Nonsense stats

December 10th, 2013 at 3:00 pm by David Farrar

The Herald reports:

It would take 19 median incomes in Auckland to buy a home for the city’s median house price.

Property in some of the world’s biggest cities cost a lot more than in our biggest city, but Auckland wages make it much harder to get on the property ladder.

In the 1,119,195 Census forms filled out for Auckland, the median annual income was $29,600, a Herald analysis found.

That’s almost 20 times less than the Real Estate Institute’s median house price figure of $582,000.

Auckland does have a problem, but this stat is meaningless. Individuals do not generally buy households, families do. The calculation that is generally used is to compare median household income, not median personal income.

Median personal income is always a pretty low figure as it includes a huge number of people not in paid employment – students, non working spouses and those retired.

So comparing individual income, instead of household income, to house prices is daft and meaningless.

UPDATE: Stats Chat also takes the story to task:

I checked with the Stats NZ Census figures (Excel spreadsheet) and found the $29,600 figure is for the usually resident population count aged 15 years and over. In other words, this includes everyone who is not in paid employment: all the students, retirees, parents who are staying at home, those on benefits and not working etc.

Using Statistics New Zealand’s income survey data for the June 2013 quarter (Excel spreadsheet), the median earnings for people in paid employment was $45,864. This figure is only from those earning wages and salaries and/or self-employment income.

The point I made.

They also adjust for household income to find the stat should be:

“It would take 7.9 median household incomes in Auckland to buy a home for the city’s median house price.”

7.9 is still too high of course, which is why we need more land for housing. But it is vastly different to 19 times.

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42 Responses to “Nonsense stats”

  1. alex Masterley (1,535 comments) says:

    The horrid strikes again

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  2. Bob R (1,420 comments) says:

    ***which is why we need more land for housing***

    Or NZ could stablise the population and demand by admitting fewer people?

    “It shows that a net immigration flow equal to one percent of the population is associated with an approximately 10 percent increase in house prices.”

    Housing Markets and Migration in New Zealand, 1962-2006 Reserve Bank Discussion Paper, DP2007/12
    http://tinyurl.com/o4l5nqd

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  3. hubbers (146 comments) says:

    The Hearld staff. Not only bad at English, but also bad at maths.

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  4. greenjacket (486 comments) says:

    So The Herald uses crap stats to manufacture a story.
    I am shocked.

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  5. hubbers (146 comments) says:

    That’s assuming this was just bad maths. Maybe they made a conscious decision to use shifty numbers to manufacture more outrage.

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  6. Judith (8,534 comments) says:

    It doesn’t matter which way you twist the stats, the fact still remains that a large number of Auckland families cannot afford to purchase property in the area.

    What I don’t understand is, why do so many businesses need to stay in Auckland. Of course there are those that have to be there to service the population, but there are a hell of a lot that could be placed in other areas of NZ, and still run efficiently – especially with the emphasis on the internet.

    We need reasons for people to live in other areas. De-emphasise Auckland.

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  7. Archer (222 comments) says:

    Hold on there DPF, I hardly think Herald journalist Alanah Eriksen would be incompetent enough to use personal median incomes when it isn’t relevant. What do you think, that the Herald just employs monkeys that tap out any old irrelevant rubbish? I’m sure there is a reasonable explanation that doesn’t involve incompetence on the Herald’s part – it’s just that no one has identified it yet.

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  8. Hugh Pavletich (431 comments) says:

    Adjusting the current Demographia Survey http://www.demographia.com Auckland is sitting about the 7.0 Median Multiple.

    The 2014 10th Annual Survey is to be released Monday 20 January.

    Normal housing markets do not exceed 3.0 times . A structural definition of an affordable housing market is at http://www.PerformanceUrbanPlanning.org .

    We should be getting new starter housing stock on the fringes in place for about $1,000 per square metres ALL UP. Google search the Andrew Atkin THE REAL DEAL poster which illustrates this.

