Real estate, post COVID-19 level 4 (since 2020)

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#2550235 26-Aug-2020 18:56

tdgeek:

There is still a shortage. And despite Covid, there are many people, with large equity that will upgrade, that are in stable jobs, or near retirement, that will buy, as they are near immune. What you need is a glut, and thats not happening anytime soon.

Yes that is the thing, NZ still has a housing crisis with a lack of supply, and tghis has been the problem for a long time. But since the change in government, there hasn't been much in the media addressing this point. National denied there was a housing crisis, until after they were voted out. House prices continue to rise, an supply continues to be poor. The market seems to be driven by 'affordability' , so each time the OCR drops, and banks reduce their lending rates, people can then afford to service larger mortgages, and outbid others to acquire their house.So affordbility hasn't changed much over the years. The only difficulty for buyers is getting a large enough deposit, but even those requirements seem to be less stringent these days. Some banks themeslves were talking about a 15% fall in prices when we first went into level 4 lockdown earlier in the year. But personally I can't see that now, unless economic conditions worsen a lot. We just don't know what is going to happen, but IMO it is still way too early to really know.

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#2550391 26-Aug-2020 22:18

Did there used to be a housing glut? Is that why housing was (relatively) affordable, until the 2010s?

tdgeek

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#2550424 27-Aug-2020 07:12

quickymart:

Did there used to be a housing glut? Is that why housing was (relatively) affordable, until the 2010s?

No idea, but probbaly less population made the houses to families gap smaller, less immigration in the well before 2010 past. In the past houses always doubled every 10 years that was the mantra of property investment, But wage inflation was also high. Interest rates were high. Now wage inflation is low that affects affordability. Interest rates are low, that increases house prices, immigration has been high for a long time now, new builds havent kept up with that. Affordability today is just the sum of those factors, no surprise. I always thought an option was immigrants had to build. Have a low deposit scheme for them, the prime reaosn is they dont add to the housing shortfall. If rents were similar-ish to a mortgage on a standard no frills house, that could work.

Today, if interest rates were similar to inflation, then wages more or less rise in line (yes there is the tax creep issue) so who cares if houses rise as everything else does, so price to wages more or less keep in sync.

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#2550434 27-Aug-2020 07:35

Salaries are not keeping up with the house prices.

As I mentioned if you want to quickly increase housing stock, do this

support a capital gains tax,
make AirBNB illegal
make investing in a second home much harder, and a third or more houses nigh impossible
make overseas property ownership much harder

As speaking as a boomer myself, most people who of course hate this changes are boomers. As with climate change, generally we don't really don't care about the following generations. We got ours, want to get more for ours till we die, where we pass along our wealth tax-free to our immediate family only, and that's all that matters.

Worldwide the general rule is that you can afford a mortgage that is two to two-and-a-half times your gross income.

Even in expensive countries, a good rule of thumb is using the 28%/36% rule

you shouldn't spend more than 28% of your gross monthly income on home-related costs
36% on total debts, including your mortgage, credit cards and other loans like auto and student loans.

Now we can continue to point to house stocks, and hope the young will just take it forever. We boomers can continue to shrug and (un-ironically) say "rising waters rises all boats" or "let the market forces take care of it; Just build more"

Or we boomers can try to improve things.

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#2550440 27-Aug-2020 07:48

Agree. Make a home a single purpose purchase, to live in. Remove it as an investment. But find a way to allow a rental business to operate, CGT could cover that off. The family home still has a strong emotional investment --> security and can be left to the kids

dafman

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#2550518 27-Aug-2020 10:19

mattwnz:

I think we are still way to early on into this virus cycle, to know what effect it is going to have on house prices.

Agreed. And to expand, we are still way to early on into this virus cycle, to know what effect it is going to have on house prices, equity prices, the ability of highly leveraged companies to repay debt as their incomes fall, the ability of governments to continue to print money at unprecedented levels without consequence ...

COVID has kicked the world into an unknown place, combined with the long festering consequences of not making any meaningful changes following the 2008 global financial crisis.

So anyone's prediction about house prices going up, or down, is a complete stab in the dark.

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#2550586 27-Aug-2020 11:43

tdgeek:

Agree. Make a home a single purpose purchase, to live in. Remove it as an investment. But find a way to allow a rental business to operate, CGT could cover that off. The family home still has a strong emotional investment --> security and can be left to the kids

We already have a Capital Gains Tax on investment properties, and income tax on revenue from investment properties.

mudguard

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#2550587 27-Aug-2020 11:43

tdgeek:

Remove it as an investment. But find a way to allow a rental business to operate, CGT could cover that off.

