Real estate, post level 4

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#2619264 10-Dec-2020 11:05

It just feels fundamentally wrong to me, that as someone on a six figure income with a six figure deposit I am struggling to buy a house. There's not a lot out there to buy, and a lot of what is out there is fundamentally flawed somehow.

Meanwhile, I'll just chuck more than a third of my income at some "mum & dad" investor and listen to the government dilly-dally I guess.

mudguard

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#2619501 10-Dec-2020 14:47

antonknee:

It just feels fundamentally wrong to me, that as someone on a six figure income with a six figure deposit I am struggling to buy a house. There's not a lot out there to buy, and a lot of what is out there is fundamentally flawed somehow.

Meanwhile, I'll just chuck more than a third of my income at some "mum & dad" investor and listen to the government dilly-dally I guess.

It's all relative though. If you earn $100k and the median is now $1,000,000 in Auckland then you're still stuffed. $200k deposit means payments of almost $5k at 6%.

The catch is you can earn the income in Auckland but can't afford to buy unless you have two of them or a really high income. What was the old guideline? A mortgage that was 2-2.5 times your gross income? How long has it been since it was that, was it ever?

concordnz

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#2619550 10-Dec-2020 16:52

Ironically the more FHBs that buy a house the worse the housing shortage becomes.....
(simple maths)
The number of people in 'owner occupied homes' is on average something like 2.1 people per house.
Those renting is something like 2.7.
FHB buyers are more likely to have 'spare bedrooms' - for future children - this is less likely to happen in a rental.

The increase in people renting is actually helping to reduce the housing shortage.

1) Perhaps we need to change the terms of reference.
Instead of begging House prices to crash - perhaps we mandate $50,000 deposits is all that is needed? (the banks caused a large part of the problem - perhaps they need to share the risk......

2) We need to got back into to 'leasehold' properties,
City's & governments should be building cheap leasehold housing on all land they are currently holding for future roading and scooling/facilities.
- leasehold will 1/2 the cost of the properties (land is worth 600k+ by itself in Auckland). And they should be building cheap single level houses with only a 20-30 year design life - with a right for the council to buy back at CV if required for roading/schooling....

mattwnz

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#2619555 10-Dec-2020 17:13

concordnz: Ironically the more FHBs that buy a house the worse the housing shortage becomes.....
(simple maths)
The number of people in 'owner occupied homes' is on average something like 2.1 people per house.
Those renting is something like 2.7.
FHB buyers are more likely to have 'spare bedrooms' - for future children - this is less likely to happen in a rental.

The increase in people renting is actually helping to reduce the housing shortage.

1) Perhaps we need to change the terms of reference.
Instead of begging House prices to crash - perhaps we mandate $50,000 deposits is all that is needed? (the banks caused a large part of the problem - perhaps they need to share the risk......

2) We need to got back into to 'leasehold' properties,
City's & governments should be building cheap leasehold housing on all land they are currently holding for future roading and schooling/facilities.
- leasehold will 1/2 the cost of the properties (land is worth 600k+ by itself in Auckland). And they should be building cheap single level houses with only a 20-30 year design life - with a right for the council to buy back at CV if required for roading/schooling....

The percentage of people owning their own house in NZ has been dropping significantly, even though we have been building more and more new houses. The question is how many empty houses in NZ are there which are livable.? 20,000 people are waiting for a state house. I see a lot of empty houses all over the place. Including quite a lot on really large sections, which are kept maintained, whcih you could fit multiple dwellings on. These owners realize that their property is making more money for them in unrealized capital gains, than they can make working, and it isn't even worth renting them out, as that would involve getting them up to standard. I suspect if house prices do stagnate, we may seem more of these properties come onto the market, as people then cash in their capital gains. Since the lockdown there are very few houses on the market, but a lot of people wanting to buy, due to interest rates being so low. Cash in the bank is earning nothing, so these people with large cash savings need to put their money into something that will earn them some money over time.

The RB is printing money, much which is going into housing, so I can't see the housing market crashing, unless there is a major external financial meltdown. But if that happens it will likely mean banks will fail.

Will banks lend as easily on leasehold?. There seem to be a lot of leaseholds on the market, and many don't go for much. I don't think leasehold is the option, because someone still owns and benefits from that land and over time ground rents can go up. Seen a few horror stories int eh media of huge ground rents. Means people who own a leasehold could end up with significant costs, and is a lease hold property then considered an asset, or an expense, or liability? Much of the value of a house is in the land, and the land value often appreciates over time.
NZ has a small population and a lot of land, so there is no reason why we have any land shortage. Land shortages are about supply being restricted. I know in my town there is a huge amount of land zone for housing, but they are only chipping off little bits to be sold off, over a very long period to keep prices and demand high. If the land floods the market all in one go, it causes prices to drop. Property seems to very carefully controlled in NZ to protect peoples interest and it's value.