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  9. Meatloaf (275 comments) says:

    Lies, damned lies and statistics. 40 years ago, a dollar could buy you an ounce of silver, and $35 US, was convertible into an ounce of gold. And $3 NZ could have bought you a barrel of oil in 1971. So while, a house might have cost far less, maybe $30,000 or so; Let’s not forget, that other prices have risen in that time.

    This does not mean that all prices have risen at the same rate as houses. To me the meaningful measure is average or median income to house prices. If you’re making $50,000 a year, and you pay $500,000 for a house, this house is 10 years of your earnings before tax, plus interest.

    So, although, I think the statistics are sort of misleading, I’m still of the opinion that house prices have risen to the average person’s income. According to Gareth Morgan, in his book pension panic, in 1978, he shows how many years worth of average earnings before tax was enough to buy a house. His statistics show, that it has risen over time. And in an article in the herald two months ago, they showed that if incomes rose to the same level that house prices have since 1993, the average earner would be earning $80,000.

    So what I’m saying is house prices have risen at a faster pace than incomes, but not to the extent some people are implying. From my point of view, one of the key reasons house prices have risen so fast, is because people don’t have confidence in investing in other things, like loans to companies at 5%. I don’t blame people, cause so many people have lost money in this way. But if people are investing everything in housing, this would explain why house prices have gone up. Kiwisaver is a wonderful scheme for retirement savings, however, according to Gareth Morgan, half of the gross interest earnt, goes just to agency fees, this is in his book, After the Panic.

    So this is why their are people saving up their kiwisaver, to put on a deposit of a house as soon as possible.

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  10. MarkF (102 comments) says:

    Also in that article Nanny H was comparing Auckland’s median with everybody else’s average! Median and average are not the same.

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  11. Dirty Rat (383 comments) says:

    Is that an after-tax income ?

    I would assume not…which again may push that figure back up

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  12. Akaroa (613 comments) says:

    This is a lot of fuss and fulmination about nothing! I would have thought your average blogger – and our honoured editorial commentator – had more sense than to react to rubbish like this.

    Thinking people don’t take what the New Zealand Herald says as accurate, balanced, or even well-meaning any more.

    I don’t know who runs that paper, but I’ve got a good idea what their political inclination is.

    (And you can confidently reckon on a constant stream of these stories – obliquely Governemt-critical as they invariably are – appearing in the Herald between now and the upcoming General Election.)

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  13. Akaroa (613 comments) says:

    Er. That’s ‘Government-critical’ btw. Danged typos!!

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  14. Meatloaf (275 comments) says:

    In regards to Dirty Rat’s question, if your referring to my last comment, I’m referring to gross, which means before tax. If your referring to MarkF’s comment, I don’t know. But the statistics I’ve looked at are looking at gross, meaning before tax.

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  15. Reid (16,702 comments) says:

    “which is why we need more land for housing”

    Ironic that in a post on nonsense stats we have a nonsense root cause which contradicts the personal experience of everyone in Auckland who goes to property auctions and who will tell you the faces that bid the prices up are almost always asian. Shame this particular govt refuses to acknowledge this reality because doing so would cause diplomatic ructions with our most important trading partner.

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  16. Dirty Rat (383 comments) says:

    Cheers Meatloaf

    I was referring to the overall stats..I would have though an after tax amount would be more reflective of the purchase power of the household.

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  17. Meatloaf (275 comments) says:

    Yes that’s absolutely correct. Your after tax income, is the income you have left after tax. However, we all get taxed at different rates, so if you earn $50,000 and get taxed at 30%, of every dollar you get after $40,000. This means $10,000 of your money is taxed at 30%. And if you earn below $650 a week, you can get an accommodation supplement, to subsidise your rent. Of course those earning money get taxed, so they get some of their money back. So for this reason by saying gross, its much easier to calculate.

    So the statistics I’ve looked are gross, and the statistics that others have looked at are probably gross, because not everybody is an accountant.

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  18. dog_eat_dog (787 comments) says:

    Umm….why shouldn’t people on single incomes be able to afford houses again?