Couldn't a non owner-occupied house be treated as a commercial entity, therefore subject to commercial interest rates rather than mortgage rates?

tdgeek

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#2550635 27-Aug-2020 11:58

BlinkyBill:

tdgeek:

Agree. Make a home a single purpose purchase, to live in. Remove it as an investment. But find a way to allow a rental business to operate, CGT could cover that off. The family home still has a strong emotional investment --> security and can be left to the kids

We already have a Capital Gains Tax on investment properties, and income tax on revenue from investment properties.

Silly me, yes off course we do

quickymart

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#2551017 27-Aug-2020 22:59

So...the situation is fairly hopeless for anyone looking to get onto the property ladder, in Auckland anyway - for the forseeable future? I worry what it's going to be like for my boys when they are at an age where they would like to buy a house. If things keep going the way they're going, it will be nigh on impossible for them :(

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#2551055 28-Aug-2020 07:13

quickymart:

So...the situation is fairly hopeless for anyone looking to get onto the property ladder, in Auckland anyway - for the forseeable future? I worry what it's going to be like for my boys when they are at an age where they would like to buy a house. If things keep going the way they're going, it will be nigh on impossible for them :(

Hit Kiwisaver hard, 8%, and look for locations outside of Auckland is all I can suggest.

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mudguard

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#2551057 28-Aug-2020 07:17

quickymart:
So...the situation is fairly hopeless for anyone looking to get onto the property ladder, in Auckland anyway - for the forseeable future? I worry what it's going to be like for my boys when they are at an age where they would like to buy a house. If things keep going the way they're going, it will be nigh on impossible for them :(

I wonder at what point the have nots will out number the haves and vote accordingly?
Another decade or two as home ownership percentages drop off? Perhaps a political party will emerge and have ideas that will appeal to renters.
Or will it be timed with a big release in housing by those who are downsizing?

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#2551076 28-Aug-2020 08:37

quickymart:

So...the situation is fairly hopeless for anyone looking to get onto the property ladder, in Auckland anyway - for the forseeable future?

The concept of a 'property ladder' seems to be based on the premise that you can start with an entry level property and use the capital gains to fund future upgrades. We need to stop thinking like this if ongoing asset price inflation is not healthy for society.

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#2551094 28-Aug-2020 08:46

alasta:

[The concept of a 'property ladder' seems to be based on the premise that you can start with an entry level property and use the capital gains to fund future upgrades. We need to stop thinking like this if ongoing asset price inflation is not healthy for society.

I'm going to risk drifting off topic here, but there was a good article on Spin Off I think about the accommodation supplement, how it is driving up rents, and perhaps house prices. It's not something I'd really thought about. But the jist of it was: (I've made the numbers up)

Rent is $400 per week, tenant can't afford it, gets topped up $100 by supplement.

Rent gets put up to $500 per week, tenant can't afford it, so gets topped up again.

In the normal course of things, you would say well I pay $500 a week in rent, if I had the deposit, what kind of mortgage could I pay?

But of course, if the tenant moves somewhere cheaper, the supplement drops, so they're not any better off.

Again, like working for families, it's a tricky thing to resolve.

kingdragonfly

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#2551112 28-Aug-2020 09:04

BlinkyBill: We already have a Capital Gains Tax on investment properties, and income tax on revenue from investment properties.

Stuff: Capital gains tax: Tax Working Group announces support for capital gains tax, cuts to income tax

The Tax Working Group has confirmed its support for a broad-based tax on capital gains, suggesting handing back much of the $8.3 billion it might raise over five years through income tax cuts for almost all workers.

Some have criticised the proposed tax as "envy tax", but working group chairman Sir Michael Cullen said it was wrong that wage-earners were taxed on their full income while "you can earn income from gains on assets and not be taxed at all".

"We are proposing a fairly comprehensive approach," Cullen said, releasing the report. "There are undoubtedly compliance costs," he admitted.

The proposals, if adopted by the Government, would take billions from the wealthy and give most of that money back quite evenly to millions of taxpayers.

The capital gains tax proposed by the working group would apply to profits on investment property, land, shares, business assets and intellectual property, but not the family home and personal possessions.

The extra taxes would kick in from 2021 at the earliest and would initially only raise a few hundred million dollars a year, but the working group forecast it would raise almost $6 billion annually within 10 years.

"Untaxed capital gains mostly benefit wealthy households," Cullen said.
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