy developers” make out of “building stuff” in a competitive market? Is it 1% of what incumbent land owners from the fringe to the CBD, make when land is rationed and quota’d? Give me a Houston developer any day, and I will show you a decent human being; compared to some Len Brown supporter who owns 300 acres just inside the new Akl “growth boundary”.
Vote:March 17th, 2012 at 12:53 pm
NEW ZEALAND MUST WIDEN “AFFORDABILITY GAP” WITH URGENCY TO COMPETE WITH AUSTRALIA
Todays article by Shane Cowlishaw on BusinessDay Stuff “Australia beacons for sacked workers” illustrates why New Zealand must with urgency START ALLOWING affordable housing to be provided on the fringes of our urban areas -
http://www.stuff.co.nz/business/money/6590221/Australia-beckons-for-sacked-workers
In this regard the comparison between California and Texas is most helpful, in that with the latters normal pricing of housing (generally in the 2.0 – 3.0 Median Multiple range refer http://www.demographia.com ), lower taxes and lower cost of living, they get people queuing up for IT jobs 100 deep paying $US80 – $US90,000 a year – while they cant get staff in California paying $US110,000 – $US120,000 per year.
Its all about nett disposable income – and Texas wins hands down. Just check out the Homes for Sale on the Houston Association of Realtors http://www.har.com website – and for good measure – what the quality of development is like at the higher end, such as at The Woodlands http://www.thewoodlands.com north of Houston.
I spent some time in Houston back in 2008 and we got lost amongst the trees in the Woodlands! It really is spectacular.
If we focused on sorting Local Government out and ALLOWING affordable housing to be built in this country, I have no doubt we could give those Aussies a real run for their money. And it is well past time the Key led Coalition Government woke up to this.
Vote:March 17th, 2012 at 1:17 pm
Hugh P:
“But with the planners artificially ramping up housing prices so that they are 6.3 times household income in Christchurch and 6.4 times income in Auckland, all they are doing in reality is creating greater poverty and splatter – so that today these lifestyle / lifesentence blocks cover about 4.3 times our urban areas. It doesnt make an ounce of sense.”
Savings Working Group:
There was a sharp spike in immigration in 2001, 2002 and 2003 and, said working group committee member Dr Andrew Coleman, it appeared that property prices did not fall anywhere near as greatly when immigration fell again.
Vote:The report added that there was little evidence that immigration boosted local incomes. In fact, the need to build roads and schools meant that net migration contributed to the national deficit.
“Migration is another issue that the government should investigate further,” the working group said. “There are indications that high immigration rates have pushed up government spending, house prices and business borrowing, and prevented necessary adjustments to the economy.”
http://www.stuff.co.nz/business/money/4622459/Government-policies-blamed-for-house-prices
…..
The immigration issue is linked to land supply for housing, but also the (obvious) need for new infrastructure and who is going to pay for the new school fresh out of the box. One assumes immigration is due to people moving here due to a booming economy producing X or providing some profitable services Y, but it doesn’t look like that, the jobs are to a large degree (60%???) associated with flow on from real estate development. “Just wait ’till we have a bigger population, then we’ll show you something….!!??”
March 17th, 2012 at 1:28 pm
PhilBest (5,031) Says:
March 17th, 2012 at 12:05 pm
HJ, thanks for quoting at length from the Huang and Tang paper. It is saying exactly what I said it did. They are not defending Saiz from Cox’s criticisms, they are saying the flaws identified by Cox would not have affected THEIR findings by much.
Vote:….
they aren’t agreeing that Saiz work is” flawed”, they confirm that their work is built on it but only address criticism of their own work.
It seems that Saiz is a pioneer in that field and the only criticism I have seen is Wendell Cox’s.
I find it hard to believe that Saiz would present a paper that could be easily knocked down; his findings make a lot more sence than Demographias everywhere is like Houston approach. It is one of the hall marks of the libertarian that nothing in nature gets in the way of a good (beautiful) theory.
Nature is a dog that has to “get in behind”!!
March 17th, 2012 at 1:57 pm
BTW Saiz is considered anti smart growth and presents papers with Glaeser.
Vote:March 17th, 2012 at 5:21 pm
HJ;
There are about 260 cities in the USA with populations over 500,000. These cities are in the annual Demographia surveys.
200 of these cities had no price bubble at all. The bubble in the USA was limited to cities with anti-growth regulations.
There are cities in Texas growing at the rate of 20% to 130% per decade, and these cities have LOW local taxes and keep it that way in spite of the high in-migration.
What is YOUR point about immigration? What you are saying looks to me like NZ has the wrong policy on immigration, not that immigration per se is bad.
