Pellett blaming the Chinese

March 20th, 2014 at 9:00 am by David Farrar

Selwyn Pellett tweeted yesterday:

 

Pellett is a donation to both Labour and David Cunliffe and meant to be involved in their economic policy development. As you can see he has concluded the problem is Chinese expat house owners.

Note his robust source of data – a mate who texted him. And somehow this mate not only went around 25 houses, but went out of his way at every house to ask about the ethnicity of the owner, and whether or not they are expat. His data sounds about as reliable as a typical caller into talkback radio.

 

Bill Ralston congratulates him on behalf of Winston. Ralston also supplies a fact, as opposed to a text from a mate:

 

So Pellett asked for some facts, and got them.

 

But amazingly even after Ralston supplies the source, Pellett seems to suggest that the data may be made up or manufactured. This from the economic genius who cited a text from a mate as his source.

 

I then helpfully stepped in and provided a media report citing the BNZ data. So we have Pellett arguing 92% of homes sought by his buyer mate were owned by Chinese expats vs the BNZ data from reat estate agent sales that found it was 1.2%. You’d think he’s give up, but no.

 

Now he is claiming that the Auditor-General or someone has to audit the BNZ data before he will accept it. This would be more hilarious than tragic if it were not for the fact he started the discussion by citing a tweet from a mate claiming that 92% of homes he had looked at were owned by Chinese. He certainly does know shit data when he sees it, but because it allowed him to bash the Chinese, he used it.

 

Then finally he claims it is not about race, but foreign ownership. However he is the one who tweeted explicitly citing Chinese expat owners. Bit too late at the end to try and say it isn’t about race. The reality is he tried to scaremonger over Chinese buyers based on an anecdotal text from a mate. And then when called out on it, he rubbished any data that contradicted his mate’s text.

And this is who is helping Labour write their economic policy. That’s the really scary thing.

UPDATE: A reader has pointed out to me that Pellett wasn’t so opposed to foreign investment when he got hundreds of thousands of dollars from Jim Anderton in grants for his company, and then sold it off to a foreign buyer. Also it has been suggested that he ask family members how they would feel about his mate racially profiling them on the basis of assumed ethnicity if they were home owners.

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LVRs from 1 October

August 21st, 2013 at 12:00 pm by David Farrar

The Herald reports:

Reserve Bank Governor Graeme Wheeler said banks will be subject to restrictions on high loan-to-value ratio (LVR) housing mortgage loans from October 1.

He said banks would be required to restrict new residential mortgage lending at LVRs of over 80 per cent to no more than 10 percent of the dollar value of their new housing lending flows.

He said the LVR restrictions were designed to help slow the rate of housing-related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy.

In a speech today at Otago University, Wheeler said housing played a critical role in the economy but was also a major source of “value and risk” to the household sector and the banking system.

“The Reserve Bank is concerned about the rate at which house prices are increasing and the potential risks this poses to the financial system and the broader economy,” he said.

“Rapidly increasing house prices increase the likelihood and the potential impact of a significant fall in house prices at some point in the future,” he said.

So this move is not about lowering house prices, more about reducing the risk of a boom and bust cycle.

ASB’s chief economist Nick Tuffley said the Reserve Bank was continuing to highlight the need for fundamental issues such as the shortage of land and housing to be addressed in the long-term.

Freeing up land will do more for house prices than any other action. Almost every piece of independent research has confirmed the artificial scarcity of land for housing is the largest factor.

I’m not a huge fan of LVRs. They may be a necessary evil, but I think making it harder for people to get a mortgage is not the best way to take the heat out of the housing market.

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Brash on land prices

May 28th, 2013 at 6:56 am by David Farrar

Don Brash writes in the NZ Herald:

Of course Dr Hosking is right if the supply of land is fixed, as indeed it has been by council decision. But it doesn’t have to be fixed. At the moment, less than 1 per cent of New Zealand’s area is urbanised. We are one of the least densely populated countries in the world. The council has quite deliberately chosen to make land expensive.

The price of land in Auckland is not an accident. It is, as Don says, deliberate.

And the consequences of that decision are disastrous, socially and economically.

It’s disastrous socially because for most low and middle-income families, buying a house in Auckland is now not even remotely possible, and for those families who do make the attempt, it almost inevitably means both parents working outside the home. Most low and middle-income families can’t even make the attempt, and often live in over-crowded, poor quality rental accommodation.

Don asks:

Why is it possible to buy 500sq m sections on the outskirts of Houston for $40,000, whereas 400sq m sections on the outskirts of Auckland cost $400,000? The answer lies simply in the fact that in Houston there are relatively relaxed attitudes towards using land on the outskirts of the city, whereas in Auckland that has been prohibited.