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  19. Dirty Rat (383 comments) says:

    Those stats also show Government transfers as seperate line items

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  20. Bob R (1,420 comments) says:

    ***who goes to property auctions and who will tell you the faces that bid the prices up are almost always asian. Shame this particular govt refuses to acknowledge this reality because doing so would cause diplomatic ructions with our most important trading partner.***

    @ Reid,

    I don’t think it’s this particular government. As Karl du Fresne noted in The Listener NZ until the mid 80’s had a ‘preferred country’ approach to immigration, which favoured Western European countries. This was changed to a points system and has lead to the obvious ethnic transformation seen in parts of New Zealand.

    More generally, there is an ideological commitment to increased immigration regardless of the clear impact on house prices. If you look at articles on ‘the housing crisis’ very rarely is immigration mentioned as a means of stabilising demand pressure.

    It may be due to ideology, or perhaps cowardice.

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  21. Meatloaf (275 comments) says:

    Hi dog_eat_dog, whether your renting or paying a mortgage, you are paying someone to use that property. The difference is that with a mortgage, the principal you’re paying, means you will at some point no longer have to pay for the use of that house except for the Council’s rates. If you’re single and earning money, the cost of a one bedroom house will be less than a 3 bedroom house. So if your earnings are good, you can effectively have a house one day to yourself.

    However, what if you lose your job. Will you still be able to afford the mortgage payments? Cause if you can’t keep up with the payments, they will take your house and sell it. To protect themselves the banks feel comfortable asking people to make a deposit of 20% of the value of the house. This way, if someone can’t pay, the bank can resell it, and not lose money.

    Another issue, has to do with the fact, that if everybody is putting all of their money into housing, what about business start ups, business machinery, equipment and tools. If no money is put into these things, how will we be able to compete with Japan and Germany, who make sure their machinery, equipment and tools, are in top notch condition?

    So one of my concerns is that if people immediately get a house mortgaged as soon as possible, then what about our industries being able to compete with overseas? If we are able to compete, then that means more jobs and higher market wages (not union wages), because productivity means people can afford higher wages. And with this people will have more money to eventually buy that house.

    I have no problem with people owning a house, but I am concerned about our industries being able to have the money available for their equipment, tools and machinery, and people being able to start up a business.

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  22. dog_eat_dog (787 comments) says:

    I guess, but not everyone can be a Xero or a Google and not everyone has what it takes to start their own business. And with the cowboys in our capital market history and interest rates below inflation, why would you bother?

    The other issue is that in the old days, a household income was a single income – so to suggest we compare household incomes with household incomes now is a little disingenuous.

    Only one thing will bring down the price of houses – building more houses and releasing more land. Artificially capping the latter is borderline economic terrorism.

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  23. Meatloaf (275 comments) says:

    Hi Dirty Rat, I think you have the idea, and Bob R, thanks for having the courage to bring that up. If kiwis don’t have the same amount of money to buy property as people from other nations have, then its simple other people will buy property at auctions, and we won’t be able to. So maybe this explains why the price of housing has gone up by so much. When I say so much, I mean the prices of houses have risen at a faster pace than other things.

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  24. Meatloaf (275 comments) says:

    Hi dog_eat_dog, I absolutely agree with you. The interest after inflation and tax, that banks offer, is absolutely pathetic. Even with kiwisaver, according to Gareth Morgan, half of the gross interest is absorbed by fees, and what is left is less than tax and inflation. Because of this, this in my view is why people are so happy to invest in housing. And yes, not everybody has what it takes to start up their own business. So what I’m saying is because of these issues, this is why housing prices are so high, at least one of the reasons.

    And yes building more houses will bring the prices down. The RMA, consumes so much of the builder’s time and money, that they have to raise the price. Increasing the supply will certainly help. I just hope that enough kiwis will think of these problems and try to actually come up with a solution.