Wendell Cox and Joshua Utt (2004) “The Costs of Sprawl Reconsidered: What the Data Really Show”, find the exact opposite of the planners assumptions re infrastructure costs, in a study of US metropolitan areas:
“………The highest density municipalities have higher than average expenditures per capita; the slowest growing municipalities have higher than average expenditures per capita; and the oldest municipalities have the highest expenditures of all per capita…….
“………Perhaps the most oft-quoted recent research attempting to estimate the relationship between sprawl and infrastructure costs was conducted by a team led by Professor Robert Burchell and funded under the auspices of the federal government’s Transit Cooperative Research Program (TCRP). The project included two reports: Costs of Sprawl–2000 and The Costs of Sprawl—Revisited. The Costs of Sprawl–2000 projected that from 2000 to 2025, America would incur $227.4 billion in gross additional costs for what the study terms “uncontrolled growth” (less dense, more sprawling growth) versus “controlled growth” (more dense, less sprawling growth). This equates to approximately $9.1 billion in gross additional costs per year.
The figure of $227.4 billion may seem large. Yet in the context of 25 years and an average population of 115 million households, it is actually rather modest. The $227.4 billion would amount to only $80 per household annually, or $29 per capita. This includes:
• $4.41 per household (or $1.63 per capita) for additional sewer and water costs;
• $38.37 per household (or $14.16 per capita) for additional roadways; and
• $36.77 per household (or $13.57 per capita) for expanded public services……”
(End of quote from Cox and Utt)
The alternative that is lumbered on young Kiwi first home buyers, is for them as a class, to pay several times as much as the cost avoided by society as a whole, for which they, and society as a whole, have got nothing to show for it except perhaps very much slower economic growth for the next few decades due to the squeeze on the discretionary spending of everyone from 2004 onwards who buys their first home. For the first few years this effect was swamped by existing home owners using their own rising “equity” like an ATM, a household-led Keynesian boost to the economy. Tragically, left wingers have often got away with claiming that this temporary economic boost based consumption based on rising household debt, represented “good management” by Mikhail Kullen et al.
This one-off boost will have its “reverse” for decades to come thanks to the elevated cost of all housing options for everyone buying their first home, or even renting.
I fail to see how touchy feely socialists can keep supporting this racket and still lie straight in bed.
Saiz is indeed anti smart growth, and probably did his paper to shut up the vested interests who kept saying that “geographic constraints did it”. Saiz therefore attempted to dis-aggregate the effects. He clearly finds that regulations do have a significant effect. It makes no sense to claim that geographic constraints cause high house prices, and NOT advocate for as much regulatory FREEDOM as possible to attempt to ameliorate the effect. Why compound an already bad situation?
I happen to know that the team at London School of Economics Spatial Economics Research Centre, respect Cox’s critique of Saiz’ paper. But it is obvious that a 50 km radius applied to everything including a city growing from 4 million to 5 million people in a decade, and a city that has grown from 550,000 to 560,000 in the same time – is not going to provide very reliable results. I am disappointed in Saiz, and disappointed in his defenders.
Vote:March 17th, 2012 at 5:40 pm
SELF SERVING BUREAUCRATIC RESEARCH – AND THE CONSEQUENCES
hj – This “inability to cope with normal growth” and the associated hocus pocus “we must conserve resources” research. is in large measure driven by bureaucracies at Local and Central level, losing control of their costs.
I sometimes refer to it as “sun rises in the west research”.
As these bureaucracies expand, their needs come first and infrastructure gets sidelined. Its really just Parkinsons Law on Prosac…..
http://en.wikipedia.org/wiki/Parkinson's_law
http://www.amazon.com/Parkinsons-Law-C-Northcote-Parkinson/dp/1568490151
We are seeing this play out at the Christchurch City Council with its 1400 admin / reg staff at the Kremlin in Hereford Street – completely incapacitated . In The Press this week Sam Sachdevas article “Think local for faster recovery – community boards” reported on the Community Boards representitive Phil Clearwater spelling out the realities on the ground. Contrary to Sams reported comments, the Council people were extremely hostile to Clearwater and eventually shut him down -
http://www.stuff.co.nz/the-press/news/christchurch-earthquake-2011/6576280/Think-local-for-faster-recovery-community-boards
The Council meetings themselves have now degenerated in to an entertaining farce, with Nick Smiths “nanny” – Kerry “Snoozer” Marshall getting them to agree to a Charter, where in essense they all fall in to line with the whims of the Parker Marryatt Regime.
