Real estate, post level 4

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Mad Scientist
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#2679948 24-Mar-2021 19:33

GV27:

sbiddle:

A soft landing isn't going to put an end to incredibly overpriced houses. The horse has bolted after 3 years of insane increases, and that can't be fixed.

The reality is the ~$700k - $750k ex state homes in Lower Hutt that were only $350k 3 years ago are simply not worth that sort of money. They're not going to drop in price, nor are they going to drop in comparison to other properties.

These should be affordable entry level homes, and up until 2018 they were. Even a drop down to $500k would still make them unaffordable for many, and a drop even to that value is simply highly unlikely to happen without taking out economy with it.

We are a small leaf in a very big stream. If global sentiment changes, we could find our market is going backwards whether we want it to or not. Either we do it on our terms or something will do it for us.

AFAIK other than off the plan apartments, only residents and citizens are allowed to buy (+ Singapore and AU citizens) ... so it's really local people selling houses to each other ...

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quickymart

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#2680022 24-Mar-2021 21:22

Handle9:

quickymart:

How did this all work in the 80s and 90s? There were heaps of vacant houses, therefore prices were low? It's simple supply and demand, as I understand it.

Not 100% sure how today's announcement will help me, but I suppose it's better than doing nothing.

Honestly it won't help you. It will slow down the market but it's not going to magically make Auckland affordable.

This will sound callous, and it certainly gives me no pleasure to write it, but you need to either plan to rent for a very long time, likely the rest of your life, or to plan to move to another city or country. Housing affordability will not get better in the short or medium term.

If I return to NZ I almost certainly won't be living in Auckland, even though I own a house there.

Right, so in your way of thinking I should just completely give up and accept everything is what it is, because (in your eyes) it's never, ever, ever going to change or improve.

Sorry but I don't subscribe to such a defeatist attitude as that. Yes I'm frustrated but also optimistic that there may be any improvement to the property market. Also, you don't know my entire situation - only what I've shared on here - and yes while the current situation does suck (I fully agree with you on that one) I find your comments frankly unhelpful (and borderline patronising).

Question for you: if you're unhappy with a specific situation, do you never speak out and express your opinion? As Rikki said to nathan a while ago while he was trying to justify the American political system and basically saying how he thought it was perfect (in his eyes), we should all just lay down and die and accept things for what they are? Again sorry, but that's not for me.

Handle9

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#2680033 24-Mar-2021 21:36

quickymart:

Right, so in your way of thinking I should just completely give up and accept everything is what it is, because (in your eyes) it's never, ever, ever going to change or improve.

Sorry but I don't subscribe to such a defeatist attitude as that. Also, you don't know my entire situation - only what I've told people on here - and yes while the current situation does suck (I fully agree with you on that one) I find your comments frankly unhelpful (and borderline patronising).

If you're unhappy with a specific situation, do you never speak out? As Rikki said to nathan a while ago, we should all just lay down and die and accept things for what they are? Again sorry, but that's not for me.

You can be as unhappy as you like and say what you like. That's entirely up to you.

What helpful comments do you expect to get? Housing, especially in Auckland isn't getting affordable anytime soon. The government does not want to reduce house prices, they just want to stop the rapid price rises. Hoping for that to change in the next 10 years is not realistic.

quickymart

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#2680041 24-Mar-2021 21:49

Again, there goes your "it is what it is, things will never change, so lay down and die" attitude. Yes I can say what I like - as can you - but. Gah, never mind, not worth arguing this with you. Yes, I'm going to walk away from this discussion with you - but I'm certainly not letting this go, just because you think I should.

engedib

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#2680104 24-Mar-2021 23:26

quickymart:

Again, there goes your "it is what it is, things will never change, so lay down and die" attitude. Yes I can say what I like - as can you - but. Gah, never mind, not worth arguing this with you. Yes, I'm going to walk away from this discussion with you - but I'm certainly not letting this go, just because you think I should.

Things are changing, but don't expect the property prices to drop especially in AKL. The current tweaks might only just be able to slow down the rate of increase in a 5-10 year term.

If you don't do anything and you are currently renting that's just conserving your situation. Be aware that with the current changes, I would expect at least a $100/week rent increase in the next 12 months as the landlords will need to cover the losses caused by the tax changes.

Because you cannot control the housing market there are two main options.

- Move to the regions where housing is a little bit cheaper and you might be able to get the deposit. To do this and you are a first home buyer, try ramping up your Kiwisaver and draw the money for the deposit.

- Significantly increase your income by changing jobs / upskilling.

MCSE+M/S, MCITP

mattwnz

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#2680108 25-Mar-2021 00:05

antonknee:

mattwnz: Can't they still get it if it is a new house? This change is supposed to try and get investors investing in new houses, and leveling the playing field on existing homes for first home buyers who can't get those tax breaks. It was interesting that GR said that this was loophole they were closing.

