How I propose to fix the property market.

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#1599125 26-Jul-2016 16:02

mattwnz:

There are so many problems wi

(3) Expensive building materials - It is well known that we pay a lot more for building materials in NZ. This is largely because of the lack of competition in the market. Builders also get perks for using certain brands of materials. Unfortunately there have been very little done about this. I

Placemakers just sent out a letter saying prices are increasing 5-10% (something like that). This increases the cost of building by about 20k.

I've a builder friend who buys from them (on behalf of customers) and gets kickbacks, like trips to Vietnam I think was the last one.

It is so wrong.

frankv

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#1599130 26-Jul-2016 16:22

surfisup1000:

frankv:

Nope, still not buying it.

We'll just have to agree to disagree on this.

I suppose I get some of my views from 'Freakonomics' , which tries to explain how changes can propagate through society in unintended ways.

I like 'Freakanomics' too. I agree that dabbling in this sort of thing will have unintended consequences. Especially if you don't know what causes what.

But I do think that we're in an unbalanced situation at the moment, where speculators (as opposed to investors) have pushed house prices up beyond their actual value. Unfortunately, there's a bunch of families who have been trapped into paying too much for their homes. How to kill off the speculators without burning their victims is going to be a tricky one!

So a simplistic "Tax land and only land" or a CGT is going to cause some pain and not particularly solve anything, any more than Social Credit's transaction tax would have in the 1980s. Any more than introducing (or increasing) GST solved anything.

But there are houses. They wouldn't disappear if every landlord in the country decided it was uneconomic to rent out houses (unless, due to e.g. a tax based on improved land value, it became a good idea to bulldoze them). They wouldn't suddenly disappear if we shot every single landlord in the country, and/or declared a worker's paradise socialist republic. Generally speaking, the only way that there would be more homeless would be if more of those houses were empty.

sir1963

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#1599131 26-Jul-2016 16:28

surfisup1000:

sir1963:

WRONG. Businesses invest based on only ONE criteria, can they make money.

Significantly higher taxes did not stop people from accruing significant wealth, neither have wars, civil unrest, left/right governments, etc etc etc.

A CGT will also not stop people from making money from land.

For example, this land crash you want happens. Someone wealthy figures he can buy the cheap houses at a slightly higher price than the tenants, demolish the houses and plant a high value crop will make them money, that is what will happen.

If you plan to take away everyones property rights, then money will rapidly bleed overseas, sort of like how many asians are buying up land in NZ.

I object to you making up things that I did not say.

It is a very deceptive approach to invent things I never said and then then make up arguments pretending I did say them.

I did not say a higher taxes stop people from accruing wealth. In fact, Australia has a CGT and some people still make a lot of money from property.

And, where did I say I want to take away peoples property rights? Or, that I want a land crash?

As for your assertion that rich people will buy houses, demolish them, and plant crops... I've really never heard anything more ridiculous .

And, you seem to have something against asian people too.

What I said was to show that taxes have very little influence.

I also said the ONLY reason businesses invest is because they can make money on that investment. END OF STORY. Higher taxes, CGT, LandTaxes are all irrelevant to investment, its can they make money, and no matter what you do, someone will find a way around it to do exactly that, make money.

A few years back we went on a cruise around the Gold coasts canals, we were shown one property and got told that was the summer residence, 2 doors down was the winter residence. Both houses worth millions.

Another house had a multi-million dollar empty section, the house was bought and demolished so the owner next door had an area for his kids to play on.

Heres another example, just to "improve the view"

http://sanfrancisco.cbslocal.com/2012/06/25/multi-million-marin-home-demolished-to-improve-view/

My uncle bought the section in front of his house to stop anyone else from building and blocking his view.

Towns often get shifted to make way for water reservoirs for hydro dams.

If someone works out that kicking down houses, planting crops to make the land "productive" as a means of land banking makes financial sense, it too will happen.

Heck, simply owning the land and leasing it out to people is an option. Don't own multiple houses, just own the land under them.

Look at the HUGE sections and houses the elite own in Hollywood, and they pay their "fines" for watering the lawns because the vanity of having a green lawn is worth more to them than the fines cost.

And as for the Asians, a lot of "investment" was to take wealth out of china and place it in a country where it was safer from government interference. Its MUCH harder to confiscate land in another country. Again this was an example of how people find ways around "policy" to make money.