Obviously Local Government Minister Nick Smith is of the view that the “suppression of democracy” and manufactured “love ins” (is this all they do in Nelson?) at the local level is the way to get a recovery underway. That the top down bureauceatic approach has been a distaster to date, doesnt seem to have registered with Nick.
Anyhow – the goings on in Christchurch (with other important local government information) are constantly being reported on Facebook Page associated with Cantabrians Unite http://www.cantabriansunite.co.nz -
http://www.facebook.com/NoPayRiseForTonyMarryatt?sk=wall&filter=2#!/NoPayRiseForTonyMarryatt
Christchurch must abolish the centralized structure and replace it with a “One City – Many Communities” model. The recovery cannot get underway until this happens. Nick Smiths manufactured “love ins” are not the answer.
Vote:March 17th, 2012 at 5:47 pm
http://www.breitbart.com/Big-Government/2012/03/13/exodus-california-tax-revenue-plunges-by-22
“…….California politicians seem delusional in their continued delusion that high taxes have not savaged the State’s economy. Each month’s disappointment is written off as due to some one-time event…….
“………..The more likely reason tax collections continue falling is that businesses and successful people are leaving California for the better tax rates available in more pro-business states.
Derisively referred to as “Taxifornia” by the independent Pacific Research Institute, California wins the booby prize for the highest personal income taxes in the nation and higher sales tax rates than all but four other states. Though Californians benefit from Proposition 13 restrictions on how much their property tax can increase in one year, the state still has the worst state tax burden in the U.S.
Spectrum Locations Consultants recorded 254 California companies moved some or all of their work and jobs out of state in 2011, 26% more than in 2010 and five times as many as in 2009……
“……..Leaving Los Angeles for another surrounding county can save businesses 20% of costs. Leaving the state for Texas can save up to 40% of costs. This probably explains why California lost 120,000 jobs last year and Texas gained 130,000 jobs.
California Governor Jerry Brown’s answer to the State’s failing economy and crumbling tax revenue is to place a $6 billion tax increase initiative on the ballot to support K-12 public schools. He promises to only “temporarily” raise personal income rates by 25% on any of the rich folk who haven’t already left……”
As Hugh P always says: get the land prices wrong, everything else goes wrong too.
Vote:March 17th, 2012 at 5:50 pm
A large measure of what is wrong with Britain:
The Town and Country Planning Act incrementally erodes productivity through
anti-competitive effects, leaving Britain’s economy 20% to 40% less productive
after several decades than it would be otherwise. (McKinsey Institute Report,
1998, “Driving Productivity and Growth in the UK Economy”)
Anti-growth restrictions represent an equivalent cost imposition on society, to
another 5% tax on incomes. (Cheshire and Sheppard, 2001, “The Welfare Economics
of Land Use Planning”)
The impact of anti growth restrictions and inflated urban land prices is
disproportionate. Every higher income earner who “buys their way out” (with
large homes, multiple homes, large gardens, tennis courts, etc) pushes the “land
consumption” impact down the chain onto low income earners, who have to pay
higher and higher proportions of their incomes for less and less space at less
and less desirable locations. (Gibbons, Overman, and Resende; 2011, “Real
Earnings Disparities in Great Britain”)
But do Britain’s voters understand any of this stuff? No. They blame “greedy
developers” and “greedy landlords” for their problems, and keep voting for the
politicians who regard “planning” as a sacred cow.
NZ the way you want it? When we have around 50 times as much spare land per person?
DUH.
Vote:March 17th, 2012 at 5:56 pm
I forgot to address HJ’s point about NZ being “remote”.
This hasn’t stopped us shipping very bulky low value products all over the world. Real transport costs have “shrunk” the world long since.
If we had a decent modern industrial economy, we could ship many times the value and many times less the bulk.
As Prof. Paul Callaghan has pointed out, it is a myth that primary produce can be the backbone of a country’s economy, and that country not slide down international wealth rankings. The only really profitable use for primary produce is to feed your own workforce in higher-value industries.
Much of NZ’s primary produce and export over decades, has been done at a net loss to the NZ economy. Not just in the pre Roger era, either. There is no way farming covers the cost of subsidy of infrastructure in its region. Urban economies are subsidising rural. The rural economy has hundreds of times as much lane miles of road, for example, as urban economies, while urban economies pay far more tax to the govt.
“Preserving farmland” is the most absurd excuse of the lot that we hear for urban growth restraint.
Vote:March 17th, 2012 at 5:59 pm
A PAINFUL EXERCISE IN RELEARNING HISTORY – THE HARD WAY
hj – Its worth bearing in mind that these “problems” with respect to the normal supply of housing, have only happened over the past decade or two.