I somehow can't see a flood of houses flooding the market as a result of this, and they have been talking about this sort of change for a long time so investors should have had some inkling something like this would happen eventually. 40 percent of sales to investors shows how attractive housing investment and speculation was, and it caused the market to go crazy. But IMO this is just a start and may not make much difference. But it could increase rents.

Correct. For new builds, the brightline test is five years. Additionally, there is an exemption for deducting the interest on loans used for new build residential properties.

If an investor built their rental house last year, can they still claim the interest deduction? I know there is a 4 year phase in period for existing owners, but does that also apply if the landlord built the house. Or is that house they built treated like all other existing house. It appears that if you build a house as a landlord after March 2021, then you can claim the interest deductions and get a 5 year brightline test. But does it also apply to those prior to March 2021? Could be bad timing for some if they can't claim on their almost new built.

mattwnz

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#2680109 25-Mar-2021 00:11

engedib:

quickymart:

Again, there goes your "it is what it is, things will never change, so lay down and die" attitude. Yes I can say what I like - as can you - but. Gah, never mind, not worth arguing this with you. Yes, I'm going to walk away from this discussion with you - but I'm certainly not letting this go, just because you think I should.

Things are changing, but don't expect the property prices to drop especially in AKL. The current tweaks might only just be able to slow down the rate of increase in a 5-10 year term.

If you don't do anything and you are currently renting that's just conserving your situation. Be aware that with the current changes, I would expect at least a $100/week rent increase in the next 12 months as the landlords will need to cover the losses caused by the tax changes.

Because you cannot control the housing market there are two main options.

- Move to the regions where housing is a little bit cheaper and you might be able to get the deposit. To do this and you are a first home buyer, try ramping up your Kiwisaver and draw the money for the deposit.

- Significantly increase your income by changing jobs / upskilling.

I think it will lead to increased rents, I can't see how it can't. 10% rise in rents last year, which is far too much when compared to inflation and wage growth.

From the way I see it, the government allowing landlords to do this, was almost getting the tax payer to subsidize rentals for landlords, as the government / taxpayers were missing out on a lot of tax, at the expense of cheaper rentals. As a result, I have seen a lot of landlords say they will have no choice but to increase rents to cover this. Also it shows how much of an advantage it was for investors to get a loan to buy a rental, over paying cash. The government has called it a loophole, which it wasn't, but they obviously didn't like it, so they called it a loophole as a justification to get rid of it, and use it as an incentive for landlords/investors to build new houses.

Ironically the announcements didn't include the building of any new houses, and still relies on private developers to do it, which didn't work with kiwibuild.

mattwnz

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#2680110 25-Mar-2021 00:15

tdgeek:

And you can look at growth companies on the sharemarket for long term investment, light commercial property, commercial property, a silent share in a business, as well as what GV outlined.

One problem is that a lot of shares have been inflated in price due to all the cheap money that has flooded the system.S

NZs share market is tiny compared to other countries, and we lack other good investment options, which is one reason so many kiwis invested in houses instead. Many were also stung badly by the 87 crash, which seemed to affect NZ worse than other countries. Then a lot of savers and investors were also burnt badly by the finance company collapses 10+ years ago. So many people are very wary.

mattwnz

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#2680111 25-Mar-2021 00:39

Handle9:
eracode:

Of course our tax system is not consistent but the fact that there are existing anomalies that have arisen over time doesn’t legitimise the introduction of a new major distortion like this one.

Of course this introduces a distortion. It's designed to do so.

There is nothing inherently virtuous about an undistorted tax system - it's all social engineering to some degree.

The problem is that continued lowering of the interest rates also caused a massive distortion, leading to crazy house price inflation of 23% in the last year alone. So I understand this is about trying to correct that distortion a bit.

mattwnz

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#2680112 25-Mar-2021 00:48

MileHighKiwi:

I was thinking about our first home today, purchased for $300K in 2009 in Upper Hutt. We sold it for $530K 3 years ago. Today it would probably sell for around $715k based on recent sales. It's still a 'first home'; 3 bedroom, 100m2 house on a 700m2 corner section, 1960's build, solid yet unspectacular. Back then we needed $60K as a deposit and borrowed $40K from family, today that young couple would need $140k. Impossible for so many. In Upper Hutt you can't find a house for less than $600K, you're looking in the $700-$800k range to buy a house equivalent to what we bought in 2009. It's mental that a young couple needs to spend almost 3/4's of a mil to get a 'first home' in Upper Hutt.

I'm yet to see a radical idea on how you get prices back to a reasonable multiple of household income (e.g. 3 as the gold standard), without causing people to lose hundreds of thousands of dollars in the process, and their lives in many cases.

Ultimately we need to lower the cost of land and building supplies but in the process some people will take a bath. How do we protect those people while making the structural changes required? It can't keep going on like this.

