Real estate, post level 4

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#2549206 25-Aug-2020 07:48

Unemployment is not the only reason house prices can drop.

If businesses and people flee a city, there'll be more housing stock, and lower prices.

So if COVID-19 becomes a long-term feature, businesses could move into less congested areas.

Alternatively business could become more dependent on at-home-workers, effectively their workers to live further afield.

Another reason for an increased stock would be some condition that makes owning multiple homes less lucrative / secure.

This could be due to regulation changes, law changes, and even overseas investors pulling out.

There's also "wild-cards" such as the collapse of the tourist economy. AirBNB no longer as viable. This is definitely happening in California heavily, much to the happiness of local young renters trying to get into the market.

I expect quite a few Auckland inter-city apartments to be shaken loose from people pulling out of AirBNB.

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BlinkyBill

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#2549246 25-Aug-2020 09:55

King, you are speculating, and focussing on the negative aspects only. You haven’t contemplated extremely low interest rates, significant inflow of returning NZ’ers (and desperate Americans), bullish stock markets (noting the volatility), signs of significant restructuring of the Resource Management Act, and overall population growth.

There is a shortage of housing of all types and not enough builders to build at a rate to deal with the shortage. There was a 15% drop in spending in June - which means still 85% of normal spend still occurred - it is foolish to suggest that the economy will tank long or even medium term.

My suggestion is not to speculate on a housing market downturn, you’ve been doing this for months now and it haven’t happened. There might be localised swings downwards, but unlikely to be in a main centre.

This market is subject to a massive range of factors, not just negative ones, and historically over the entire history of NZ, have gone upwards.

mudguard

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#2549251 25-Aug-2020 10:16

Batman:

no way. you could buy a house in dunedin for $6,000 in 1997, though the average was around 50-70k iirc

in 2004 the average house would cost 100-200k

My parents paid $220k for their house in Dunedin in about 1997/8?

kingdragonfly

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#2549256 25-Aug-2020 10:25

I've personally experienced a number of property bubble pops in the US.

New Zealand has been fortunate.

Like flipping a coin 10 times, and getting heads 10 times, your odds of getting tails is always about 50%

We are in uncharted waters.

Also eventually the people who don't own property will let their feeling fully known in the election process.

So if a pandemic doesn't affect the house prices, legislation might, through quite a number of possibilities.

(Before someone points it out, I know flipping a coin flip odds is not exactly 50%, since coin weight distribution, dirt, oil and the chance about 1 in 6000 odds of landing on the edge.)

BlinkyBill

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#2549405 25-Aug-2020 12:35

There is no correlation I am aware of between the US property market and the NZ property market. I would suggest that just by itself, Sam Stubbs’ article today, suggesting it is in everyone’s best interest to buy the most expensive house they can afford, and right now, will have a much more significant impact on house prices than any property market trends from offshore.

concordnz

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#2549495 25-Aug-2020 14:41

New Zealand has approximately 70,000 bed shortage in housing.
We are building less houses than we did per year in the 1970's in spite of a huge increase in population.
(Think huge compliance/consent cost, (council)
big increase in OSH & compliance paperwork, repetitive training paperwork & insurance cover costs(every Trade/business/builder/sparky/plumber/roofer/concrete layer etc).

Huge increase in materials costs (compared to worldwide over same period)

Excessively restrictive development controls by councils - (half the cost of a house - is purely the land cost = eliminate that and houses are not that expensive.....

The proportion of people renting is not high/excessive zip by any worldwide standard.
Some people think 'owning' is a 'right' = it isn't.

Simple maths.
There is less people in a 'Owner house' than there is in a 'rented house'.
The more people who become 'owners' & remove rental stock from the market - the more homeless we will have on the streets......

With interest rates dropping - it's cheaper to Own than Rent (even if you lose your job - doesn't mean you lose your house - I'd rather lose my job while paying a huge mortgage(which is cheaper than Auckland Rents), Than lose my job while 'Renting' - which is more expensive, & simply money down the drain.

It has been historically proven that people & businesses migrate to the cities in a resession.

The market can stay irrational longer than you can stay sane. (Decades)

kingdragonfly

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#2549572 25-Aug-2020 16:13

Reasonable arguments.

I guess my only disagreement is if you're in a month-to-month rental, you may have more flexibility in moving out-of-city quickly. However I admit this reasoning is a bit moot at how fast houses sell now.

I'll still remain bearish, and wait for six months.

kingdragonfly

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#2549715 26-Aug-2020 07:59

Before I get accused of only whinging, I'd force most overseas investors out, outlaw AirBNB, and enact a capital gains tax.

I do agree people are paying too much in rent.

However on the point that it's cheaper to pay a mortgage then rent, the mom-and-pop Auckland property investors I've talked to are completely dependent on capital gains.