Following WW11 and the entrepreneurial genius of the Levitt Brothers – Bill and Alfred, the creators of the moderrn production industry – there were no great problems supplying affordable housing for decades following World War 11. Read –
http://tigger.uic.edu/~pbhales/Levittown.html
http://www.time.com/time/magazine/article/0,9171,812779,00.html
http://www.laapush.org/Documents/APUSH%20Unit%207/Up%20from%20the%20Potato%20Fields.pdf
The Levitts supplied $US8,000 homes to SINGLE EARNER (yes SINGLE EARNER) families on an average of $US3,800 a year – 2.1 times annual household earnings with mortgage loads of 18% of household income !!!!
So nothing is being “invented” here with respect to affordable housing and normal housing markets.
This is why I refer to it as a “nonsense issue” – one I can assure you as an advocate for now over 8 years, I find extremely irritating.
We are sadly a nation of Hicks and Hacks – where clearly, the thickest rise to the top!
Vote:March 17th, 2012 at 6:40 pm
If you look at rental income its way to small to support rental homes as a business
Vote:Robert Jones used to say that seven tenths of rent should cover outgoings
shit its more like seven tenths of out goings covered by rent
Its all on the capital gains and shit can not keep increasing for ever gravity gets it in the end.
Gravity read compound increase in value
March 17th, 2012 at 7:10 pm
Griff, you are exactly right. Speculators have bought up houses way ahead of the amount of demand for renting, chasing capital gains. Who cares about tenants? Of course what goes up in this way has to come down one day. And all the empty houses help the crash to be more volatile.
I and several others interested in this issue once did quite a lot of walking round our nearby neighbourhoods, and estimated that about 1 in 100 houses was empty.
The ChCh earthquakes actually rescued these investors because people from ChCh suddenly started turning up in Akl and Wgtn and other cities and renting homes.
But “supply” reform is the answer, not capital gains taxes. There is no correlation between property bubbles and CGT’s. Japan had very high CGT’s and these did nothing to stop their massive 1980′s bubble.
Vote:March 17th, 2012 at 7:20 pm
For those who say the empty houses during a bubble is evidence of good “supply”; Britain has empty houses and sites half developed and abandoned – yet the average age of first home buyers is well up in the 30′s and millions of young people are living with their parents or flatting in slum conditions at high densities.
In China, there are apartments being built in the thousands, that are priced too high and millions of slum dwellers can’t afford them and they stay empty.
The reason in all these cases, is that the owners of the properties are speculative “greater suckers” who have already paid too much to buy the properties or get them built. Because there is a kind of “racket” going in urban land. Apartments are literally cheaper in outright money terms let alone in “real” terms, in any genuine free market urban economy (most of which are in the USA).
By the way I pick China will have a huge crash because of this, very soon.
The US economy is actually the soundest in the world because their house price bubble was restricted to about 30% of their houses, and they had plenty of States and regional economies not affected. Most other countries with house price bubbles, including NZ, have NO regions of sanity, and our crashes will be worse.
Vote:March 17th, 2012 at 8:00 pm
You forget the lefty Auckland council that would like us to live in High rise apartments for the socialist public transponder initiative.
Vote:Did not england build the sort of council flat envisioned by loopy Len. My dad comes from Manchester corro st. he swear black and blue at the slums they built for urban renewal. all getting blown up nowadays WTF would want to live like that in a low rent neighborhood
March 17th, 2012 at 8:46 pm
Correct Griff. Here’s another fact for all the fuckwits who think high density apartment living inside “smart growth” land limits will give us an affordable quality housing paradise.
From the NZ DBH, average construction cost for multi-storey apartments = $3321/sqm – and that was for 2007 (the last year they have figures because too few were built from 2008 onwards for reliable figures). Probably looking at $3,700/sqm now compared to $1500-1900/sqm for those terrible evil standalone suburban houses.
So your cramped shitbox 100sqm apartment will cost $370,000 just to build – that doesn’t include the share of the consent costs, the development levies/contribution, the land cost and the ongoing Body Corporate fee’s, realistically you’re looking $470,000+ total and ongoing Bod Corp fee’s ($5,000 p.a.+) for a very basic small 100sqm new apartment with no land or parking or facilities. And if it’s rented out for a modest 5% return it’s going to cost $580 per week. And that’s supposed to be our bright new affordable “Smart-Growth(TM)” future in NZ? Yeah right.
Vote:March 17th, 2012 at 9:12 pm
You are not talking only cramped shitboxers for$600 per week some are going to end up as cramped shit boxers @ $350 pw for 70 sq m for a family of four.For every middle income family there is you need a super, gardener, cleaner, mechanic, builder waiter etc for every block of high rent they have to live somewhere
Lefty’s fuck with the market without understanding or even acknowledging the distortions this makes.