IMO the government should ditch Kiwibuild, which is a failure, and which they aren't providing anything financial towards anyway. Instead build state houses and create a MOW to create buying power. Will provide them with a buying power, to get good material and land prices, and building companies can then work for them. Almost like a super franchise. Many of these building franchises just contract out to small independent builders anyway. Almost every factor works against NZers when buying or building a house, and means we pay someone of the highest prices in the world. But I can't see any of this happening, as it will negatively affect the building franchises, or building material companies etc, and NZers don't like change.

I can see that at the end of this 6 years of Labour, that the housing situation will not be much different, expect that prices will have gone up even more compared to earnings. 6 years IMO was enough time for them to come up with a proper plan and have the framework in place for fixing the housing crisis. It was the issue that wasn't discussed in depth at the election, as the media dictated the narrative, and they don't want property prices to drop. Any framework should also involve taxes, but they can't bring in any new taxes in this term. So almost nothing is likely to be done to fix this in the 6 years Labour will have been in for. Maybe they will surprise me, but I doubt it.

mattwnz

20141 posts

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#2619560 10-Dec-2020 17:28

mudguard:

antonknee:

It just feels fundamentally wrong to me, that as someone on a six figure income with a six figure deposit I am struggling to buy a house. There's not a lot out there to buy, and a lot of what is out there is fundamentally flawed somehow.

Meanwhile, I'll just chuck more than a third of my income at some "mum & dad" investor and listen to the government dilly-dally I guess.

It's all relative though. If you earn $100k and the median is now $1,000,000 in Auckland then you're still stuffed. $200k deposit means payments of almost $5k at 6%.

The catch is you can earn the income in Auckland but can't afford to buy unless you have two of them or a really high income. What was the old guideline? A mortgage that was 2-2.5 times your gross income? How long has it been since it was that, was it ever?

I recall economists saying some time ago that it should be between 4-6. Currently it is significantly higher. A loan to income ratio IMO makes sense, and apparently the reserve bank wants this too. I can't understand why they haven't brought this in?

But I don't hear any real mention of this loan to income ratios these days from economists,and I am not sure why this is. The media seems to be more about stories of people who have sacrificed their avocado on toast,and have now brought their first home, after living with their parents for the last decade. It seems to be all about people needing to get onto the housing ladder at all costs, otherwise their future financial success will be in jeopardy , and once you are on the ladder, you are set for life. But they don't mention all the risk involved, especially taking on these huge amounts of debt, and that interest rates are likely to rise at some point, increasing their payments to the bank. IMO it seems to be more of a housing pyramid.

tdgeek

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#2619563 10-Dec-2020 17:44

mattwnz:

I can see that at the end of this 6 years of Labour, that the housing situation will not be much different, expect that prices will have gone up even more compared to earnings. 6 years IMO was enough time for them to come up with a proper plan and have the framework in place for fixing the housing crisis. It was the issue that wasn't discussed in depth at the election, as the media dictated the narrative, and they don't want property prices to drop. Any framework should also involve taxes, but they can't bring in any new taxes in this term. So almost nothing is likely to be done to fix this in the 6 years Labour will have been in for. Maybe they will surprise me, but I doubt it.

No party has had the will to do anything, so little will change. Social housing is being done at higher levels, that helps that sector. Why is this Labours problem all of a sudden? Both parties in the past two 3 term reigns did nothing. Now its too late to do much. The only option that will work is build build build, and from a previous post that only happened by a Govt after the Depression and after the War.

mattwnz

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#2619565 10-Dec-2020 17:51

tdgeek:

mattwnz:

I can see that at the end of this 6 years of Labour, that the housing situation will not be much different, expect that prices will have gone up even more compared to earnings. 6 years IMO was enough time for them to come up with a proper plan and have the framework in place for fixing the housing crisis. It was the issue that wasn't discussed in depth at the election, as the media dictated the narrative, and they don't want property prices to drop. Any framework should also involve taxes, but they can't bring in any new taxes in this term. So almost nothing is likely to be done to fix this in the 6 years Labour will have been in for. Maybe they will surprise me, but I doubt it.

