Electoral Party most likely to do something about Auckland housing bubble?

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#1541329 24-Apr-2016 19:36

tdgeek:

joker97:
tdgeek:

ajobbins:

tdgeek:

I am inclined to agree. Supply and demand. Everyone seems happy. Buyers getting what they are prepared to pay for, sellers happy. How much of this is artificial? I feel asian immigrants are artificially pushing it up an amount. The wealthy ones who sent kids here, they follow or come also. I think adults need money behind them to satisfy points for PR.

But. at the end of the day, AKL is the place to be and buyers are paying. Its one thing to regulate or intervene, but if its a price change due to natural means, that can cause repercussions when artificial means are used to suppress natural desire.

I suspect people are paying way more than they otherwise would simply because they see capital gains as continuing to be insanely profitable. People feel that as long as they can cover, or at least close to cover the interest costs of the mortgage with rental income they are fine.

But if (when) interest rates rise, or economic factors change in that prices aren't rising and therefore they have a massively leveraged asset that's not making any returns (or maybe negative returns) then a lot of people are in a lot of trouble,

For sure there will be speculators. Those that are genuine kiwi buyers, who know there is a bubble, have taken a risk. If interest rates increase they will have to deal with it. If they lose equity, thats pretty much tough, its not like a bubble may not burst. Im not sure what happens if say prices dropped 15% in a bubble burst, and some go to negative equity. Can they stay in and just pay the mortgage as planned?

Unfortunately, the "bubble" doom story's been around since 2003. There are many places in the world where bubbles have burst eg Ireland, and where it doesn't, e.g. Australasian cities.

But yes if it crashes, investors will buy more, first home buyers will sell to them at a big loss. That's the way it works.

Why will first home buyers sell? Will they have to? If the bank forecloses, there is still a loss, that the purchaser has to pay back, so why can't they keep the house and pay mortgage as usual as that is paying off the house new value and the negative equity. Bank can structure the mortgage so that negative equity is paid first?

In the US homeowners could "walk away" for negative equity homes - it was the bank's problem. In NZ you need to be bankrupted. Not a very nice situation and one most people will go to extreme lengths to avoid. That has added to banks confidence in their outrageously irresponsible lending practices in NZ.

Investors will be hobbled by the same tightening in availability of finance. Only cashed-up investors will be able to profit from the coming collapse.

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Fred99

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#1541332 24-Apr-2016 19:55

Here's the killer:

Negative GDP growth per capita.

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#1541336 24-Apr-2016 20:05

tdgeek:
joker97:
tdgeek:

ajobbins:

tdgeek:

I am inclined to agree. Supply and demand. Everyone seems happy. Buyers getting what they are prepared to pay for, sellers happy. How much of this is artificial? I feel asian immigrants are artificially pushing it up an amount. The wealthy ones who sent kids here, they follow or come also. I think adults need money behind them to satisfy points for PR.

But. at the end of the day, AKL is the place to be and buyers are paying. Its one thing to regulate or intervene, but if its a price change due to natural means, that can cause repercussions when artificial means are used to suppress natural desire.

I suspect people are paying way more than they otherwise would simply because they see capital gains as continuing to be insanely profitable. People feel that as long as they can cover, or at least close to cover the interest costs of the mortgage with rental income they are fine.

But if (when) interest rates rise, or economic factors change in that prices aren't rising and therefore they have a massively leveraged asset that's not making any returns (or maybe negative returns) then a lot of people are in a lot of trouble,

For sure there will be speculators. Those that are genuine kiwi buyers, who know there is a bubble, have taken a risk. If interest rates increase they will have to deal with it. If they lose equity, thats pretty much tough, its not like a bubble may not burst. Im not sure what happens if say prices dropped 15% in a bubble burst, and some go to negative equity. Can they stay in and just pay the mortgage as planned?

Unfortunately, the "bubble" doom story's been around since 2003. There are many places in the world where bubbles have burst eg Ireland, and where it doesn't, e.g. Australasian cities.

