New Zealand housing market (particularly Auckland)

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quickymart

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Topic # 240309 1-Sep-2018 09:15

When exactly did the housing market in NZ (and more specifically Auckland) turn to such crap?

When I moved here in 2002, there were so many vacant houses and it was cheaper to buy than rent. In 2018 that's nothing more than a dream. Prices have skyrocketed and for the majority of people (myself included) there is no way in hell I could afford to scrape together enough for barely a deposit, never mind keeping up with the fortnightly repayments.

Back in 2002, a decent house was $150000-$200000. Even the mansions in Ponsonby weren't much more than $500000. Today a house for $200000 would probably be a hovel! ie, knock it down and build something better on the land! A $500000 house is $450000 for the land and $50000 for the house - WTF? Is land really worth that much?

I must admit I was frustrated by the last Government's admission that there was no housing crisis in Auckland (https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11836445) but even Kiwibuild's so-called "affordable" houses are still (in my opinion) far too much; $650000 for a house? Who can afford that?

I regret not buying a house in the early 2000s but that won't help me now.

Winston Peters said something a while ago about house prices. He said $250000-$300000 is what he would deem affordable (https://www.stuff.co.nz/national/politics/105020637/winston-peters-wants-affordable-homes-for-those-on-living-wage). As much I don't like the guy (he is quite polarising) I'm inclined to agree with him on this one. There was even something in the Herald about house prices being more affordable recently too: https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12107783

I recall New Zealand used to have some of the most affordable housing in the world. So how did it get to this? Not enough houses being built fast enough? Too many immigrants? Absent landlords buying the property and then just sitting on it, not doing anything with it? Houses being bought and sold the next day for a massive profit? Today it seems like you would need a half-decent win in Lotto to be able to afford a house - but it didn't used to be like that, surely?

Note that I'm not trying to point the finger at anyone at all for this situation, just trying to understand how on Earth things got to this point.

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Reply # 2082226 1-Sep-2018 09:44

Immigrants is my one. If houses weren't being built quick enough that will gradually have an effect over time, steady. The homeless that always exist, still exist, but everyone else is in a house. Immigrants have ramped up demand relatively quickly. Rich foreigners send their kids here then they get PR, then the parents get PR. Go to auction, pay whatever, just buy it, so while these artificial prices were just "rich man artificial", everyone else wants that price too, so we accept it. its a great place to emmigrate to, and easy. There are many other contributing factors, such as builders building spec houses to cash in, high costs caused by RMA, low interest, and lack of houses for these upper market buyers, and that filters down to houses they would not buy. With low interest rates, people tend to ignore the price, just go by what they can afford.

Many factors compounding together.

darylblake

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Reply # 2082229 1-Sep-2018 09:49

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Seriously so many problems with supply. Approvals are so low by comparison to what they need to level out the supply curve.

I built a house last year and the amount of hoops etc you have to go through now has gotten even worse than the house I built in 2013.

Council is making it even harder to get consents/sign off. Apart from the fact labour to build the home and materials are expensive, the process is slowed down and made exponentially worse by the council.

I don't think I am gonna bother building in Auckland again. Too much work. Too much of a nightmare. I don't see Auckland council being overhauled anytime soon either so don't expect it to get better.

tdgeek

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Reply # 2082232 1-Sep-2018 10:00

darylblake:

Seriously so many problems with supply. Approvals are so low by comparison to what they need to level out the supply curve.

Yep, its ironic now. Not enough houses, but what there is, is too expensive to afford. Its got past the tipping point. So people move away, and transfer the problem there, so its now everywhere. Most cycles, we well, cyclical. But houses stay stable then jump, then stay at that level, rise a bit, then rise again. But in NZ inflation is so low, wage increases are now low, so you can't keep up. Who cares if house prices double if wages double, but that hasn't happened so affordability went from 3x to probably 10x average wage now

gzt

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Reply # 2082235 1-Sep-2018 10:15

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Lack of industry innovation looks like a big problem to me. Building a residential dwelling looks like a lot of fiddling around. It's not easy but some of these companies need to work on genuine innovation providing both quality improvements and material cost reduction in the final product.

The leaky buildings issues showed how not to do this.

quickymart

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Reply # 2082237 1-Sep-2018 10:20

I guess my question was, is there going to be a resolution to this any time soon? Is this a cycle? Are house prices going to become affordable again? (And by affordable, I mean $200000-$300000, not the $600000 the Government seems to determine is affordable). Of course the last Government thought prices were affordable - they could afford it.
If I can't afford to buy a house, what's it going to be like in 15 years when my boys are adults? Will a "cheap" house be $10 million? I sincerely hope not.

tdgeek

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Reply # 2082243 1-Sep-2018 10:32

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quickymart: I guess my question was, is there going to be a resolution to this any time soon? Is this a cycle? Are house prices going to become affordable again? (And by affordable, I mean $200000-$300000, not the $600000 the Government seems to determine is affordable). Of course the last Government thought prices were affordable - they could afford it.
If I can't afford to buy a house, what's it going to be like in 15 years when my boys are adults? Will a "cheap" house be $10 million? I sincerely hope not.

House prices wont drop. The end of a house price boom, is retaining the same price levels. In the past they did ease after boom, but I can't see that now. If they stayed stable for a good few years, and wages crept up, that helps. If inflation rose, wages will rise, and houses be more affordable, but the mindset these days is to buy now, so again, I can't see it. If I was starting out, I'd relocate, thats the only way to buy a lower cost home. Or buy a fixer upper and ensure you have a medium term plan to tick those boxes off.

Goosey

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Reply # 2082244 1-Sep-2018 10:38

When buyers in the Auckland market finally decide to pull up sellers on condition of houses then the prices will drop.

Far too many homes with very old roofs, gutters to name a few items are in need of serious replacement/repair.

Im struggling to figure out why potential buyers are simply not getting detailed inspections completed before buying.....those reports will identify issues and as such bring down the asking prices.

Real Estate Agents in those parts are unlikley to reccomend inspection reports.

They only cost a few hundred for a basic.

tdgeek

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Reply # 2082246 1-Sep-2018 10:44

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Goosey:

When buyers in the Auckland market finally decide to pull up sellers on condition of houses then the prices will drop.

Far too many homes with very old roofs, gutters to name a few items are in need of serious replacement/repair.

Im struggling to figure out why potential buyers are simply not getting detailed inspections completed before buying.....those reports will identify issues and as such bring down the asking prices.

Real Estate Agents in those parts are unlikley to reccomend inspection reports.

They only cost a few hundred for a basic.

Demand. Maybe they cannot pick and choose as too many competing buyers. Maybe the seller digs in as the next buyer will just say "we can't wait, we can do the roof later, etc"

alasta

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Reply # 2082247 1-Sep-2018 10:45

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I think there is a perfect storm of factors driving the problem, such as;

- Long term low interest rates.

- The boom and bust nature of the building sector.

- Cost of materials.

- Council red tape.

- Lack of a national population strategy.

Whether prices will fall in the future depends on whether you believe that house prices are being driven by speculation, or by market fundamentals. I firmly believe the latter, and therefore whilst we are likely to see a period of flat price growth it is extremely unlikely that we will see any significant price falls unless there is a major economic shock.

alasta

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Reply # 2082250 1-Sep-2018 10:47

tdgeek:

Goosey:

Im struggling to figure out why potential buyers are simply not getting detailed inspections completed before buying.....those reports will identify issues and as such bring down the asking prices.

Real Estate Agents in those parts are unlikley to reccomend inspection reports.

They only cost a few hundred for a basic.

Demand. Maybe they cannot pick and choose as too many competing buyers. Maybe the seller digs in as the next buyer will just say "we can't wait, we can do the roof later, etc"

Also the majority of house sales in Auckland appear to be by auction, which means that you have to do your due diligence beforehand. There must be a temptation to skip aspects of due diligence knowing that it's money down the drain if you don't win the auction.

Technofreak

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Reply # 2082251 1-Sep-2018 10:51

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quickymart: I guess my question was, is there going to be a resolution to this any time soon? Is this a cycle? Are house prices going to become affordable again? (And by affordable, I mean $200000-$300000, not the $600000 the Government seems to determine is affordable).

How would that happen?

The only way that will happen (that is prices of $200,000 to $300,000) is for the market to crash or some other major intervention. Do you see that happening? Too may people will lose far too much for any sane politician to allow any major intervention.

We've had similar increases before when decent houses could be bought for well below $100,000 back in the 1980's then house prices went crazy starting off in Auckland. I can remember people telling me back then they were better off to stay in their regional town in the house they owned (had a mortgage on) and be on the dole than transfer to Auckland to keep their well paying job. This was someone earning circa $40,000 pa in the mid to late 1980's, do some numbers to see what that salary is today.

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quickymart

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Reply # 2082256 1-Sep-2018 11:09

I know, it's just frustrating for people like me who make okay money (but not millions), yet it's impossible for me to get into the housing market at all.
True I make more money now than in 2002, but house prices have increased a lot faster than the average wage.
Even rentals are way too overpriced.

Aredwood

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Reply # 2082321 1-Sep-2018 11:57

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Simple - High house prices are caused by the Resource Management Act. Don't believe me? Look up graphs of house prices Vs average incomes. Before the RMA was introduced in the early 1990s, the long term ratio was around 3. It started quickly climbing after that.

One of the worst things to happen due to the RMA - rural / urban limits. Any property developer lucky enough for their land to end up inside the urban limits got a massive cash windfall. Other developers buy rural land close to the urban limits, waiting for the council to slowly expand the boundary, so they can get their own cash windfall.

Such rules are probably inspired by Soviet union planning rules. Town planners have wet dreams of everyone living in compact cities, with everyone using public transport. What actually happened, is everyone moved to satellite towns. And large areas of rural land was turned into lifestyle blocks. So rural roads are now overloaded with commuter traffic. Motorways have to be built through rural areas. And another factor that town planners never consider. High house prices and rents mean more traffic congestion. As people can't afford to buy or rent a house close to their workplace.

High rents are both a symptom of high house prices. And are also due to tax changes made by National in 2008, which removed some of the tax deductions that landlords could access. While poor quality rental properties are themselves a symptom of high house prices and the shortage of rental properties. As a cold, damp, crapbox, will rent for similar money to a well maintained, warm, dry, home. So not much incentive for landlords to upgrade their properties.

blackjack17

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Reply # 2082334 1-Sep-2018 12:30

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Aredwood: Simple - High house prices are caused by the Resource Management Act. Don't believe me? Look up graphs of house prices Vs average incomes. Before the RMA was introduced in the early 1990s, the long term ratio was around 3. It started quickly climbing after that.

One of the worst things to happen due to the RMA - rural / urban limits. Any property developer lucky enough for their land to end up inside the urban limits got a massive cash windfall. Other developers buy rural land close to the urban limits, waiting for the council to slowly expand the boundary, so they can get their own cash windfall.

Such rules are probably inspired by Soviet union planning rules. Town planners have wet dreams of everyone living in compact cities, with everyone using public transport. What actually happened, is everyone moved to satellite towns. And large areas of rural land was turned into lifestyle blocks. So rural roads are now overloaded with commuter traffic. Motorways have to be built through rural areas. And another factor that town planners never consider. High house prices and rents mean more traffic congestion. As people can't afford to buy or rent a house close to their workplace.

High rents are both a symptom of high house prices. And are also due to tax changes made by National in 2008, which removed some of the tax deductions that landlords could access. While poor quality rental properties are themselves a symptom of high house prices and the shortage of rental properties. As a cold, damp, crapbox, will rent for similar money to a well maintained, warm, dry, home. So not much incentive for landlords to upgrade their properties.

I didn't realise Australia and Canada also had the RMA.

Geektastic

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Reply # 2082344 1-Sep-2018 12:50

I didn't realise Australia and Canada also had the RMA.

Most countries have something similar - for example, the UK has the Town & Country Planning Act.

The RMA is a bit strange because it places emphasis on odd things in a planning and development context; really it casts its net too wide in terms of what is within it. We would be better served by splitting it into smaller, more specialist Acts.

All manner of stupidities occur: in our recent subdivision, we created 2 house plots at the end of a straight 220m road. The council insisted on 2 passing bays along that length, even with a large double gateway already existing half way along. Quite unnecessary and considerably expensive due to the excessive size requirements for the passing bays etc.

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