Vote:March 17th, 2012 at 9:39 pm
FLORIDA REPEALS SMART GROWTH LAW DURING 2011
My colleague and co author of the Annual Demographia Survey http://www.demographia.com covered Florida’s initiative during 2011 to ban “smart growth” at State level within New Geography http://www.newgeographu.com . It was dealt with as well within the Demographia Survey
http://www.newgeography.com/content/002471-florida-repeals-smart-growth-law
The Floridians woke up and realised just what havoc the Smart Growth housing bubble created there.
Its past time the New Zealand Government woke up too.
Vote:March 17th, 2012 at 9:51 pm
Lefty’s fuck with the market without understanding or even acknowledging the distortions this makes.
….
So Auckland suffers growing pains? Who lobbied for more migration??
(80% of population increase comes from outside NZ)
“Massive population growth predicted in Auckland
Wednesday 15 December 2004
Auckland’s population may go past two million by 2031 – two decades earlier than planners picked just five years ago.
Regional council strategic policy director Craig Shearer said more than 100 newcomers crammed into the region each day on average in the past 18 months for a 3.1 per cent annual growth spiral.
The region’s growth strategy, signed by all Auckland local bodies in 1999, envisaged an additional 900,000 newcomers by 2051.
Since then Auckland’s population of 1.1 million has since swollen to 1.3 million after recent increases of 750 to 800 people a week, Mr Shearer told the regional land transport committee.
He said half of Auckland’s growth was driven by immigration, which planners had no way of knowing would continue at current levels. ”
http://www.landlords.co.nz/read-article.php?article_id=792
From The Landlord Says:
“Meanwhile the National Party released its immigration policy. You may wonder what this means for the property market. It is clear from research that immigration is one of the key drivers of house price growth.
The logic is simple. If you import more people into the country, then you need more houses. Supply and demand means that prices are then pushed up, this is particularly so in Auckland.
While the latest immigration numbers show the number of people coming into New Zealand is starting to rise, the Nat’s policy looks like it wants to increase immigration levels even further. (Although it is unclear what sort of number they are targeting.)
This policy is, arguably, a plus for people who want house prices to rise. (But may be not so good for first home owners wanting to buy.)
My guess has always been that property investors lean heavily towards the right rather than the left. (This was made clear in an email newsletter I saw from one developer this week.)”
=================
OPINION: Auckland won’t reach its big targets without direct investment.
Auckland Council’s draft economic strategy is certainly bold. But is it practical?
It must be both. Without robust, resilient growth, Auckland will never fund, let alone justify, its wider ambitions detailed in the draft Auckland Plan released on Tuesday.
Business as usual won’t work, as the economic strategy document shows. The regional domestic product is about $45 billion a year. If it continued to grow at its long-term rate of 2.1%, it would be only $85b in 2031, of which $17b would be exports.
The economic strategy, though, aims to deliver $190b of economic value in 2031, including exports of $60b. To achieve this, the economy has to grow at better than 5% a year and exports faster than 6%.
If Auckland pulled this off, it would rise 20 places in 20 years in the OECD’s rankings of city region rankings, from 69th out of 85 currently.
The council picked these growth rates, based roughly on the very best years Auckland has achieved – very rarely – in the past. Unfortunately, those were anomalies when unsustainable conditions such as debt-driven consumer spending delivered spectacular performances.
So, as the council acknowledges, the task is much harder than shuffling things around to try to make a perpetual boom. Fundamental change is needed.
Vote:http://www.stuff.co.nz/sunday-star-times/business/5675584/Foreign-cash-must-fuel-growth
March 17th, 2012 at 10:01 pm
hj I totaly agree with you that un cheeked immigration is diluting our vary of life
Vote:If you would excuse the racist considerations I am proud of the anglosphere nation that is New Zealand.
There is more to house pricing in this nation than purely immigration
The tennant of ACT was always to explore the distortions in the market due to policy
This high rent, high house pricing is one of those situations when the market has been distorted due to rampant legislation by local as well as national government on more than one front.
March 17th, 2012 at 10:04 pm
Hugh Pavletich (12) Says:
March 17th, 2012 at 9:39 pm
FLORIDA REPEALS SMART GROWTH LAW DURING 2011
The Floridians woke up and realised just what havoc the Smart Growth housing bubble created there.
====================
But now things are a mess, so the cavalry got there too late??
“Florida primary forces GOP candidates to face the dreaded housing question
With the battle for the Republican presidential nomination moved to Florida, the candidates find themselves confronted with a question central to the health of the state’s weak job market: What are their plans for solving the housing mess?
