Housing crisis!

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crackrdbycracku

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Topic # 127114 30-Jul-2013 13:48

OK, so now we have policies from both major parties which 'address' the housing crisis.

Is it just me of are both of them to a greater or lesser extent suffering from the political position of: 'We have to do something, but what ever we do it better not actually change anything'?.

National restricts Loan to Value Ratio. I understand this can reduce risk for bank and this is good. But surely the effect on the housing market is going to be minimal as only those entering the property market will really be effected. If you already own a house and selling it to buy a new one or buying a second house as a rental/investment property then the amount of money you are loaning versus the value you have will be minimal, right? And there is no detailed 'assistance' for first home buyers because that would be like a hand out and those are bad.

Labour introduces restrictions on 'foreigners' buying houses here because property speculation increases prices. Then exempts Australians, fair enough, and people with PR, also fair enough. Of course New Zealand property speculators don't aren't a problem because... Well they'er just not OK? This means we get to exclude a small number of buyers and look like racists. Great!

My theory is that 'cooling' the property market is about the best way to not say de-valuing the property market. You know for all those people who have been investing there money in property for the last 30 years and are relying on property values going in the same direction to fund their retirements. Yeah, those people represent a larger voting block (I didn't say financial contribution block, and you can't say I did) than first home buyers who are getting shut out.

Property prices in Auckland are not 'unaffordable' if they were they would go down to a level people could afford them. This means some people are making a lot of money from property in Auckland and understandably don't want this to stop.

The bubble has formed, it will get bigger until it bursts because people with a choice will want to hold off till the crash happens and prices go down.

Can't wait and I hope Wellington prices go down too.

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Reply # 868518 30-Jul-2013 13:53

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The labour idea sounds like one of the dumbest I have ever heard.

according to labours own data, only 9% of house purchases were made by people living overseas. Once you remove australians who would be exempt, that number will drop. They would also likely exempt NZ ex-pats living overseas, which would make it drop even further.

So is that really going to make any more than the most immaterial difference to the housing market? I doubt it.

mattwnz

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Reply # 868522 30-Jul-2013 13:58

There are many people oversea who are buying property in Auckland to then rent out. I have an overseas friend who has an Auckland house which they are getting $1500 a week renting out to 6 people. That is a pretty good return.

The problems are that houses are so expensive now to construct new, due to new regulations and requirements. In the old days you could build a house with 10 pages of drawings and a 10-20 page specs document. Now Specs can be hundreds of pages, and plan drawings can be around 50. This means that the same plans end up being used for multiple drawings, and you end up with streets containing a carbon copy of the same house. Also there is a lack of competition in the building materials market. Many competing brands are infact owned by the same parent company I have found.

I think it is a good idea to restrict foregin property purchases of existing building stock (apart from Australians), and only allow foreign buyers to build new. They do this in other countries including Australia, but I believe they have an exemption for NZ buyers.

Wellington house prices have been relatively static for many years now I have found, probably raising in line with inflation. But the bubble from Auckland may spread.

NonprayingMantis

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Reply # 868524 30-Jul-2013 14:01

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mattwnz: There are many people oversea who are buying property in Auckland to then rent out.

9% of sales according to labours stats. that is a small proportion of the market

I have an overseas friend who has an Auckland house which they are getting $1500 a week renting out to 6 people. That is a pretty good return.

not if his mortgage is $1600.

The problems are that houses are so expensive now to construct new, due to new regulations and requirements. In the old days you could build a house with 10 pages of drawings and a 10-20 page specs document. Now Specs can be hundreds of pages, and plan drawings can be around 50. This means that the same plans end up being used for multiple drawings, and you end up with streets containing a carbon copy of the same house. Also there is a lack of competition in the building materials market. Many competing brands are infact owned by the same parent company I have found.

This is true. Fletchers seems to have a virtual monopoly on everything, and getting CCC is hugely onerous. I appreciate that we had problems with leaky buildings in the past, but I feel that the dial has swung way too far in the other direction now.

mattwnz

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Reply # 868531 30-Jul-2013 14:05

NonprayingMantis: The labour idea sounds like one of the dumbest I have ever heard.

according to labours own data, only 9% of house purchases were made by people living overseas. Once you remove australians who would be exempt, that number will drop. They would also likely exempt NZ ex-pats living overseas, which would make it drop even further.