Town planners turn their nose up at Houston, and claim it is an awful place to live. However families from all over the US are heading there – because they can buy a reasonably sized home at a decent price there.

The very first report of the New Zealand Productivity Commission was on the cost of housing. The commission concluded that there were various reasons why housing is so expensive in New Zealand – but overwhelmingly the biggest single factor is the price of land, and that in turn has been a quite deliberate policy choice.

There are multiple factors, but ignoring land supply is ignoring the elephant in the room.

Dr Hosking mentioned that four of the five cities in the Mercer quality of living survey are “intensified”. And the fifth is Auckland. What he didn’t note was that Auckland is already more intensified than one of the other five, namely Vancouver. In fact, according to the Demographia survey of many hundreds of urban areas around the world, no city in the United States, Canada or Australia has more people per square kilometre than Auckland has now.

Again, a deliberate choice by the Council. And the fact Auckland is one of the most expensive cities in the world to buy a home is deliberately linked to that. And politicians from the left near universally are opposed to doing anything meaningful about it.

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Not the fault of Chinese buyers

March 15th, 2013 at 7:00 am by David Farrar

Stuff reports:

The latest BNZ and Real Estate Institute residential market survey found 9 per cent of house sales were to people offshore. 

Of those offshore buyers, 18 per cent were from Britain, 15 per cent from China and 14 per cent from Australia.

Will we hear the parties of the left going on about banning Brits from buying property in New Zealand?

BNZ’s chief economist Tony Alexander said real estate agents reported that at least 69 per cent of British buyers planned to move to New Zealand, while 37 per cent of Chinese buyers and 51 per cent of Australian buyers intended to. 

“Taken all up that means at most 5.6 per cent (but perhaps as low as 4 per cent) of all dwelling sales are to people offshore not planning to shift to New Zealand.”

So between 94% and 96% of sales are to people residing in NZ or intending to reside here. How disgraceful that some politicians have tried to blame house prices on the 4%.

“The sprawling anecdotes regarding Auckland properties being snapped up by Chinese buyers are not supported by the evidence,” Alexander said.

While most overseas buyers in Auckland came from China (19 per cent – compared with 18 per cent from Britain), sales of property in our biggest city to Chinese buyers comprised just 2.1 per cent of total sales there.

And just 1.2 per cent of house sales in Auckland were to Chinese buyers not intending to move here.

1.2%. Remember that number the next time the xenophobes try to blame them.

 

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Labour’s housing policy falling apart

November 27th, 2012 at 3:00 pm by David Farrar

The media are starting to realise that Labour’s policy to build 100,000 houses for under $300,000 is out of touch with reality. It simply can not be done. Labour have in fact been proving this themselves with their photo ops.

First Shearer visited some affordable housing in Newtown as an example of what they will provide. But the houses there were not $300,000 but $495,000.

However, at the Newtown development Mr Shearer saw first-hand how expensive even entry level housing can be. The four four-bedroom homes he visited were each valued at $495,000.

So he tried again.

Opposition leader David Shearer got a closer look at what houses built under the Kiwibuild scheme could be like today. …

Shearer spent the morning touring New Zealand Housing Foundation properties across Auckland to promote the policy by illustrating innovative projects already underway.

The foundation is a charitable trust that helps low to middle income people into houses through a range of shared equity programmes.

His second stop was in Mt Roskill where he saw larger homes worth $400,000-$500,000.

”A lot of people are asking what can you build in Auckland for that money. We’re saying if you can build these here so close to central Auckland, we should be able to build much bigger homes if we’re doing it en masse.” 

Yeah the Govt will wave a wand and homes will both be bigger and cost less, under $300,000.

The foundations properties are an excellent example of what could be built under Kiwibuild, MP Phil Goff said.

”These are at the higher end for middle income families, but there are still about $100,000 cheaper than most houses in Auckland.

Yes the foundation properties are cheaper. In fact they even do have some homes for $300,000. But do you know why?

They are already being subsidised by the taxpayer. From May 2012:

The majority of the new projects are in Auckland, with the New Zealand Housing Foundation receiving the largest share of funding with $8.86 million to build 68 homes in West Auckland, Takanini, Mt Albert and New Lynn, and a further two in Kaikohe in Northland.

That is an average of $130,000 subsidy per home. Now Labour are saving they can do houses for under $300,000 with a mere $15,000 capital per home. Their numbers are so out of kilter with reality that I don’t think it is too harsh to call them a lie. There is just no way they can make it happen unless they can reduce the cost of land to $50,000 a section. Ironically they oppose almost every initiative to reduce the cost of land and consenting building on land.