We have for example a "tax" to fund the fire brigade in NZ. Businesses with multiple sites around NZ have found that if you insure ALL the buildings for a maximum of the cost of say 10% (e.g. you have 100 building but insure for a maximum/year payout 10 of them) they pay less insurance , pay less fire levy, and yet have equal fire coverage for all the buildings.

andrew027

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#1599133 26-Jul-2016 16:30

allio:

andrew027: There has to be a pool of rental property in the market. Just saying "people start to buy their own homes" isn't realistic. The solo mum who's one of my current tenants, working part time and studying at polytech, she's not going to be able to afford a house of her own any time soon. Where should she live - give up her study and move back in with Mum and Dad in an even smaller town with even fewer job prospects?

I love this. Create a system where people can't afford to buy their own homes because the investors bought them all first. Then claim you're doing them a favour by taking their rent, because they couldn't afford to buy anyway.

Early 20s solo mother, child in primary school, working part time while studying. She seems to have a good attitude so I hope she does well, but right now I doubt the banks see her as a good candidate for a mortgage. How low do you think house prices need to be for her to be able to pay cash for one? And are you seriously suggesting they would be that low if nobody owned rental property?

frankv

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#1599136 26-Jul-2016 16:33

sir1963:

And who compensates the Banks etc who have mortgages ?

Compensate the banks???? Why????

The banks have been lending money to people in the full knowledge that the house that is security against that loan is over-valued. The banks are the sharks in this particular pond as much as anyone else. If they want to make risky loans, then let them take the consequences of those risks. Part of the problem is that they escaped the consequences last time, so they're doing it again. [/rant. Wipes froth from lips]

It's the GEC again. I like the Icelandic solution.

MikeB4

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#1599149 26-Jul-2016 16:59

A rapid drop in the market valuation of housing will have huge negative impact on the economy and our society for decades to come.

mattwnz

20141 posts

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#1599161 26-Jul-2016 17:47

surfisup1000:

mattwnz:

There are so many problems wi

(3) Expensive building materials - It is well known that we pay a lot more for building materials in NZ. This is largely because of the lack of competition in the market. Builders also get perks for using certain brands of materials. Unfortunately there have been very little done about this. I

Placemakers just sent out a letter saying prices are increasing 5-10% (something like that). This increases the cost of building by about 20k.

I've a builder friend who buys from them (on behalf of customers) and gets kickbacks, like trips to Vietnam I think was the last one.

It is so wrong.

I know a builder who got trips to the rugby after selling a certain amount of product. There was a story on TV about these perks, and the NZ building industry and why prices were so high. I don't think these kickbacks were ever disclosed to the person who was building and paying for the house to be built. It really needs to be looked at. In other industries kickbacks have to be disclosed.

The reserve bank excludes housing from the inflation figures, so even though when they drop the interest rates to try and increase inflation, it causes house prices to go up. Yet they totally ignore house price inflation from the inflation figures they are using. So overall inflation I suspect inflation is a lot higher, and they should probably be putting interest rates up, not down, at least for house lending. If interest rates for house lending up to normal levels of say 8-10%, I think that could burst the housing bubble. However people could probably go offshore for their lending if that happened.

The reserve bank has done stress tests on the banking system, and apparently NZ could handle a 40% house price drop across NZ. So I wonder why they don't try to force a correction now. The longer they leave it, the worse it will be for people who are buying a house tomorrow in Auckland.

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mattwnz

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#1599163 26-Jul-2016 17:52

MikeB4:

A rapid drop in the market valuation of housing will have huge negative impact on the economy and our society for decades to come.

Where do you get that info from? The reserve bank has already done stress tests to say that we can handle a 40% drop in house prices nationwide without any bank failing. Ther eis likely to be a correction anyway at some point, especially when supply catches up with demand.

Actually what has happened to the NZ housing market has already caused this in reverse. Now the young can't afford to buy a house in Auckland, they need 10 times their wages. When the normal amount should be 3-4 times. That is a huge negative impact on the economy already. ALso house prices are now so high relative to salaries, that there maybe little capital gain for decades.

The problem is that so many people own property and have a conflict of interest in this topic, and some are in charge of making the hard decisions. They are hardly going to make a decision that negatively impacts on them.

mattwnz

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#1599164 26-Jul-2016 17:56

frankv:

sir1963:

And who compensates the Banks etc who have mortgages ?