But yes if it crashes, investors will buy more, first home buyers will sell to them at a big loss. That's the way it works.

Why will first home buyers sell? Will they have to? If the bank forecloses, there is still a loss, that the purchaser has to pay back, so why can't they keep the house and pay mortgage as usual as that is paying off the house new value and the negative equity. Bank can structure the mortgage so that negative equity is paid first?

Usually in a financial crisis people lose jobs or if self employed lose income and can't afford to repay their mortgage.

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#1541347 24-Apr-2016 20:41

IMHO one of the biggest problems was that the GFC didn't affect NZ as we were so sheltered by the Australian banks which are so highly profitable. We probably needed that post GFC correction to occur, but it didn't.

I see a whole lot of irony when people trash said banks - but in many ways we're very lucky they are so well resourced.

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#1541352 24-Apr-2016 20:46

ajobbins:

I suspect people are paying way more than they otherwise would simply because they see capital gains as continuing to be insanely profitable. People feel that as long as they can cover, or at least close to cover the interest costs of the mortgage with rental income they are fine.

But if (when) interest rates rise, or economic factors change in that prices aren't rising and therefore they have a massively leveraged asset that's not making any returns (or maybe negative returns) then a lot of people are in a lot of trouble,

You're also seeing cases every week on young people saying that they can't afford a home close to the Auckland CBD. Basic economics says that people like this shouldn't be able to afford a house close to the CBD. If every young person could afford such a house, demand would far exceed the limited supply of such houses.

ajobbins

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#1541354 24-Apr-2016 20:56

sbiddle:

ajobbins:

I suspect people are paying way more than they otherwise would simply because they see capital gains as continuing to be insanely profitable. People feel that as long as they can cover, or at least close to cover the interest costs of the mortgage with rental income they are fine.

But if (when) interest rates rise, or economic factors change in that prices aren't rising and therefore they have a massively leveraged asset that's not making any returns (or maybe negative returns) then a lot of people are in a lot of trouble,

You're also seeing cases every week on young people saying that they can't afford a home close to the Auckland CBD. Basic economics says that people like this shouldn't be able to afford a house close to the CBD. If every young person could afford such a house, demand would far exceed the limited supply of such houses.

Depends what they mean by close to the CBD. If they want to live in Parnell or Newmarket then they need to reset their expectations. But if they still can't afford to buy somewhere that is an hours and a half by public transport each way then that in itself becomes expensive and extremely burdensome.

And in fact, I've not ever seen one single example in the media of a young person actually claiming this. Every example I have seen (and many of them) are some boomer who claims that this is what the problem is.

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Aredwood

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#1541362 24-Apr-2016 21:21

Geektastic:
Aredwood:

The government needs to force the Auckland council to get rid of it's stupid planning rules. Have a look at the old areas of Ponsonby. Alot of the houses there are built to higher density than most new subdivisions today. Even though those houses are over 100 years old. So somewhere along the line someone decided that we were building at too high a density. And they made rules requiring more spread out houses.

The planning rules are also why you can't easily have prefabricated houses. As each house has to be custom designed to fit within the height to boundary restrictions. Then there are development contributions that developers must pay to the council. Either as cash or by gifting land for use as parks. The problem is the developers have to add that cost onto the sale price. And projects that won't make enough money to cover those costs simply don't happen. Far better would be simply charging higher rates on new properties for the first 10 or 20 years.

Also they need to stop allowing rental property tax losses being offset against tax paid via employment (PAYE). As for people in high paying jobs, buying a rental property is an easy way to "get back" some of the tax your boss has paid on your behalf. So it is actually a subsidy for buying rentals.

But what is all comes back to is that if you split the population by age. The older you are the more likely you are to vote. Also the older you are, the more likely you are to own your own home. So of course the government will stick with the status quo of looking after current mostly older homeowners. As they are the ones who vote.

It's pretty hard to offset against PAYE since LAQCs were discontinued some years ago.