Shearer’s credibility on this was savaged on 3 News last night:

Labour leader David Shearer hit the streets today, on a mission to prove his affordable home policy will actually work.

But one of Auckland’s top property experts has offered Mr Shearer some advice: start buying caravans, because it’s not going to happen.

Publicity stunts don’t always go to plan, and Mr Shearer found that out today as he showed off a low-cost subdivision.

Just over a week ago Labour announced, if elected, it would build 100,000 homes – many in Auckland – selling for just $300,000 each.

Construction costs would make up $220,000-250,000 of that, leaving just $50,000-$80,000 for the section.

When asked if he knew the average section price in Auckland, Mr Shearer says, “it depends where the section’s going to be”.

The average section price in Auckland is actually $300,000.

It is simple – we need to reduce the price of land. The supply of land is artificially constrained. Labour are against increasing the urban land limit in Auckland, so section prices are not going to decrease – and only on Planet Labour will you get land for $50,000 – not just one or two pieces of land – but 100,000 sections!

 

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House prices and GVs

November 25th, 2012 at 10:00 am by David Farrar

Kirsty Wynn at HoS reports:

It’s almost as good as claiming Lotto’s first-division prize – the winners in Auckland’s frantic housing market are selling their properties for hundreds of thousands of dollars above their official valuations.

Ummm, no it’s not.

One could sell a house for hundreds of thousands above GV and lose money on the sale.

Official valuations are often massively different from market values. What makes a seller a “winner” is how much profit they made selling a house compared to what they paid for it, plus improvements made.

Statistics show that in the past six months there have been at least nine properties that sold for $500,000 or more above their CV, and one went for a whopping $1.2 million above valuation.

A meaningless statistic.

Another stand-out property was 18 Rangitoto Ave in Remuera, which sold for $2,895,000 in August – $1,175,000 over its recent CV of $1,720,000.

Bayleys Remuera agent David Rainbow, who marketed and sold the property, said buyer competition was fierce.

“Two hundred parties registered from open-home viewings and at auction. Five parties were competitively bidding against each other, which ensured the top price was achieved,” Rainbow said.

He said the CV could be a ballpark figure but a lack of stock and high demand meant the price was pushed up by bidders who all desperately wanted the home.

The house had undergone significant internal renovations and remodelling work that were not factored into the $1,720,000 council valuation.

“A council valuation is a broad snapshot of a suburb, and fails to take into account added-value work that owners have invested in,” Rainbow said.

Exactly. An apartment near where I live recently sold for around $100,000 thousand over GV. However the previous owner had spent $300,000 on improvements – so in fact she lost considerable money on the sale – yet this article’s criteria would declare her a winner.

This is not to say that some people are not making a good profit on selling their houses. I am sure they are. But the comparison should be to purchase and improvement price.

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Transtasman on house price logic

November 2nd, 2012 at 2:00 pm by David Farrar

Transtasman report:

OK, so the Govt wants us to smoke more, which is why it has hiked the tax on tobacco, right? And the whole Kyoto, putting a price on emissions thing: it’s to encourage people to put out more greenhouse gases, isn’t it?

No?

Well consider the position of Labour and the Greens and – as of this week – whoever writes NZ Herald editorials. Apparently, according to this logic, the way to get more houses is to tax them more.

Thanks TT for pointing out the stupidity of their arguments. They want to tax houses more, so they cost less. Yeah, right.

At the moment the issue is supply of houses. There isn’t enough of them, in Auckland or – for obviously different reasons - Christchurch.

In Auckland the question is simply because it’s the only part of the country with net inward migration and a growing population. In short, both Auckland and Christchurch need more houses.

You don’t – unless your grasp of economic incentives is really skew-whiff – increase the tax on something you want more of.

Labour and Greens are against freeing up more land, and want to tax houses more – imagine house prices then!

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Auckland land prices

July 31st, 2012 at 7:00 am by David Farrar

NZ Herald reports:

An environmentalist has accused Fletcher Building of being greedy and rebuffed its recipe for solving housing affordability problems.

Gary Taylor, the chairman of the Environmental Defence Society, criticised Fletcher for demanding the Government and Auckland Council expand urban limits to create more housing.

“Fletcher, with its market dominance, stands to make a fortune out of building more houses. But that won’t make housing more affordable. It will, however, contribute to Fletcher’s excessive profit-taking, which is a big part of the problem,” Taylor said.

In a column for the Herald’s Mood of the Boardroom publication last Thursday, Jonathan Ling, Fletcher’s chief executive, said central and local government must free up more land, particularly in Auckland, if the city is to grow and prosper.

But Taylor said it was an urban myth that more land brought cheaper houses.