What annoys me about all this, is that the price people are prepared to pay to buy a house, seems to be far more about what peoples weekly mortgage payments are going to be, and whether they can service the mortgage, rather than the actual price that is paid. Then there is the problem with the growing deposit that is required, where 25 years ago, the deposit alone would have likely been enough to buy the house. The house inflation is all to do with interest rates. If they reduced interest rates like they have, then it is going to have negative impacts and knock on effects. They have to bring in policies to correct those, which up until now, they haven't, and it is debatable whether these new policies will have much of an effect apart from increasing rents. If rents can increase 10% in a year like they have done, then the rental market also doesn't seem to be working very well either, with a major supply problem too. So we may try and fix one problem, and cause another.

The PM uses the cliche 'there is no silver bullet'. That IMO is a major cop out because the housing crisis needs lots of things to be done and they have already had 4 years. One of the major things is around supply and costs to build and buy land, which is all heavily controlled in NZ to keep demand high. I am trying to buy some land at the moment to build on, and in my town, the same sized land in the same subdivision has doubled in price in the last year because that is what the market will now pay. I told the agent about this, and he said that the market has moved a lot in the last year. But doubling is crazy, and it is because you get one crazy person paying a crazy price, and the agents then think that that is the new baseline price. The land is drip fed so supply is constrained, even though the town is surrounded by build-able land. The problem is there aren't services to that land.

dafman

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#2680151 25-Mar-2021 08:53

I see two potential problems on the horizon with our current housing mess:

1. As our population ages, life renters will not be able to service current high rents as they grow older and work opportunities diminish. So where will they live?

2. Many first home buyers have leveraged themselves with high levels of debt they will never be able to pay off. And it's likely interest rates won't remain at current lows for the rest of their lives.

Considering these, I have limited empathy for property investors complaining how hard done by they are now that tax deductions for interest have been removed.

alasta

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#2680173 25-Mar-2021 09:38

Landlords like to push a narrative whereby any additional costs they incur can be directly passed on to tenants. That's not quite how the market works, because rents are driven by demand and supply in the rental market and are ultimately constrained by how much tenants are able to pay. Redistributing houses between investors and owner-occupiers doesn't really affect the balance of demand and supply in the rental market, all other things being equal.

That doesn't mean that rents won't increase because of other market factors, and landlords will be quick to blame any government policy that they don't like.

Fred99

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#2680175 25-Mar-2021 09:40

mattwnz:

the market has moved a lot in the last year. But doubling is crazy, and it is because you get one crazy person paying a crazy price, and the agents then think that that is the new baseline price.

Not land or a section, but in the late '80s we bought and then sold an apartment in Sydney in one year and one week, and made a 257% capital gain, the week over one year avoided CGT on owner-occupied homes.

The sole reason for that sudden and insane price rise was introduction of negative gearing in Aus - prior to that you could not offset interest against rental income for homes. It was a frenzy with the "reasonably well to do" stampeding in a rush to become landlords.

And that introduction of negative gearing was done because there was a severe housing shortage then, the theory being that introducing that tax concession would encourage investment and new building. And it did, but ultimately achieved nothing to reduce the housing shortage and/or home affordability - it's as bad as ever - worse than it was when we bought. My friends in Sydney with kids have the same problem as appears to be common in Akl, they can't afford to buy in the city they were born.

That's why I think removing negative gearing as is happening here is a very smart and ballsy move, the timing is perfect as the initial impact is small (shouldn't cause a crash), and over time it should achieve exactly what it's intended to do.

I could go on about how broadly the *RE "Industry" uses "regulatory capture" to have the rules set in their favour, that very much the case in NZ over the past few decades. Successive governments have allowed it to happen, and they're now screwed, they've created a "too big to (allow to) fail" monster.

*by RE Industry, I don't mean RE agents, it's the whole sphere of associated entities, right down to the homeowner who is now effectively forced to look at their home as a "financial investment" that must only ever increase in value to offset the debt load they carry. Yet in a (near) zero general inflation economy, that's looking increasingly unlikely.

alasta

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#2680177 25-Mar-2021 09:41

quickymart:

Right, so in your way of thinking I should just completely give up and accept everything is what it is, because (in your eyes) it's never, ever, ever going to change or improve.

Sorry but I don't subscribe to such a defeatist attitude as that. Yes I'm frustrated but also optimistic that there may be any improvement to the property market. Also, you don't know my entire situation - only what I've shared on here - and yes while the current situation does suck (I fully agree with you on that one) I find your comments frankly unhelpful (and borderline patronising).

I have read a lot of your posts and I have never been entirely clear about your motivation for wanting to own property. Is it for security of tenure? Financial security in retirement? A problematic relationship with your current landlord? Poor returns on bank deposits?

If you can be more specific then people may be better able to make constructive suggestions to improve your situation.

alasta

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#2680179 25-Mar-2021 09:43

dafman:

1. As our population ages, life renters will not be able to service current high rents as they grow older and work opportunities diminish. So where will they live?

This is a very good point.

A lot of the political narrative is focused on "young couples" buying houses. I am not young or a couple, and a lot of my peers are under severe housing stress with no prospect of ever owning a house. If you're too old to go flatting and can't afford perpetually increasing rents for the rest of your life then what are you supposed to do?

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