Florida’s economy rests heavily on housing, which has struggled in the years since the bubble burst. New construction has slowed to a crawl and home prices have tumbled, sapping consumer confidence, choking tax revenue and leaving the state with one of the nation’s highest unemployment rates.
President Obama has acknowledged that his housing policies have been ineffective, an assertion vividly illustrated by the many half-built developments and large inventory of financially distressed properties that dot the Florida landscape.
That might sound like a political opportunity for the GOP candidates, particularly in Florida, which is seen as pivotal to their party’s chances to capture the White House. But so far, the candidates have not been specific on how they would address the housing problem.
“This is truly a no-win situation if you are a Republican candidate,” said Jaret Seiberg, a senior policy analyst with Guggenheim Partners’ Washington Research Group. “Every answer requires more government help. There is no cheap or easy way to fix housing. So from their perspective, you are better off ignoring the problem than trying to put a plan forward.”
Vote:http://www.washingtonpost.com/business/economy/florida-forces-gop-candidates-to-face-the-dreaded-housing-question/2012/01/17/gIQATgHALQ_story.html
March 17th, 2012 at 10:06 pm
IMPORTANT TO UNDERSTAND THE UNHOLY ALLIANCES STUFFING THE HOUSING MARKET
Griff – one needs to be careful not to fall in to the trap that this is somehow just a leftie problem.
While the lefties sure can be economic Neanderthals – in my experience it is the Protectionist Right that is way more of a problem. And there is one very important reason for this…….
If as a property operator you can buy off the politicians and manipulate the political / planning process to shut out the competition – there are huge incentives to do so.
It starts when Local Authorities become larger and bureaucratised and lose control of costs and the capacity to meet the infrastructure responsibilities to their communities. The protectionist property interests on the so called right and the loopy Luddite Malthusians on the left are their nature allies.
I refer to this as the “unholy alliance”.
The National Party is if you like the Party for Crony Capitalism.
Thats why Hon Dr Nick Smith for example appointed Connal Townsend CEO of the Property Council of NZ on to the Task Group for RMA Reform. Connal is a delightful chap with a background in the Credit Union field – who – with the greatest respect to Connal – wouldnt know a house market from a horse market. But obviously Smith was keen to “keep in” with the big property investment guys, who I can assure you, as a former President of the Property Council here in the South Island – most definitely do not relish competition.
The Property Council and other larger business interests just love forced Local Government amalgamation as well. Its easier for them to control them then. They know forced Local Government amalgamation doesnt serve the interests of the wider community – but they couldn’t care less about that.
In my experience, the Protectionist Right is by far and away a much bigger political problem than a few Luddite Malthusian loops on the left (unless you think lovely boy Russel Norman is some sort of heavy hitter).
Griff – I respectfully suggest you “follow the money”. Thats the driver. Particularly “Monopoly Money” – where all the troughers can divvy it up – at the expense of the wider public with grossly unaffordable land and housing.
Vote:March 17th, 2012 at 10:16 pm
FLORIDA – LINK ERROR ABOVE – APOLOGIES
http://www.newgeography.com/content/002471-florida-repeals-smart-growth-law
Vote:March 17th, 2012 at 10:24 pm
You are talking of the dichotomy between the fiscal conservative and the neo liberal right
Vote:I continuously suggest that we need to breakfree of the center right and reignite a more liberal party of the right
You are not going to see reform of policy that you are proselytizing unless a more liberal right party has gained political traction
March 17th, 2012 at 10:31 pm
hj – I misead your post above – apologies.
Bear in mind this is very much a States / Local Government problem – and I wouldn’t take too much notice of the Presidential candidates puffery on housing issues – over than Fannie Mae and Freddie Mac should have been shut down decades ago. They are simply a corrupting political influence on the US housing market.
Normal housing markets – such as those in Texas – are the safest form of lending there is.
Bibble markets – such as those in California and Florida are lethal. It was after all California that triggered the Global Financial Crisis – lendingg inm excess of 11 times household earnings, as Herb Greenverg of MarketWatch covered soon after -
http://blogs.marketwatch.com/greenberg/2007/12/straight-talk-on-the-mortgage-mess-from-an-insider/
But they needed the land supply scarcities first as a “trigger” – finance was simply the “fuel”.