Compensate the banks???? Why????

The banks have been lending money to people in the full knowledge that the house that is security against that loan is over-valued. The banks are the sharks in this particular pond as much as anyone else. If they want to make risky loans, then let them take the consequences of those risks. Part of the problem is that they escaped the consequences last time, so they're doing it again. [/rant. Wipes froth from lips]

It's the GEC again. I like the Icelandic solution.

That is a very good point, and something the ANZ head talked about. Their justification was that if they made LVRs higher, then people would just go to another bank. It is because there is a lot of competition with the banks. It actually needed regulation or collaboration. But I guess they have to be careful with collaboration, that they aren't caused of acting anti-competitive. It is a tough situation for banks in some ways, because they need to lend money in order to make money. I wonder if they would prefer to see interest rates rise instead. It probably makes little difference to them if they go up or down, as they just make a % margin on the lending.

MikeB4

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#1599168 26-Jul-2016 18:30

mattwnz:

surfisup1000:

mattwnz:

There are so many problems wi

(3) Expensive building materials - It is well known that we pay a lot more for building materials in NZ. This is largely because of the lack of competition in the market. Builders also get perks for using certain brands of materials. Unfortunately there have been very little done about this. I

Placemakers just sent out a letter saying prices are increasing 5-10% (something like that). This increases the cost of building by about 20k.

I've a builder friend who buys from them (on behalf of customers) and gets kickbacks, like trips to Vietnam I think was the last one.

It is so wrong.

I know a builder who got trips to the rugby after selling a certain amount of product. There was a story on TV about these perks, and the NZ building industry and why prices were so high. I don't think these kickbacks were ever disclosed to the person who was building and paying for the house to be built. It really needs to be looked at. In other industries kickbacks have to be disclosed.

The reserve bank excludes housing from the inflation figures, so even though when they drop the interest rates to try and increase inflation, it causes house prices to go up. Yet they totally ignore house price inflation from the inflation figures they are using. So overall inflation I suspect inflation is a lot higher, and they should probably be putting interest rates up, not down, at least for house lending. If interest rates for house lending up to normal levels of say 8-10%, I think that could burst the housing bubble. However people could probably go offshore for their lending if that happened.

The reserve bank has done stress tests on the banking system, and apparently NZ could handle a 40% house price drop across NZ. So I wonder why they don't try to force a correction now. The longer they leave it, the worse it will be for people who are buying a house tomorrow in Auckland.

One example, Kiwi Saver. Those funds will be very adversely affected and that will have repercussions for a very long time.

Any resolution has to look to the long term and the short term, it is no easy fix.

dejadeadnz

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#1599175 26-Jul-2016 18:47

MikeB4:

One example, Kiwi Saver. Those funds will be very adversely affected and that will have repercussions for a very long time.

Any resolution has to look to the long term and the short term, it is no easy fix.

The sentiments are broadly correct but the actual example isn't a very good one at all. Let's use the asset allocation of ANZ Bank's (one of the largest Kiwisaver providers, if not the largest) KS funds as an example, their funds' exposure to Australasian property funds (which by definition includes NZ funds but not exclusively) range from 1.50 to 6.30%. And property funds almost never invest in residential property, so a residential property crash/sudden correction is not likely to affect them directly. Of course, deflated macro environment and economic sentiments can affect commercial tenants' leasing intentions and so forth but any self-respecting fund will tend to invest only in properties that have a weighted lease duration of around 5 years at least. So they should have an element of buffer against this kind of sudden, indirect volatility.

Now of course most Kiwisavers, especially the more aggressive funds, have substantial holdings in NZX main board shares. And retail and property stocks are especially prone to wider macro shocks. But if the fund managers did their asset/investment allocations semi-decently, in the long run people should be able to wear out such volatility. Now financially unsophisticated, uninformed or even silly people (depending on one's perspective) who have a short term need to withdraw KS funds for a house deposit or due to retirement might be hit a bit if they are in the wrong funds, i.e. those with substantial share holdings. But their plight is far more of a product of their own poor choice of funds, as such people should be in conservative or moderate risk funds at the most, if not even cash deposit only funds in some instances.

dejadeadnz

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#1599178 26-Jul-2016 18:55

mattwnz:

I know a builder who got trips to the rugby after selling a certain amount of product. There was a story on TV about these perks, and the NZ building industry and why prices were so high. I don't think these kickbacks were ever disclosed to the person who was building and paying for the house to be built. It really needs to be looked at. In other industries kickbacks have to be disclosed.