Negative gearing is common. Income generated by rent is less than the cost of owning and managing the rental property.

There's an old saying that "you can't eat your house." (Unless your Hansel and Gretel)

In pretty common that people are paying over 10X their incomes for their house, or 30% of their income. This is extremely unaffordable.

This doesn't leave a lot of money for other investments.

Personally I strive to have 6 months of living expenses. This is because I found it takes me about 6 months to get a new job.

With the pandemic uncertainty, if you're of working age, I'd very strongly recommend getting a good amount of emergency saving put aside. This would be on top of any house deposit savings.

I know this is unrealistic for a lot of people. In the US, I've read 45% of people have less then $1,000 savings.

kingdragonfly

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#2549716 26-Aug-2020 08:02

Off subject, relating to the unaffordability of rent.

From the OECD

Some may find this affordability Auckland rent calculator interesting.

quickymart

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#2549720 26-Aug-2020 08:20

Jeez, Ireland looks pretty good right now! Why is so low there? Are their house prices the same level as the rent?

mudguard

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#2549738 26-Aug-2020 09:07

I do wonder what sledgehammers could be applied to cool things down. Take the 20% deposit for first home buyers. Why not apply that to subsequent home purchases? Or remove the ability to use equity in an existing property, say tie the loan to a particular address?

So home one, 20% deposit, second home 40% deposit and so on.

Or if you have a $800,000 home with 50% equity and want to buy a bach for $200,000 somewhere (if there is a such a thing), you need to come up with $40k cash for it. Or do you think people will draw down against the existing home under new bathroom etc? Would it prompt third tier lenders who wouldn't use the property for collateral and charge accordingly?

Senecio

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#2549821 26-Aug-2020 09:21

I lived in Ireland for 7 years, I can assure you that graphic is not a correct reflection of housing affordability / availability. If you can find a place to rent, it may very well be affordable but rental stock is very scarce on the ground.

Landlords in Ireland have historically been cowboys, so recent legislation was been introduced that give tenants an incredible amount of power. It is almost impossible to evict a tenant in Ireland through these legislation changes with many disputes lasting 4-5 years and no rent being paid in this time. Most landlords have left the rental market as a result, they had taken to AirBNB but the government then introduced new measures to make that either illegal or very unattractive.

The Irish property market is an absolute basket case. Don't get me started on buying property in Ireland! Just thankful I never I did, despite trying on several occasions while I was there.

Handle9

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#2550053 26-Aug-2020 15:07

mudguard:
I do wonder what sledgehammers could be applied to cool things down. Take the 20% deposit for first home buyers. Why not apply that to subsequent home purchases? Or remove the ability to use equity in an existing property, say tie the loan to a particular address?

So home one, 20% deposit, second home 40% deposit and so on.

Or if you have a $800,000 home with 50% equity and want to buy a bach for $200,000 somewhere (if there is a such a thing), you need to come up with $40k cash for it. Or do you think people will draw down against the existing home under new bathroom etc? Would it prompt third tier lenders who wouldn't use the property for collateral and charge accordingly?

It's politically untenable. It's not ok to do anything that brings capital gains in line with other types of income so what you are proposing wont happen.

mattwnz

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#2550199 26-Aug-2020 17:35

The main thing I can see that will bring house prices down, is increasing interest rates. But that ain't going to happen anytime soon. Especailly as th OCR is expected to go negative next year, and lending rates may go down into the 1's !

If NZ isn't able to eliminate Covid this time, and it becomes more widespread and only able to be suppressed, IMO it potentially could cause some significant economic problems,and may reduce the number of NZers wanting to return too. So IMO that could also decrease prices over time. Some people seem to think dropping house prices are bad, but the way house prices have risen so much and so quickly and for so long, is IMO worse.

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. It won't be until the subsidies end and any other relief ends, when reality sets in. That is if we don't keep extending these subsidies etc. But I do fear what taxes are going to be brought in in the coming years, to help pay for all of this.

tdgeek

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#2550224 26-Aug-2020 18:26

mattwnz:

The main thing I can see that will bring house prices down, is increasing interest rates. But that ain't going to happen anytime soon. Especailly as th OCR is expected to go negative next year, and lending rates may go down into the 1's !

If NZ isn't able to eliminate Covid this time, and it becomes more widespread and only able to be suppressed, IMO it potentially could cause some significant economic problems,and may reduce the number of NZers wanting to return too. So IMO that could also decrease prices over time. Some people seem to think dropping house prices are bad, but the way house prices have risen so much and so quickly and for so long, is IMO worse.

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. It won't be until the subsidies end and any other relief ends, when reality sets in. That is if we don't keep extending these subsidies etc. But I do fear what taxes are going to be brought in in the coming years, to help pay for all of this.

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.

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