Vote:March 17th, 2012 at 10:34 pm
hj – I covered much of this soon after with “Housing Bubbles & Market Sense”
http://www.scoop.co.nz/stories/BU0901/S00046.htm
Vote:March 17th, 2012 at 10:56 pm
UNDERSTANDING JOHN KEY
If you wish to get a better understanding of John Key – and the bureaucratic Merrill Lynch culture that shaped him, the Vanity Fair article “The Blundering Herd” is well worth a read……
http://www.vanityfair.com/business/features/2010/11/financial-crisis-excerpt-201011
We shouldnt be surprised wirth the disastrous Auckland Local Government amalgamations and the hodge podge of Central Government amalgamations.
Key really does spook me…………
Vote:March 17th, 2012 at 11:27 pm
Distortion in the market due to Bonuses in banking that do not take into account mid term risk
its pretty much historical fact that the housing market runs on a seven year cycle
If it becomes overdue for a correction it stands to reason that the housing market will have a more risky down side
That was not factored into lending risk due to a focus on the next bonus.
FFS
Vote:banking used to be a reasonably conservative market its now driven by the returns of the short term employee not the long term outlook for the investor
March 18th, 2012 at 12:15 am
NORMAL HOUSING MARKETS OSCILLATIONS SHOULD BE SAFE
Griff – since the time of the Levitts (refer posting above) housing production and housing markets are really rather formulaic…..and indeed hum drum…..On the front page of my website is a Definition of an Affordable Housing Market…..which runs as follows…..
DEFINITION OF AN AFFORDABLE HOUSING MARKET
For metropolitan areas to rate as ‘affordable’ and ensure that housing bubbles are not triggered, housing prices should not exceed three times gross annual household earnings. To allow this to occur, new starter housing of an acceptable quality to the purchasers, with associated commercial and industrial development, must be allowed to be provided on the urban fringes at 2.5 times the gross annual median household income of that urban market (refer Demographia Survey Schedules for guidance).
The critically important Development Ratios for this new fringe starter housing, should be 17 – 23% serviced lot / section cost – the balance the actual housing construction.
Ideally through a normal building cycle, the Median Multiple should move from a Floor Multiple of 2.3, through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7 – to ensure maximum stability and optimal medium and long term performance of the residential construction sector.
END
The impotant thing is that urban markets are allowed to be “responsive” – so that when demand kicks in, new supply can be supplied quickly.
It is incredible the capacity of the production industry to ramp up supply if it needs to. The measure we use is the build or consent rate per 1000 population. Here is a few for you. Nationally we are running at a woeful 3 / 1000 – Christchurch a shocking 2 0 Selwyn 10 – Waimak 12. Australia is currently falling off 7. At the height of the boom Spain did 15 – Ireland 20 – and Dallas Fort Worth through the S&L fiasco a stratospheric 37. If New Zealand with its population of 4.4 million hit those Dallas Fort Worth levels of 37 / 1000 (when its population was about 3 million at the time) we would be building 162,800 in one year (not the current 13,000)!
If Christchurch with its population of 370,000 was building at that stratosheric DFW rate of 37 / 1000…..we would be putting in 13,690 new residential units in in a year (not the lousy 750 less relocatables for last year) – a whisker more than New Zealands current total annual production.
So when economists talk about the lack of elasticilty in housing markets……I do wonder what they are on about.
It takes considerably time to ramp up to those levels – but production and indeed over production should generally always head off bubble pricing. Even with that massive demand in the case of Dallas Fort Worth, the Median Multiple did not exceed 3.5.
Atlanta Georgia (another open market) over produced as well – which explains why its Median Multiple is currently 1.8 – as they are still clearing the stock.
Over production is far less of a prtoblem than housing bubbles though. Prof Paul Krugman got pretty excited about the over production in Georgia though -
http://www.nytimes.com/2010/04/12/opinion/12krugman.html
Contray to what Krugman said in the NYT – Atlanta did not bubble, it simply over produced – and secondly – my sources tell me that the Texas Mortgage Consumer Protection Laws have very little teeth and that the most “moderating” influence in Texas was the memory of the S&L crisis. Its very much seered in to their political / commercial culture in Texas – something like the Weimar Republic with respect to the Germans.