To clarify on this point. In ANY industry where an agent (agent/agency here is used in a legal sense) accepts undisclosed (to the principal who hires the agent -- in many cases this will cover builders and customers in a contractual relationship) inducements/rewards to show favour/disfavour towards a third party in relation to the principal's business, which can include the principal's building project obviously, is in breach of the Secret Commissions Act. This is actually a crime.

mattwnz

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#1599320 26-Jul-2016 23:59

This is an interesting story of what they are doing overseas to try and solve the problem http://www.stuff.co.nz/business/82489325/canada-tax-targets-foreign-house-buyers . The question is when will the NZ government actually do something. I see 94% of people on the survey have voted that the NZ government should do something similar, which is very high for that sort of survey. I think people are getting very fed up with the current situation. Especially as we actually grow timber, can produce steel, and have heaps of land in NZ, we should never have a shortage of homes. The big problem is that the opposition parties are so weak in NZ to help force political change.

mattwnz

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#1599322 27-Jul-2016 00:04

dejadeadnz:

mattwnz:

I know a builder who got trips to the rugby after selling a certain amount of product. There was a story on TV about these perks, and the NZ building industry and why prices were so high. I don't think these kickbacks were ever disclosed to the person who was building and paying for the house to be built. It really needs to be looked at. In other industries kickbacks have to be disclosed.

To clarify on this point. In ANY industry where an agent (agent/agency here is used in a legal sense) accepts undisclosed (to the principal who hires the agent -- in many cases this will cover builders and customers in a contractual relationship) inducements/rewards to show favour/disfavour towards a third party in relation to the principal's business, which can include the principal's building project obviously, is in breach of the Secret Commissions Act. This is actually a crime.

The problem is that it is very difficult to check. For example a saleperson may get an incentative (say a holiday or a bonus) for selling a certain number of a particular widgets. Are they then required to tell each buyer they enter into a contract with, that they is getting an incentive to sell them that widget over another, and if they sell a certain number of the widget, they then gets a bonus? That incentive may also be confidential, so they can't disclose it.

dejadeadnz

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#1599324 27-Jul-2016 00:09

mattwnz:

This is an interesting story of what they are doing overseas to try and solve the problem http://www.stuff.co.nz/business/82489325/canada-tax-targets-foreign-house-buyers . The question is when will the NZ government actually do something. I see 94% of people on the survey have voted that the NZ government should do something similar, which is very high for that sort of survey. I think people are getting very fed up with the current situation. Especially as we actually grow timber, can produce steel, and have heaps of land in NZ, we should never have a shortage of homes. The big problem is that the opposition parties are so weak in NZ to help force political change.

Such schemes are easy as heck to get around. Get someone with residency to buy as a trustee of a trust, with the beneficial interests all controlled by people who stump up with the money (i.e. the actual investors). You'd have to also criminalise people acting as trustees who act as trustees of such trusts with the intention to assist a foreigner avoid the extra tax. If that were to happen, you might find that the investors will set up a company with Canadian resident(s) as directors and the company will then hold property. If you want to block this route, you'll have to say that any company with foreign shareholders will have to pay the extra tax. But that might lead to unintended consequences -- for example, are you going to penalise, say, a listed property fund with foreigners holding 1% of its shares when they mass purchase residential property to redevelop?

These things will help to cool the market but are next to useless on their own.

The problem is that it is very difficult to check. For example a saleperson may get an incentative (say a holiday or a bonus) for selling a certain number of a particular widgets. Are they then required to tell each buyer they enter into a contract with, that they is getting an incentive to sell them that widget over another, and if they sell a certain number of the widget, they then gets a bonus? That incentive may also be confidential, so they can't disclose it.

The difficult to check bit is true enough. But any honest, decent human being will -- at a minimum -- tell their client that they may receive inducements or additional payments for selling/recommending X brand of materials (for example). If a client is fine with that, that probably suffice for the purpose of not contravening the Act. But a lot of people aren't even doing that. That's not the fault of the law -- that reflects the fact that a lot of people are simply dishonest, greedy and that a lot of clients aren't aware enough of the potential double-crosses that they face.

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