You definitely can still offset against PAYE. When LAQCs were discontinued, the govt introduced "Look Through Companies" LTCs instead. Main difference being they pay tax on profit at the owners marginal tax rate instead of the company tax rate. But you don't even need a LTC to offset investment property tax losses. (most of the time) Assuming the reason to took out a mortgage was to buy a rental. Then all you need to do is submit a tax return. Declare your rental income and rental expenses. And then you get a tax refund assuming the rental property made a loss.

If you own the home you live in, Then take out a mortgage on it and use the mortgage to buy a 2nd home. You move into the 2nd home and rent out your old home. You need a LTC in this situation.

Either way rental property losses can definitely be offset against personal income tax.

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#1541390 24-Apr-2016 23:10

tdgeek:

News today is an AKL housing crisis, worse than leaky homes. Talk of foreign buyers, etc. Sydney and Melbourne have the same issue apparently. A lot of media publicity would be a good thing. Allow speculators, genuine buyers, foreigners to step back if any legislation makes it undesirable, and pricing eases. Tempering desire is a good thing. Let AKL house prices stay as they are, rather than a burst

EDIT the issue is shoddy building in AKL. High failure rate for inspections during a build. 30 to 40%

Anyone see the story on Fair Go about the lady whose house was discovered not to be connected to the sewer main? Building regs all signed off etc...!

And of course in typical fashion, neither the builder, the drain layer nor the council would accept responsibility. Shocking.

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#1541391 24-Apr-2016 23:14

SJB:

The reason there are apparently so many investors is that there is simply nowhere else to put your money at the moment.

Deposit and bond returns are laughable and I won't touch the share market. Same as going to Ellerslie or Riccarton and having a punt on the 2.30.

If it was possible for the Central Bank to raise interest rates sufficiently it would have the dual effect of making mortgages harder to service, potentially cooling the housing market, and deposit and bond returns would improve so people would switch out of property.

Can't see that happening anytime soon though.

Another factor IMV is the fact that for some inexplicable reason, pension saving in NZ is taxed. Most comparable nations do not tax that activity, encouraging people to save for their retirement in an effective and tax efficient way.

Here, people look at where to put money to best advantage for their retirement and conclude sensibly that property offers the only tax free gain for their capital.

Time perhaps to consider making retirement saving more attractive from a tax pov as a place to put your spare cash.

Aredwood

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#1541392 24-Apr-2016 23:57

Geektastic:

SJB:

The reason there are apparently so many investors is that there is simply nowhere else to put your money at the moment.

Deposit and bond returns are laughable and I won't touch the share market. Same as going to Ellerslie or Riccarton and having a punt on the 2.30.

If it was possible for the Central Bank to raise interest rates sufficiently it would have the dual effect of making mortgages harder to service, potentially cooling the housing market, and deposit and bond returns would improve so people would switch out of property.

Can't see that happening anytime soon though.

Another factor IMV is the fact that for some inexplicable reason, pension saving in NZ is taxed. Most comparable nations do not tax that activity, encouraging people to save for their retirement in an effective and tax efficient way.

Here, people look at where to put money to best advantage for their retirement and conclude sensibly that property offers the only tax free gain for their capital.

Time perhaps to consider making retirement saving more attractive from a tax pov as a place to put your spare cash.

Only problem is if you allow people to contribute tax free to their pension fund / kiwisaver. It can become a tax dodge for the rich. (as rich people normally have higher incomes therefore more money avilable to put into the pension fund). Better way is no tax on interest earned by the pension fund / kiwisaver acct. (with maybe an upper limit to amount of "tax free" interest).

mattwnz

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#1541398 25-Apr-2016 00:19

sbiddle:

IMHO one of the biggest problems was that the GFC didn't affect NZ as we were so sheltered by the Australian banks which are so highly profitable. We probably needed that post GFC correction to occur, but it didn't.

I see a whole lot of irony when people trash said banks - but in many ways we're very lucky they are so well resourced.

Actually it did affect NZ very badly, but mainly with mum and dad investors who put their money in these finance companies. Even a decade down the track, many Kiwis lost their life savings and are hurting. They have introduced regulations that are supposed to stop this occurring again...