I am however a fan of sensible and workable Mortgage Consumer Protection legislation here. Its odd how the RBNZ allows for example the 95% LVR nonsense,
Vote:March 19th, 2012 at 9:58 am
Comment on the Saiz paper (Geographic Determinants of Housing Supply) from the Federal Reserve of Atlanta:
“The Saiz paper is forthcoming in a top economics journal, and its results are already being used by housing economists. We draw from it ourselves in a paper that investigates why so many economists missed the housing bubble.4 But we caution that one should not push the Saiz results too far. The Saiz paper concerns the slopes of housing supply curves in different cities. As a result, it says nothing about shifts in housing demand that might have occurred during the housing boom. For example, the Saiz results would predict that, during the housing boom, prices in high-supply-elasticity cities like Wichita would rise less than prices in low-elasticity cities like Boston. Sure enough, this is what we find in the data. However, this finding does not prove that the boom was caused by some uniform, nationwide increase in housing demand (arising, for example, from easier subprime lending, or from lower interest rates). It is true we would expect a uniform demand increase to have a small effect on Wichita’s prices and a big effect on Boston’s prices. But because Wichita has a flat supply curve, its house prices will be stable no matter what happens to demand there. To determine whether Wichita and Boston saw similar increases in demand, one would have to look not only at prices but also at quantities (that is, new construction). Researchers should therefore be careful when using the Saiz results to study the housing boom—a point we hope to revisit in future posts.
Vote:http://realestateresearch.frbatlanta.org/rer/2010/06/explaining-local-supply-elasticities-quantifying-the-importance-of-space-limitations-in-housing-pric.html
March 19th, 2012 at 1:49 pm
HJ, are you coming around to the point of view that Hugh P and others are arguing?
Because that Atlanta Federal Reserve quote certainly supports us, not you.
“……because Wichita has a flat supply curve, its house prices will be stable no matter what happens to demand there. To determine whether Wichita and Boston saw similar increases in demand, one would have to look not only at prices but also at quantities (that is, new construction)……”
So, don’t use Wichita: use Atlanta, or Houston, or Dallas, or San Antonio, or Austin, or McAllen. But these people at the Atlanta Fed really know their stuff; they say elsewhere in the same paper, EXACTLY what I said a few comments up on this thread:
“…….the local-regulation index is ITSELF strongly correlated with Saiz’s space-constraint index, as space-constrained cities tend to have stricter regulatory limits on new construction. This correlation provides compelling evidence for something that many housing economists have long suspected—local voters seek to protect the values of expensive homes by preventing new homes from being built. This finding may be puzzling to some, as it may be hard to imagine why land-constrained cities would need to implement further restrictions on new construction. However, some new development, perhaps via dense apartment buildings, is usually possible. Note that unlike a lot of correlations in economics, we can be reasonably sure that the direction of causality runs from space constraints to local regulations, not the other way around. After all, it is hard to create a new mountain, lake, or ocean through the political process……”
By the way, I have found a Korean paper with a completely different methodology to Saiz, that finds that “geographic constraints” do NOT have any affect on housing prices in Korea.
SON and KIM (1998) “Analysis of Urban Land Shortages: The Case of Korean Cities”
http://hompi.sogang.ac.kr/kyungkim/freeboard/papers/An%20analysis%20of%20urban%20land%20shortages%28JUE%29.pdf
Saiz’ results do not succeed in establishing house price inflation causality on the part of the “geographic constraints” themselves. Apart from the fact that an arbitrary 50 km radius can’t fit every city regardless of size of growth rate, it is apparent anyway that regulations are a likely result of people protecting their VIEWS, because the rolling nature of the terrain gives more people “views”. The regulations then cause the price inflation, the geog constraints themselves do not.
William Fischel, in “Do Growth Controls Matter”? (1990) suggested that they do not matter until a critical mass is reached with their imposition on MOST of the municipalities in a region; until then, the non-constrained municipalities act as a price “vent”. California tipped over this crucial point in the 1990′s, where there were no longer enough non-constrained municipalities.
Geographic constraints are almost irrelevant to the PRICE OF LAND as long as “building” is permitted SOMEWHERE. The “cost of building” might be a little higher due to terrain, but the cost of LAND should not be, as long as there are not artificial land rationing regulations at work. The fact that urban LAND prices are inflated by hundreds or thousands of percent, is evidence that the problem is regulations, not geography. The Korean paper’s methodology manages to make this distinction, while Saiz’ methodology does not.
Vote:March 19th, 2012 at 2:11 pm
What this means in NZ, is that the fact that so much of the spare land around our cities is sloping, does NOT explain why median multiples went from around 3 to around 6, between 1998 and 2007. What DOES explain it, is that no-one is allowed to build anything on the zillions of hillsides and valleys we DO have, thanks to urban planners thinking they are saving the planet by preventing this.
The fact that we’ve been building on slopes for a century plus, did not mean at all that median multiple house prices have always been 6 in NZ. They MIGHT have been as high as 3.3 compared to completely flat regions, but many completely flat regions in Demographia’s affordable cities, have had historical median multiples well BELOW 3. In fact, Hugh’s story about the Leavitt’s shows that NEW housing can be provided for UNDER 2, and that was in a “SINGLE INCOME” household era.
Vote: