Real estate, post level 4

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#2677689 20-Mar-2021 17:17

quickymart:
I'm surprised we haven't had a GFC already, given how the world economy is shrinking (at the moment, anyway) with coronavirus.

We probably have to look at what is happening in the US. They have a lot of people who are on mortgage holidays and also lots of people behind on their rent payments. They had major house market crashes in 1929 and 2008. NZ avoided a house market crash in 2008, but many NZ mum and dad investors lost billions in finance companies when they collapsed around 2008 with the GFC. Now we have a lot of those mum and dad investors who have helped to pump up property prices 20% plus on this last year alone.

Time will tell.

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#2677727 20-Mar-2021 20:30

mattwnz:
Batman: m

The housing crisis can only be fixed by the government. They have already tried to shift responsibility onto the Reserve Bank, but they have served it back to the governemnt as their responsibility. So unless there is a global financial event, not much can change without government making changes. They can say that these prices can't continue to rise like they are, but that just becomes a challenge which has now been exceeded.

So in the future months people on this thread are likely to continue to complain about the average house price in NZ reaching a million dollars etc. But there are now people in the media who are keeping the housing crisis as a top story. IMO this is the most important topic in NZ due to the enequity and knock on effects it causes. It creates a huge wealth gap and has only accelerated since lockdown ended, partly due to emergency low interest rates which has had major knock on effects pushing more investors into buying houses and land.

Maaaaate. This housing crisis is not new, read the article that Handle9 posted. The Govt has only intervened twice. Post WW2 and post the Great Depression, both of which were to provide employment and vigour to the economy.

How should the Government today intervene? They can't build houses as they are not a builder. They could decide that interest rates were 11%, that would fix it. They could donate $150,000 to home buyers that would help :-) If we lived in a market driven economy, which we do, whatever situation we have is natural so its all good. It doesn't help that we are now are low wage economy, and the low interest rates driven by the world economy, driven by Covid.

What do you suggest we do?

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#2677728 20-Mar-2021 20:34

mattwnz:
quickymart:

I'm surprised we haven't had a GFC already, given how the world economy is shrinking (at the moment, anyway) with coronavirus.

We probably have to look at what is happening in the US. They have a lot of people who are on mortgage holidays and also lots of people behind on their rent payments. They had major house market crashes in 1929 and 2008. NZ avoided a house market crash in 2008, but many NZ mum and dad investors lost billions in finance companies when they collapsed around 2008 with the GFC. Now we have a lot of those mum and dad investors who have helped to pump up property prices 20% plus on this last year alone.

Time will tell.

You cant compare the US to here. Ive been there many many times, you can drive around lesser states and see quite nice, modern, and roomy houses (as you always get there) that are empty, broken windows, 5 foot high grass. Its not the same. People walk away there, foreclosures are much less common here as we have pride.

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#2677768 20-Mar-2021 23:24

Actually, I linked to Bernard Hickey's article at least a page or two back before he did :)

mattwnz

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#2677778 21-Mar-2021 01:35

tdgeek:

Maaaaate. This housing crisis is not new, read the article that Handle9 posted. The Govt has only intervened twice. Post WW2 and post the Great Depression, both of which were to provide employment and vigour to the economy.

How should the Government today intervene? They can't build houses as they are not a builder. They could decide that interest rates were 11%, that would fix it. They could donate $150,000 to home buyers that would help :-) If we lived in a market driven economy, which we do, whatever situation we have is natural so its all good. It doesn't help that we are now are low wage economy, and the low interest rates driven by the world economy, driven by Covid.

What do you suggest we do?

As you have said, the government intervened post WW2 etc, by building houses. They also had the ministry of works back then. So the government was a builder, and the government built state homes. Many of which are probably worth a million dollars today depending where they are.

You could say the government aren't a hospital or a school either, but the government / tax payer pays for those things. But they aren't paying to build more lower priced houses. They promised 100,000 new houses in 10 years, and when they saw it wasn't possible they did a reset, to make the promise disappear.

Today they are relying on private developers who just are not interested in building affordable homes, as is shown by the failure of kiwisaver. Why would they be when they can upspec them, and sell them for a million dollars.

What the government can do is import builders from overseas, like was done after the Chch earthquakes. Buy materials on mass, as we pay substantially more for materials in NZ. Create a huge single government SOE building company, and help bring down the price of building. NZihas too many small building companies and too many small building supply companies which is inefficient with lots of duplication, and all adds to the costs.

mattwnz

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#2677779 21-Mar-2021 01:45

tdgeek:

You cant compare the US to here. Ive been there many many times, you can drive around lesser states and see quite nice, modern, and roomy houses (as you always get there) that are empty, broken windows, 5 foot high grass. Its not the same. People walk away there, foreclosures are much less common here as we have pride.

NZ is just a cork on the ocean. The last GFC was largely caused by what happened in the US with their housing market, and it also affected NZ very hard with NZers losing billions of dollars. Many of the finance companies were involved with property developments, and after that, you could pick up land in some parts of NZ from failed developments very cheaply. Suggest watching some of Australias shows about the current property bubble. I haven't seen any TV shows in NZ highlighting potential problems.

ABC has done a story about fears of a mortgage Debt disaster in Australia with people load up with cheap money. Interesting that they said that banks used to stress people at 8% interest. Now it is down to 5% https://www.youtube.com/watch?v=QbmbrEuCpBI . But Australians house prices don't seem to have gone up as much as NZs.

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#2677785 21-Mar-2021 08:53

mattwnz:

As you have said, the government intervened post WW2 etc, by building houses. They also had the ministry of works back then. So the government was a builder, and the government built state homes. Many of which are probably worth a million dollars today depending where they are.

You could say the government aren't a hospital or a school either, but the government / tax payer pays for those things. But they aren't paying to build more lower priced houses. They promised 100,000 new houses in 10 years, and when they saw it wasn't possible they did a reset, to make the promise disappear.

Today they are relying on private developers who just are not interested in building affordable homes, as is shown by the failure of kiwisaver. Why would they be when they can upspec them, and sell them for a million dollars.

What the government can do is import builders from overseas, like was done after the Chch earthquakes. Buy materials on mass, as we pay substantially more for materials in NZ. Create a huge single government SOE building company, and help bring down the price of building. NZihas too many small building companies and too many small building supply companies which is inefficient with lots of duplication, and all adds to the costs.

The Govt isn't a builder apart from two periods when it needed to invigorate the economy, after two non housing crises. They could as you say become a builder, effectively take over the current building industry, apart from luxury homes. That would be quite a sea change. They would nationalise many builders jobs and they would probably have to nationalise imports of building materials, and local wood industries. There are some pre fab startups in NZ, its probably better to assist them with loan capital and land grab to fasttrack developments.

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#2677797 21-Mar-2021 10:41

That sounds like a great idea, but as it would bring down the cost of existing properties and (no doubt) enrage many current homeowners, it probably won't happen at the moment, right?

mattwnz

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#2677925 21-Mar-2021 14:57

tdgeek:

mattwnz:

As you have said, the government intervened post WW2 etc, by building houses. They also had the ministry of works back then. So the government was a builder, and the government built state homes. Many of which are probably worth a million dollars today depending where they are.

You could say the government aren't a hospital or a school either, but the government / tax payer pays for those things. But they aren't paying to build more lower priced houses. They promised 100,000 new houses in 10 years, and when they saw it wasn't possible they did a reset, to make the promise disappear.

Today they are relying on private developers who just are not interested in building affordable homes, as is shown by the failure of kiwisaver. Why would they be when they can upspec them, and sell them for a million dollars.

What the government can do is import builders from overseas, like was done after the Chch earthquakes. Buy materials on mass, as we pay substantially more for materials in NZ. Create a huge single government SOE building company, and help bring down the price of building. NZihas too many small building companies and too many small building supply companies which is inefficient with lots of duplication, and all adds to the costs.

The Govt isn't a builder apart from two periods when it needed to invigorate the economy, after two non housing crises. They could as you say become a builder, effectively take over the current building industry, apart from luxury homes. That would be quite a sea change. They would nationalise many builders jobs and they would probably have to nationalise imports of building materials, and local wood industries. There are some pre fab startups in NZ, its probably better to assist them with loan capital and land grab to fasttrack developments.

They would be best IMO to focus on those who qualify for first homes under Kiwibuild. They wouldn't take over all home building, just a subset, similar to what Kiwibuild should be doing. That shouldn't affect any existing builders, because they are building higher margin houses, unless they wanted to join into the scheme to buy into cheaper materials. The high cost of materials in NZ is a major problem that has been forgotten about, as we produce many of these materials, so we shouldn't be paying much more than they pay overseas . Drywall is one good example of this.

Prefab type homes are not what we want to solve this. They are fine for temporary use, but you end up wit trailor park type areas like occurs in the US with low cost housing. We want homes that will stand the test of time and last, well built , durable etc, and built to the building code. Many state homes are still here today because they were well built and built to expand in the future, with a good amount of land, and NZ has plenty of land. Startups often fail, and then who covers the building guarantee when that happens. There was quite a big one that failed a few years ago that built ok ones, and they were transportable homes, so were better than than prefabs. But they still all look the same and are very basic. Whereas state homes were designed to use a range of different designs, so you didn't end up with streets all having the same house design, which is what is happening in parts of NZ with some developments, and those streets look depressing.

mattwnz

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#2677929 21-Mar-2021 15:02

quickymart:

That sounds like a great idea, but as it would bring down the cost of existing properties and (no doubt) enrage many current homeowners, it probably won't happen at the moment, right?