Didn't the Ozzie banks get underwritten by the australian government last time? The NZ gov gave NZers a government guarantee on their bank deposits when this happened last time. This would have stopped a run on the banks. But that was when the Australian government had a lot more money to do it, as they were doing very well with mining etc. I don't think they are doing as well now. Partly because the mining sector i Oz has crashed. So IMO I think it is going to be far more exposed if it occurred again.

surfisup1000

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#1541459 25-Apr-2016 08:54

sbiddle:

ajobbins:

I suspect people are paying way more than they otherwise would simply because they see capital gains as continuing to be insanely profitable. People feel that as long as they can cover, or at least close to cover the interest costs of the mortgage with rental income they are fine.

But if (when) interest rates rise, or economic factors change in that prices aren't rising and therefore they have a massively leveraged asset that's not making any returns (or maybe negative returns) then a lot of people are in a lot of trouble,

You're also seeing cases every week on young people saying that they can't afford a home close to the Auckland CBD. Basic economics says that people like this shouldn't be able to afford a house close to the CBD. If every young person could afford such a house, demand would far exceed the limited supply of such houses.

Yet, that wasn't the case just 20 years ago.

Things change, but, I'd hate to be starting out today. Wages are low, student debt is crippling, house prices are daunting. Things were relatively easy back in the 90's. Had low student debt, decent salary (new'ish grad salary of 45k with rapid increases), and could get a house within 10 minutes drive to the cbd for around 200k.

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#1541468 25-Apr-2016 09:12

It's the regions I feel for at the moment. The quiet idilic places will now suffer increased real estate values, increased, rates, increased rents and most likely an overall decrease in the quality of life.

sbiddle

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#1541473 25-Apr-2016 09:16

mattwnz:

sbiddle:

IMHO one of the biggest problems was that the GFC didn't affect NZ as we were so sheltered by the Australian banks which are so highly profitable. We probably needed that post GFC correction to occur, but it didn't.

I see a whole lot of irony when people trash said banks - but in many ways we're very lucky they are so well resourced.

Actually it did affect NZ very badly, but mainly with mum and dad investors who put their money in these finance companies. Even a decade down the track, many Kiwis lost their life savings and are hurting. They have introduced regulations that are supposed to stop this occurring again...

Didn't the Ozzie banks get underwritten by the australian government last time? The NZ gov gave NZers a government guarantee on their bank deposits when this happened last time. This would have stopped a run on the banks. But that was when the Australian government had a lot more money to do it, as they were doing very well with mining etc. I don't think they are doing as well now. Partly because the mining sector i Oz has crashed. So IMO I think it is going to be far more exposed if it occurred again.

The bulk of the NZ finance company collapses had very little to do with the GFC. Many were simply poorly managed companies and/or Ponzi schemes that ultimately reached the point where they self imploded.

We didn't suffer the banking collapses or properly collapses that plagued most of the world.

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#1541474 25-Apr-2016 09:17

surfisup1000:

sbiddle:

ajobbins:

I suspect people are paying way more than they otherwise would simply because they see capital gains as continuing to be insanely profitable. People feel that as long as they can cover, or at least close to cover the interest costs of the mortgage with rental income they are fine.

But if (when) interest rates rise, or economic factors change in that prices aren't rising and therefore they have a massively leveraged asset that's not making any returns (or maybe negative returns) then a lot of people are in a lot of trouble,

You're also seeing cases every week on young people saying that they can't afford a home close to the Auckland CBD. Basic economics says that people like this shouldn't be able to afford a house close to the CBD. If every young person could afford such a house, demand would far exceed the limited supply of such houses.

Yet, that wasn't the case just 20 years ago.

Things change, but, I'd hate to be starting out today. Wages are low, student debt is crippling, house prices are daunting. Things were relatively easy back in the 90's. Had low student debt, decent salary (new'ish grad salary of 45k with rapid increases), and could get a house within 10 minutes drive to the cbd for around 200k.

Yep, the relationship of house/salary has way changed.

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