No party has had the will to do anything, so little will change. Social housing is being done at higher levels, that helps that sector. Why is this Labours problem all of a sudden? Both parties in the past two 3 term reigns did nothing. Now its too late to do much. The only option that will work is build build build, and from a previous post that only happened by a Govt after the Depression and after the War.

Because Labour said they would build so many thousands of houses under Kiwibuild, but has failed to keep that promise. Then they had to do a 'reset' , which seems to have let them off the hook in keeping that promise. As you say , the only solution could be to build build build. That is what Labour promised, but failed to do, so it is their problem. Also they did criticise National for doing exactly what they are doing, which isn't much.

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tdgeek

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#2619567 10-Dec-2020 17:54

mattwnz:

But I don't hear any real mention of this loan to income ratios these days from economists,and I am not sure why this is. The media seems to be more about stories of people who have sacrificed their avocado on toast,and have now brought their first home, after living with their parents for the last decade. It seems to be all about people needing to get onto the housing ladder at all costs, otherwise their future financial success will be in jeopardy , and once you are on the ladder, you are set for life. But they don't mention all the risk involved, especially taking on these huge amounts of debt, and that interest rates are likely to rise at some point, increasing their payments to the bank. IMO it seems to be more of a housing pyramid.

A Loan to Income ratio is another artificial fix which wont help. If you dropped deposits and lenghtmed terms to help FHB you create demand. We already have a demand problem. Too much demand for too few houses. You could raise deposits to make it harder, to decrease demand, but then you cause FHB to be cut off. You could tell banks to decrease mortgage rates and offset that by raising other lending, = more demand, higher prices. You could raise interest rates, so less demand, but again you cut out FHB. A Govt needs to be a building company, build build build. Essentially the way builders build spec homes. They get sold, greaT, or they are social housing, great, or they are rented, great, with deals for rent to buy. That wont interest you or me, but when you or me want to buy a house, there are a number of people that a Govt is already catering for, so we wont need to add $80,000 on, to get the house we want. You just need to avoid slum subdivisions, slum apartments.

I cannot see any way out than build build build. Also, penalise existing home buyers, use that to fund new builds.

tdgeek

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#2619588 10-Dec-2020 18:04

mattwnz:

Because Labour said they would build so many thousands of houses under Kiwibuild, but has failed to keep that promise. Then they had to do a 'reset' , which seems to have let them off the hook in keeping that promise. As you say , the only solution could be to build build build. That is what Labour promised, but failed to do, so it is their problem. Also they did criticise National for doing exactly what they are doing, which isn't much.

Kiwibuild failed as unaffordability was already exceeded. It was too late, and they probably knew that, bought votes. Horse has bolted. Kiwibuild was not a Govenment building agency, they worked with builders and developers, who aren't interested in budget builds. If I wanted a budget build and hey Kiwibuild is there, and I used it, NOT ONE THING IS GAINED, as I was building already. You need to shift buyers to builders, but again, affordability was already gone.

Yes National is to blame, did nothing. Clark did nothing. Too late now. The pity is Covid has made it worse. Lower interest rates to stimulate the flagging Covid economy, and that meant travellers sunk cash into the house instead, brought that forward. The super low interest rates allowed you to get the house at 800k instead of 725k, easy, same payments. RBNZ, and hindsight is easy, should have dropped interest rates to stimulate the economy and told the banks that mortgages are not to be reduced, this allows you to offer slightly lower rates to other lending especially business. Cant really blame then, the word was everything will be terrible, unemployment through the roof, and liquidations and low GDP. That didn't happen.

I guess of a Govt started a building empire, we dont have the tradesmen, as the tradesmen we have now is for the current level of new builds, nobody spare for a building explosion. Then there is the planning.... Councils, NZTA, etc.

mattwnz

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#2619589 10-Dec-2020 18:06

One thing I have noticed, and think could be happening, is that these various property estimation websites could be helping to push up prices even more than normal, especially with the limited stock on the market. We are hearing more and more in the media saying to ignore the RV on the price, and also from agents, as they say they often say they out of date and inaccurate to what buyers will pay. But even these utomated valuation websites can vary significantly between websites, and some of the estimation ranges on some properties I have seen seem very very high. People seem to be using these figures as starting points to value a house,and using them to justify paying a high price. I remember when people used the RVs to get a good idea of a property value, which was before these websites existed, and based the price they offer on that. I think some councils in Wellington, alao updated their RV prices annually so they were accurate. . So I wouldn't be surprised if these are having some affect on increasing prices more than normal, as what someone is prepared to pay on a house can be psychological, as they want to be able to justify paying a certain price. . If they can get it cheaper than a high estimate, then they may thing they have got a good deal and saved money.

mudguard

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#2619590 10-Dec-2020 18:10

tdgeek:

A Loan to Income ratio is another artificial fix which wont help. If you dropped deposits and lenghtmed terms to help FHB you create demand.

I do wonder how a loan to income ratio would apply to existing multi property owners. My parents have a two homes, the second they had intended to retire in as the grandkids were in that town.

However if an existing owner went in to re-doc a loan, I wonder if they'd say, oh, hey, well your income to debt ratio is out of whack with this second home, we'd like you to reduce your exposure with us... I'm fairly certain my parents would not have been able to buy a second house if something like this was in place.

tdgeek

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#2619592 10-Dec-2020 18:14

mudguard:

I do wonder how a loan to income ratio would apply to existing multi property owners. My parents have a two homes, the second they had intended to retire in as the grandkids were in that town.

However if an existing owner went in to re-doc a loan, I wonder if they'd say, oh, hey, well your income to debt ratio is out of whack with this second home, we'd like you to reduce your exposure with us... I'm fairly certain my parents would not have been able to buy a second house if something like this was in place.

Yep, any artificial means has a benefit and a cost

mattwnz

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#2619593 10-Dec-2020 18:18

mudguard:

tdgeek:

A Loan to Income ratio is another artificial fix which wont help. If you dropped deposits and lenghtmed terms to help FHB you create demand.

I do wonder how a loan to income ratio would apply to existing multi property owners. My parents have a two homes, the second they had intended to retire in as the grandkids were in that town.

However if an existing owner went in to re-doc a loan, I wonder if they'd say, oh, hey, well your income to debt ratio is out of whack with this second home, we'd like you to reduce your exposure with us... I'm fairly certain my parents would not have been able to buy a second house if something like this was in place.

You would hope the banks would be lending conservatively anyway, so that there wouldn't be too many affected.

But the market needs new FHBs entering the market, otherwise it runs out of people who can afford to buy houses, and also creates a lot of resentment from the young, which is already happening. Labour is traditionally a young persons party, but this time many National voters voted for them. I can see more young people voting green,and potentially a wealth tax coming in if it continues down this track. IMO a wealth tax is a bad idea, because it also negatively affects people who have not benefited from housing, and may push prices up even more.

I remember during lockdown when the RB removed the LVRs, there was talk abut opening the housing market back up to international buyers again, as banks economists were predicting a 15% fall in house prices. Shows how much economists don't know.

tdgeek

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#2619594 10-Dec-2020 18:21

mattwnz:

One thing I have noticed, and think could be happening, is that these various property estimation websites could be helping to push up prices even more than normal, especially with the limited stock on the market. We are hearing more and more in the media saying to ignore the RV on the price, and also from agents, as they say they often say they out of date and inaccurate to what buyers will pay. But even these utomated valuation websites can vary significantly between websites, and some of the estimation ranges on some properties I have seen seem very very high. People seem to be using these figures as starting points to value a house,and using them to justify paying a high price. I remember when people used the RVs to get a good idea of a property value, which was before these websites existed, and based the price they offer on that. I think some councils in Wellington, alao updated their RV prices annually so they were accurate. . So I wouldn't be surprised if these are having some affect on increasing prices more than normal, as what someone is prepared to pay on a house can be psychological, as they want to be able to justify paying a certain price. . If they can get it cheaper than a high estimate, then they may thing they have got a good deal and saved money.

I agree. Its fair if the agent does their best to get the best price, but I read that as well, its over the line. You and I are not real estate agents, we are lay people, we love the house, we will hear what they say and believe it, no choice. So you overpay. I then want the house next door, now that owner has decreed that his house is also worth more. I guess you can say its supply and demand working together but there is an element of deviousness there IMHO. I used to go by GV. At any point in time the GV was a guide. This area goes for 10% above GV, this other area where the GV is older goes for 20% more, etc. But if agents are in effect re writing the price tag, thats below the line. But legal. One day if we built lots, it will be a buyers market, plenty to look at, lets go honey, bye.

tdgeek

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#2619596 10-Dec-2020 18:24

mattwnz:

I remember during lockdown when the RB removed the LVRs, there was talk abut opening the housing market back up to international buyers again, as banks economists were predicting a 15% fall in house prices. Shows how much economists don't know.

Yep, but when I read all that I believed it, Im sure everyone did. Unemployment, business struggles, low GDP, low retail, housing issues, so easy to see that. Essentially a covid depression affecting the vast majority of us.

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