Shouldn't matter if existing home owners are buying and selling in the same market. But someones home is supposed to be a place to live in, and not an investment. This is why people don't pay capital gains tax on their family home, because your own home is not an investment. But this mindset appears to have changed, and banks allow people to use their home as a financial vehicle to allow more lending to people. So people borrow against their house to borrow for businesses etc

But it is banks that won't be happy if prices drop. They make money by growing their lending. 25% house price rises in a year allows they to lend at record levels and all this printed money is going into inflating asset prices. They knew this would happen too as the government were warned early last year. If house prices dropped back 40%, so they are back to 2017-18 levels, not only will some people be in negative equity but banks would not be able to lend as much. They would likely need to increase their margins which would increase interest rates, which could help push prices lower. So the reverse situation could happen.

I see the government are announcing some changes this week, which was delayed due to the last covid outbreak for some reason. But can't see there being any major changes. But it is is government problem to fix, and first home buyers should be taking them to task.

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#2677930 21-Mar-2021 15:22

mattwnz:

They would be best IMO to focus on those who qualify for first homes under Kiwibuild. They wouldn't take over all home building, just a subset, similar to what Kiwibuild should be doing. That shouldn't affect any existing builders, because they are building higher margin houses, unless they wanted to join into the scheme to buy into cheaper materials. The high cost of materials in NZ is a major problem that has been forgotten about, as we produce many of these materials, so we shouldn't be paying much more than they pay overseas . Drywall is one good example of this.

Prefab type homes are not what we want to solve this. They are fine for temporary use, but you end up wit trailor park type areas like occurs in the US with low cost housing. We want homes that will stand the test of time and last, well built , durable etc, and built to the building code. Many state homes are still here today because they were well built and built to expand in the future, with a good amount of land, and NZ has plenty of land. Startups often fail, and then who covers the building guarantee when that happens. There was quite a big one that failed a few years ago that built ok ones, and they were transportable homes, so were better than than prefabs. But they still all look the same and are very basic. Whereas state homes were designed to use a range of different designs, so you didn't end up with streets all having the same house design, which is what is happening in parts of NZ with some developments, and those streets look depressing.

Right now I don't think the Govt is a builder, so they would have to create that, JUST for FHB, basic homes. Thats not very efficient, which I think you already mentioned. Ive seen trailer homes in the US, some look like regular homes,s are as pre fabs aren't identical, the idea of pre fab is not to reduce quality its to reduce build cost. Builders sawing wood and making frames is more expensive than a CNC cutting accurate frame fittings quick. You can make prefabs bigger, smaller, different designs, different finishes. Many state home neighbourhoods look like state home neighbourhoods. I dont see how a transportable home is better than a prefab. Do you feel they make homes from 4x2 and prefabs from 3x1.5 ? Prefab means prefabrication not cheap thin materials. Pre fab game will be MUCH more square then a manually manufactured one, especially these days.

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#2677931 21-Mar-2021 15:24

mattwnz:

I see the government are announcing some changes this week, which was delayed due to the last covid outbreak for some reason. But can't see there being any major changes. But it is is government problem to fix, and first home buyers should be taking them to task.

Why now? Hasn't this been an issue since 2003?

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#2677932 21-Mar-2021 15:29

mattwnz:

But it is banks that won't be happy if prices drop. They make money by growing their lending. 25% house price rises in a year allows they to lend at record levels and all this printed money is going into inflating asset prices. They knew this would happen too as the government were warned early last year. If house prices dropped back 40%, so they are back to 2017-18 levels, not only will some people be in negative equity but banks would not be able to lend as much. They would likely need to increase their margins which would increase interest rates, which could help push prices lower. So the reverse situation could happen.

I think banks make a margin on interest rates. 2% rings a bell. If house prices dropped 40%, I'd expect banks to lend more as there are now more that can afford one, more loans, at same % margin.

Negative equity is too bad, you bought in a boom which can lead to a bubble, so caveat emptor applies. The mortgage payments are not affected if they go to negative equity, it just raises the "potential" loss for a bank. IF they had to foreclose, which is not common.

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#2678027 21-Mar-2021 17:06

mattwnz:

Prefab type homes are not what we want to solve this. They are fine for temporary use, but you end up wit trailor park type areas like occurs in the US with low cost housing.

For a lot of first home buyers right now, they wouldn't care about anything like that - they just want to buy a place to call their own.

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#2678122 22-Mar-2021 06:49

https://www.stuff.co.nz/business/property/300256988/large-subdivision-plan-could-transform-rapidly-growing-rural-canterbury-town

Its not that hard, here is a good example of expansion for housing.

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