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  25. Dirty Rat (383 comments) says:

    Meatloaf

    Kiwisaver is still quite a good scheme in regards to employer and Government contributions, and the level of fees are fixed. Most schemes now are doing well as opposed to a couple of years ago..so I think Gareth Morgan is quite wrong there in regards to fees.

    Kiwisaver at this point is perhaps the best way to save for a House, put in 3% of salary and get over a 67% return ( not including startup and earlier Govt contributions), rightly or wrongly is a different issue.

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  26. Meatloaf (275 comments) says:

    Hi Dirty Rat, Actually I do agree with you, on at least a number of points. The person in the scheme, makes a contribution, the employer makes an equal contribution, and the government makes another contribution. So even if the fees, taxes, and inflation completely absorbed the gross returns, it is still definitely a good way to save up for your retirement or a house.

    Gareth Morgan’s books have initiated some changes. The schemes are required to be more transparent. So if your putting the money into shares, and these people are charging you outrageous fees, then of course you could put all the money into conservative funds. Then if the fees on shares go down, you could put all your money into shares if you wish. They have made these changes by law. So if you pay a fixed fee on shares, and they state the amount your paying, if the fees are too big, you can of course change. By making the fees transparent, things are certainly better.

    But know this, what Gareth Morgan said, he said years ago. Now that it has been made public knowledge, they have made changes. So I see this as a victory. It means kiwisaver can be profitable, which means that people will once more invest in something other than housing. I’m not against people owning a house, I just think their are other things people can invest in as well. So thanks for keeping me up to date, I’m glad things are changing for the better.

    Coincidentally once somebody on kiwiblog made these negative comments about kiwisaver, they made these changes, this is what I mean by victory.

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  27. Viking2 (11,678 comments) says:

    You can have all the theories you like but in the end people pay what they have/want to to own a house.
    Now the cost is determined by many factors including stuff like the quality, the location and so on. Its an entirely free market which is what most of the KB commentators say should be the case.
    Now if people are freely paying these prices with or without the assistance of bank finance then what is the problem.

    That Pavelich still rambles on about building houses for $1000 per sq mtr tells you something of the caliber of his thinking.
    If he can do that then he should get his arse into gear and put his money where his mouth is and go build 10,000 of them
    But he can’t. Not even in Christchurch. He is a joke and has been for years.

    Oh you can get Chinese junk maybe or Yankee rubbish that blows over but in Kiwi land we have rain, earthquakes, lots of wind etc etc and so we are bound by regulation to build safe houses that don’t blow over when the wind gets up or fall over in earthquakes.
    And so we should.

    Still plenty of cheap houses around and the issue really isn’t about the price of houses.
    That price is driven by location and demand.

    Affordability is obviously still there as plenty are buying.
    Its really a mater of whether one believes the stats.
    and there in lies the lies that get told when incomes are reported. We should add into that the GDP that is miss reported via the black market.

    This is just another version of whinging about the poor. (which seems to running at an ever increasingly shrill tempo.)

    no one in NZ needs be poor. Its their choice to be poor.
    No one needs not to be able to buy there house provided they have made a suitable effort at saving and a sensible choice about what they want to buy and where.
    So some can’t, well that will always be so and some won’t because they choose not to.

    NZ is rapidly becoming brow beaten by the whining class.

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  28. Kea (13,571 comments) says:

    That price is driven by location and demand.

    Total rubbish. House prices doubled in just a few years for no other reason than cheap debt. The debt based (imaginary money) housing “boom” fucked the global economy.

    You want to find out what a house is really worth ? Then make all home buyers pay in full with no loan or credit. That is what your house is worth, but most of you would rather lose an arm than admit it.

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  29. mikemikemikemike (334 comments) says:

    You are the one who is talking nonsense DPF. People want to live where it is easy to get around and cheap/easy to go out to do things. Building 10,000 in tomarata (between warkworth and wells ford)houses won’t do anything for house prices in the city. Because there are no services, no nightlife, and no jobs. You’re fixation with freeing land just shows you aren’t really from around here.

    There is a reason you can still buy houses in kawerau for under 100k. There is nothing else there.

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  30. Jcw (95 comments) says:

    Land isn’t the problem: NIMBYs have to be stopped. Townhouses and apartments have to be allowed to be constructed in existing suburbs.

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  31. Meatloaf (275 comments) says:

    About house prices being simply free market, I don’t quite agree for a number of reasons. When people deposit money into a bank, the bank needs to keep a certain amount of cash on hand, right? No, not quite, with Capital Adequacy requirements, a bank has to keep assets on hand. Assets count as government bonds (loans to the government), cash on hand, loans to other banks, or simply mortgages. Each of these has an asset value. In the book ‘Principles of Banking’ by Kerry Burridge, page 46 and 47, this is what it says. So if a bank wants to lend for a businesses new machinery, by the rules set out by the Reserve Bank, it can only lend on the property. If you google Capital Adequacy Requirements you’ll see I’m not making this up.

    2ndly, their’s the accommodation supplement. If someone is earning below $650, they will be entitled to an accommodation supplement. The amount they will get will be determined by the rent they pay. If overnight, their was no accommodation supplement for anybody, people would be willing to pay less rent, the fact that the government is willing to pay some of people’s rent is why real estate investors are willing to pay so much for property, cause the government pays part of the rent. This is not free market.

    3rdly, Markets work best with market signals, and full disclosure of information. In Auckland their was a house on the market, the auctioneer started it at $900,000, it closed at $1.25 million. He was proding, and proding for the price to go up. Markets signals work, when people have complete information as to what they can do with their money. This means having full access, to all the returns on all investments. Having a real estate agent go on and on about how great it is, without knowing about any other investments, is not free market. Knowing all of the opportunities out their is. Or how bout being told, income to house prices over 20 years. Over the last 20 years, house prices have grown in proportion to income. This was not disclosed at the auction.

    4thly, Accumulation in housing values doesn’t get taxed. But other investments do get taxed, this doesn’t sound like free market to me. Free market means that everything is treated equally, with the same rules. If houses don’t get taxed as an investment, why should savings be taxed.

    So far all these reasons, I don’t accept that free market forces are making house prices what they are.

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  32. Kea (13,571 comments) says:

    One way to fix the house prices in Auckland is to stop pouring the nations wealth into the place in misguided attempts to make it more liveable. Let the roads clog up and stop giving away our money for boat races and rugby to promote Auckland.

    Any place would offer opportunity given the levels of assistance and promotion Auckland receives. It become a self-fulfilling prophecy. Give potential immigrants more points if they move to other areas. If thousands of Asians moved to Gore, you would see that same self-fulfilling prophecy result in increased opportunity.

    It is not an economic powerhouse, it is far from it. Most of the countries wealth comes from primary industry. There is simply no reason to spend a fortune trying to pack more people in there.

    Auckland would be a better place if we stopped increasing its population beyond its ability to cope.

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  33. hj (7,166 comments) says:

    Saiz (2003b)
    estimated a similar sized effect when he conducted a broader examination of
    the effect of inward foreign migration on United States cities in the 1970s,
    1980s, and 1990s. To identify migrations that were exogenous to the state of
    a city’s economy, he used the fact that foreign migrants of a particular na-
    tionality tend to migrate to locations where people of that nationality already
    live, rather than to random locations. Thus an increase in migration from a
    particular foreign country generates a migration impulse that has little to do
    with the current state of the destination city’s economy. He found the overall
    effect of an immigration inflow of 1 percent of the initial population raises
    rents and prices by 0.8-1.6 percent. This effect is also substantially smaller
    than the crude estimate of 7.8 percent for New Zealand noted above.
    //
    Migrants to the United States are typically poorer than the host population, and are
    probably renting or purchasing lower quality housing. This is not the case in New
    Zealand. It is noteworthy that house prices in Vancouver and Toronto (but not other
    Canadian cities) increased rapidly after large scale migration from Hong Kong occurred
    (see Ley and Tutchener, 2001).

    However the (bent) Productivity Commission can find no evidence that immigration puts up house prices.