So is that really going to make any more than the most immaterial difference to the housing market? I doubt it.

I have heard that in Auckland, 50% of houses being sold were getting purchased by overseas buyers. But that may be in the current market. But if it is lower, then it probably wouldn't hurt to have that exemption anyway, as so few people would be affected.
But do remember that many of these houses are being purchased with cheap credit coming from overseas. IMO, interest rates are far too low, as house prices are getting based on what people can afford to borrow.If the interest rates were higher, then they would have to borrow less, as the amount they could afford to pay in interest wouldn't change. But obviously raising interest rates will create major problems. Also banks don't want to be stuck in the position where they house is worth less than the mount they lent out. That is one reason they are bringing in this 20% minimum deposit, as banks don't want to be too exposed. But instead they are now asking parents to take out a second mortgage on their own home to pay for the deposit, which I think is a bad idea.

langers1972

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Reply # 868533 30-Jul-2013 14:08

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I think the single biggest problem in NZ is the number of ordinary (I hate this term) 'Mums and Dads" investors who own a second property that they rent out.

I've never been to a country anywhere in the world where so many people own a rental property and it's a simple case of supply and demand where there simply isn't enough housing stock available for the demand.

This situation is particularly problematic in the first time buyer market which is precisely the area where most of these rental properties come from being the smaller/older/cheaper end of the spectrum.

My answer would be Capital Gains Tax on non residential homes but National would view that much the same as a cup of cold vomit.

mattwnz

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Reply # 868536 30-Jul-2013 14:09

NonprayingMantis:
This is true. Fletchers seems to have a virtual monopoly on everything, and getting CCC is hugely onerous. I appreciate that we had problems with leaky buildings in the past, but I feel that the dial has swung way too far in the other direction now.

They purchased it cash outright, and the returns they are getting are very high, especially as they are also getting a captial gain, which is likely to be tax free. They do plan to live in it eventually when they return to NZ after making their fortune overseas in their 30's and 40's

It isn't just them. There are quite a few offshore owner companies that own several competing brands of building product.

If foreign buyers buy our leaky buildings, it could solve the leaky building liabilities.

mattwnz

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Reply # 868566 30-Jul-2013 14:30

langers1972: I think the single biggest problem in NZ is the number of ordinary (I hate this term) 'Mums and Dads" investors who own a second property that they rent out.

I've never been to a country anywhere in the world where so many people own a rental property and it's a simple case of supply and demand where there simply isn't enough housing stock available for the demand.

This situation is particularly problematic in the first time buyer market which is precisely the area where most of these rental properties come from being the smaller/older/cheaper end of the spectrum.

My answer would be Capital Gains Tax on non residential homes but National would view that much the same as a cup of cold vomit.

Well those mum and dad investors are more likely to be national voters, and nearing retirement age. At some stage though the bubble will burst, and many of these mum and dads will be cashing up at the same time.
If they were to bring in a captial gains tax, it needs to apply to all houses, otherwise people will try to get around it, and it makes things simplier. GST is a case in point. Also if it only applies to second homes, then it is a slippery slope before it will apply to all anyway, whenever you introduce a new tax. eg look at gst, and how that keeps increasing.

macuser

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Reply # 868573 30-Jul-2013 14:34

Make rental homes subject to a grading system similar to food grade rating restaurants are subject to.

I'm sure a lot of homes will suddenly end up on the market when they figure out how much it costs to bring the old homes up to code.

mattwnz

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Reply # 868583 30-Jul-2013 14:40

macuser: Make rental homes subject to a grading system similar to food grade rating restaurants are subject to.

I'm sure a lot of homes will suddenly end up on the market when they figure out how much it costs to bring the old homes up to code.

Just what NZ needs, more regulation and people clipping the ticket. It will only make rentals more expensive,a nd is essentially another tax.
Although I don't disagree that many rentals are in a poor state and are unhealthy, perhaps a voluntary system could be implemented, so people could chose to live in one that was rated highly.

ajobbins

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Reply # 868586 30-Jul-2013 14:41

New Zealand needs a Capital Gains Tax.

LVR will do nothing but make it harder for young people like me to get into the market. People upgrading their house or buying investment properties don't usually have a problem with LVR at all.

Stopping overseas buyers may help a little, but not in a big way, and again, a CGT will help to normalise demand.