“It won’t make any real dent on cost because raw land value – a greenfield site before it’s subdivided and developed – is only around 10 to 15 per cent of the total value of a new house and land package,” Taylor said, advocating instead the creation of a more competitive building supplies market, improving labour inputs, reducing development levies and consenting costs and tightening up on infrastructure spending.

I don’t think Taylor’s figures are supported by the facts. In Auckland the land is on average 60% of the house price, while elsewhere it is 40%. Land just inside the urban limit costs eight times as much as land just outside it.

Philip King, Fletcher’s investor relations manager, cited his company’s submission to the Productivity Commission and said land prices made up almost half the cost of new houses so it made sense to make more land available.

“Land price rises have outstripped other building costs by a factor of more than two to one over the past two decades. Construction materials have increased by around 70 per cent whereas section prices have gone up fourfold in nominal terms or threefold in CPI adjusted terms,” King said.

The Real Estate Institute and Statistics NZ found the biggest driver in the increase in house prices has been land value appreciation, King said.

You know I think I’ll go with Stats NZ!

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Auckland Housing

May 17th, 2012 at 11:00 am by David Farrar

I get mad when I read this:

A report by the Housing Shareholders Advisory Group in 2010 found there was a 70,000 house shortfall across the country.

The Greens say yesterday’s announcement is ”just a drop in the ocean”.

Co-leader Metiria Turei said the housing crisis was ”a ticking time bomb”.

”We urgently need to increase the supply of housing to cover the 70,000 house deficit we have in New Zealand. At this pace it will take decades.”

Families were struggling with high-cost, low-quality, overcrowded housing while some families didn’t even have housing, she said.

And why do we have high-cost low-quality housing in Auckland especially? Because the Greens and others steadfastly campaign against the one thing which could massively lower the cost of land, and hence housing. That is to increase the urban limit.

The Greens are against this because that means people living further out will drive those evil cars more. Now that is a reasonable point of view to have – that getting rid of cars is more important than affordable housing.

But hell when you then come out all upset over the cost of housing, well go bloody look in the mirror.

Personally I regard making housing in Auckland more affordable as far more important than trying to force people out of their cars. The Greens do not however. Their solution is to keep land prices high.

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Is it bye bye to LAQCs?

January 2nd, 2010 at 4:09 pm by David Farrar

James Weir writes in the Dom Post:

The Government has a chance to lift the economy in 2010 with big changes on “crazy” tax breaks for investment property, according to NZX chief executive Mark Weldon.

“Tax is the No1 change,” Weldon said.

The Government has an unprecedented chance to take action and send signals this year.

“That would make meaningful long-term differences to our wealth, growth and standard of living.”

I agree, that some tax reform is much needed.

Investment property should be the target, such as dumping loss attributing qualifying companies (LAQCs) which allowed some wealthy people – including some on the Government’s own Tax Working Group – to pay no tax at all, Weldon said. Weldon is a member of the Tax Working Group.

“There is no difference between a rental property, a share, bond or bank account, so treat them all the same [for tax],” he said. If they were all treated equally for tax purposes, then money would go where it should, rather than chasing tax breaks.

Weldon makes a good point. Far too much property investment is because of the tax breaks. And this means capital is tied up in residential property insteaad of other areas which could grow the economy more.

But capital gains taxes – taxing a house when it was sold at a profit – showed mixed results around the world.

“You are a lot better off with a low-level land tax. It is administratively efficient.”

Such taxes could be imposed at, say, 0.2 per cent of the land value, raising a few hundred dollars a year, which would not upset house values.

Raising such a property tax would allow for personal income tax rates to be brought down and might allow company tax rates to be reduced if Australia dropped their company tax rates further.

I do not support a capital gains tax but do support a land tax, if income tax is reduced to compensate. A land tax would be administratively very simple -  Councils already levy rates on properties, so it would be merely added to that.

If listed companies were the same size as the value of all rental properties in New Zealand, shareholders in listed companies would theoretically pay about $11b in tax.

In stark contrast, investors in rental properties actually got back $150 million from the government from tax breaks.

This is the nub of the problem. Over $100 billion invested in residential property, and the “investment” generates a loss or effective subsidy from taxpayers.

“You look at that imbalance – you are taxing the productive sector and not the unproductive sector,” he said. Weldon questioned the concept of allowing depreciation on rental properties which was supposed to be for things that wore out. There was no depreciation on shares or bonds, which are supposed to go up in value.

That is a change worth considering also – no depreciation on residential property. One can claim 3% a year depreciation off tax, which is a lot of money. Now eventually when you sell, the tax claimed has to be repaid – but you have had the benefit of that money interest-free for possibly a couple of decades.

Has any residential property ever actually decreased in value, such that depreciation makes economic sense? Not over any extended period of time. In fact they constantly appreciate.

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