    Thanks to the tight scrum (National/Labour?Green)

    We recommend that you:
    a agree to the inquiry selection process set out in Appendix 1
    Agree/disagree
    b agree that Commission’s second tranche of inquiries be selected on the degree that
    they:
    • are relatively uncontroversial given the desire to establish broad political support for the Commission

    http://www.treasury.govt.nz/publications/informationreleases/productivitycommission/pdfs/t2011-2000.pdf

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  34. Meatloaf (275 comments) says:

    Kea, according to the Focus NZ party (a brand new party), less than 10% of us actually produce something. This means by definition, the other 90% of us are ready to provide a service to that less than 10% that are producing something. Auckland doesn’t have that many farms as compared to the rest of New Zealand. So, if migrants went into another part of New Zealand this would certainly help reduce the demand for housing in Auckland.

    Already two of my friends have moved to the outskirts of Auckland, as they can no longer afford the rent. And I think it is unfair that those who grew up in Auckland, can’t afford to live here. So if you can find a way to get new migrants into another part of New Zealand, you should get a gold medal. Are you by any chance aware of the Focus NZ party, because I’ve heard them actually say similiar things.

    And HJ, you know where I stand about the finance side of the issue. That the financial system is biased towards housing rises. So, I see the financial side as at least as potent as the immigration side of things. Cause in the end, the real estate investor only cares about money.

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  35. hj (7,166 comments) says:

    Booms and Busts in House Prices Explained
    by Constraints in Housing Supply

    These results suggest that the construction of the measure re ecting constraints on hous-
    ing supply needs to take into account the properties of the particular area in question, or
    alternatively, that a composite measure that takes into account both geographical and regu-
    latory constraints may be more appropriate.

    http://www.bankofcanada.ca/wp-content/uploads/2013/06/wp2013-18.pdf
    enough comparing Houston to Auckland

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  36. hj (7,166 comments) says:

    Government policies blamed for house prices
    ROB STOCK

    Immigration and tax breaks for investment in residential property are being cited as the underlying causes of steep increases in the cost of housing over the past decade.

    New Zealand now boasts one of the highest rates of home unaffordability in the world as a result of prices rising far faster than incomes, and the government’s Savings Working Group blames that squarely on the policies of successive governments.

    Although “the favourable tax treatment of property investment” accounted for about 50% of house price increases between 2001 and 2007, the working group said, there was also strong evidence that rapid swings in immigration brought about price-rise “shocks”.

    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.

    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.

    http://www.stuff.co.nz/business/money/4622459/Government-policies-blamed-for-house-prices

    “What Is Happening To Our Little Country”….. ?

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  37. Meatloaf (275 comments) says:

    Thanks HJ, I’m completely with you there, I see housing an investment. If you own a house, you either collect rent, or no longer pay rent for using the house you are in. Couldn’t agree more. And I don’t see more migration as magically boosting our economy. It increases the demand. But does it mean a greater supply in skilled workers or entrepreneurs? Not necessarily.

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  38. Kea (13,571 comments) says:

    Meatloaf, you are onto it.

    hj, you are not onto it. The reason house prices rocketed around the world was cheap credit. There was not a sudden increase in population or material prices and no sudden decrease in land. That is bullshit.

    Fired up with cheap DEBT people went nuts. They got all excited watching property shows on the telly and all thought they wanted a piece of the action. They then sold their perfectly good houses to buy another in a grossly inflated market. Many purchased multiple houses. This combined with cheap DEPT furthered the housing bubble.

    But it was all an illusion. The system collapsed. In the US people had outrageous mortgages owed to banks, but the banks had no money, so the home owners (tax payers) had to bail the pricks out. SO WHERE WAS THE MONEY ?

    It was never there hj. You have been conned. Your house is not really worth even half what you paid for it, if you purchased during that period. For what people pay for a house now, they could have got a house and maybe started a small business not long ago. High property prices are a fucking disaster and it needs to be fixed. The only barrier is near sighted greed of home owners who hallucinate they are rich because their house is worth heaps.