Property is generally pretty low risk. Even at 5% deposit, the likelihood of your property loosing enough value for your equity to become negative is pretty low (Aside from a major correction to property prices happening as the result of some intervention - tho this should be a one off adjustment with short term implications).

My suggestion: CGT for anything other than the family home, open up more land in Auckland, plus a government guaranteed equity protection of up to 15% of the purchase price for first home buyers (up to a cap - maybe $500k purchase price). That way, new entrants would be able to get into the market while satisfying lenders risk concerns. Borrowers could then also avoid LVR insurance, meaning they can pump more money into actually paying off the mortgage.

Based on the example above, the governments exposure would be at the very maximum $75,000 (15% of 500k) per property HOWEVER the cases where it would need to be invoked would be minimal, and even where a property had to be sold for less than the outstanding mortgage, it's not likely they would lose the whole lot.

Cost of policy - not that much as mortgage defaults resulting sale for less than mortgaged value would likely be minimal. I'm sure the CGT will more than cover it.
Benefits of policy - Huge. stimulate building industry, young people enter property market and build up equity.

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macuser

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Reply # 868590 30-Jul-2013 14:44

mattwnz:
macuser: Make rental homes subject to a grading system similar to food grade rating restaurants are subject to.

I'm sure a lot of homes will suddenly end up on the market when they figure out how much it costs to bring the old homes up to code.

Just what NZ needs, more regulation and people clipping the ticket. It will only make rentals more expensive,a nd is essentially another tax.
Although I don't disagree that many rentals are in a poor state and are unhealthy, perhaps a voluntary system could be implemented, so people could chose to live in one that was rated highly.

Voluntary system would only work if people had a choice due to over supply of houses to rent, there is a system in Dunedin for student flats but participation is low and the rating system doesn't require inspection just a questionnaire filled out by the property owner.

kiwirock

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Reply # 868592 30-Jul-2013 14:49

crackrdbycracku: OK, so now we have policies from both major parties which 'address' the housing crisis.

Is it just me of are both of them to a greater or lesser extent suffering from the political position of: 'We have to do something, but what ever we do it better not actually change anything'?.

I think it's pretty obvious that National have a track record of learned helplessness. That pretty much sums them and your observation of Government above, up.

Look at all the cut backs, job destruction, asset sales attitude = learned helplessness in psychology. These types never really ever accomplish anything in the line of progress or growth. The Government are there of the illusion of accomplishing change.

More importantly, it's just b.s. to buy the vote from first home buyers. Nothing more nothing less, but that's quite obvious too. Even if Government did make an effort to change things, the reserve bank will dictate the housing market with interest and lending criteria. The Government will attempt to buy the vote from first home buyers, but then the reserve bank will start raising interest rates some more... that just leads to poorer people being left out, those well off with cheaper housing to buy. The over all value won't really change, instead we just price more out of the market rather than raise the likely-hood of getting in to the market with political spin.

mattwnz

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Reply # 868594 30-Jul-2013 14:55

ajobbins: New Zealand needs a Capital Gains Tax.

LVR will do nothing but make it harder for young people like me to get into the market. People upgrading their house or buying investment properties don't usually have a problem with LVR at all.

If you see what one bank is doing, they are getting mum and dads of child house buyers, to effectively take out the 20% deposit on their own home, and that is their maximum exposure. But this is just a sign that housing is affordable, without running to mum and dad for help.

There is a reason why CGT is so unpopular, and that is because so many people own homes, and want that capital gain. But other investments usually have to pay a capital gain, so I am not sure why property has been given special treatment. But that is beginning to change as more people are being locked out of home ownership.

kiwirock

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Reply # 868595 30-Jul-2013 14:55

Blocking overseas investors out doesn't sound healthy to me either. It smells of protectionism, and we're so-pose to be part of the U.N. aren't went? where protectionism is frowned upon.

It sounds like the mess the U.S. was accused of during the start of the recession.

mattwnz

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Reply # 868596 30-Jul-2013 14:56

kiwirock: Blocking overseas investors out doesn't sound healthy to me either. It smells of protectionism, and we're so-pose to be part of the U.N. aren't went? where protectionism is frowned upon.

It sounds like the mess the U.S. was accused of during the start of the recession.

Perhaps, but doesn't almost every other country already do it. NZ is one of the only ones that don't do it. Try buying a house in china or the US.

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