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  39. Meatloaf (275 comments) says:

    Thanks Kea, the Austrian economists (economists that believe in an absolute free market) say that a central bank creates these booms and busts, by having cheap credit to get people into these investments. And then, they change the conditions, and crash if you are completely leveraged, that higher rate of interest will hit you hard. And if a lot of people are hit hard at the same time, they’ll sell to whoever will buy. This has happened in the 1930s, the 1980s and the 2000s. They couldn’t meet the conditions, they all sold at the same time, and they sold for pennies on the dollar.

    So again, I’d like to see people lend to companies and individuals that are creating things. I’d like to see more of that happen, and if we have more of that, I expect to see this country produce more wealth, and people earn more. We were the third richest country in the 70s, we’re certainly not in that situation now.

    And your definitely right about the illusion of housing value. Banks can create money, as its not backed by gold or silver. Dollar by definition means ounce of silver. A dollar used to be redeemable for an ounce of silver. What is a dollar worth these days? what can it redeem? And people wonder why prices go up.

    Oh and the 2nd and 5th plank of the communist manifesto say a central bank, and income tax. So again I don’t see central banks as free market.

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  40. Kea (13,571 comments) says:

    Meatloaf, the reckless printing of money actually undermines the free market as it distorts the natural supply & demand part. Eg: Even if we had too many houses, with homes sitting empty, printing lots of money and handing it out could cause a “property boom”.

    I am not sure having a currency backed by gold or silver is the answer, as it brings problems of its own. One of them being is that the price of gold is pretty arbitrary itself. It would simply shift the problem.

    A better way would be to restrict debt (which how money is created) to what can be paid back over the term of the loan. The US has no chance of doing that and have taken the piss. It is well known that “printing money” creates inflation and makes your money worth less. The only winner is the bank… except not in the US… the banks went broke too !

    What a mess.

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  41. Meatloaf (275 comments) says:

    Hi Kea, maybe a currency backed by gold is a bit far. But at the same time, having a central bank dictate to registered banks that they can only lend to governments, another bank, or on property, is very biased. They do this by capital adequacy requirements, where for every dollar deposited into a bank, a bank has to have certain assets on hand: cash on hand, loans to government, loans to other banks, and property loans only count as assets, means by definition, that its very hard to get a loan from a bank without pledging property, which makes it hard for business expansion and startups, and easy for mortgages, and government deficit spending.

    The 2nd issue, is the way our exchange rate works. If a country lends to us, this affects our exchange rate in such a way, that we import more than we export. When all money was exchangable into a US dollar, which was exchangable into gold, the financial markets were much more stable, which is what we had under the Bretton Woods system until 1971, when US president Richard Nixon, put a stop to it.

    So this, is why I’ve come to smile a bit more towards a gold standard. However, their are other alternatives to this. In America, they now have public banks in certain States, which are declared constitutional by the US supreme court. These are banks that accept deposits, and will lend to anybody creditworthy. Also before, they had a constitution, which said only gold and silver are money, they used paper scrip. So if you painted, and had to go to hospital, you could issue scrip, which was an IOU note, saying you were pledging $2,000 worth of painting services. The hospital would pay its people using this scrip, but eventually someone who wanted a paint job would come to you. So they used to have a barter system, and had scrip to facilitate this trade, and avoided banks.

    But when their was a war, and they printed money off, with not enough tax collection, the whole system collapsed, and that’s when they said gold and silver are only money. So I’m saying their are other alternatives, to me the issue is making sure we don’t increase the money supply too much, and we put a stop to favouring loans to government, and loans on houses, and start favouring business expansion, and business start-ups provided these people are creditworthy.

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  42. ross69 (3,652 comments) says:

    Umm….why shouldn’t people on single incomes be able to afford houses again?

    Why indeed. But this is a low wage economy and the govt hates the idea of wages being high. Which might explain why it gave up years ago trying to close the wage gap with Aussie.

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