Proposed land tax won’t help struggling home buyers in Auckland

BNZ economist Tony Alexander says a mixture of higher property prices, firm economic growth, and lower interest rates could see the tide turn on rising home prices.

“There is an end game,” he says. “It will come. It always does. It usually comes from rapidly rising interest rates. It won’t this time. It will instead reflect a hammering from spreading, strengthening credit controls.”

However, he says it will only become a painful rout if the economy’s growth rate tanks at the same time as these restraining measures start to bite.

This may happen, he says, because the credit control spread will be put in place and not removed “until the economy does tank and excesses in the housing market are cleared out”.

When and if this happens cannot be predicted, but Alexander says the first condition for a correction, namely widening credit controls, is imminent.

Speaking before Thursday’s rate announcement by the Reserve Bank, he speculated that  property investors may require a 50 per cent deposit in Auckland, and 30 per cent everywhere else.

“Be in no doubt,” he says. “Simply raising interest rates to target generalised inflation, and an over-heating housing market, is no longer workable for our central bank and others overseas.”

Foreign buyers

Alexander also predicts that more Chinese buyers are heading our way as leaders in Beijing loosen credit controls and take a more relaxed approach to its people taking money out of the country.

He  says that as Australia tightens up policy on foreign buyers of its real estate, and banks across the Tasman cut lending to offshore buyers, that those buyers will increasingly look to New Zealand.

New Zealand is one of the few places  willing to sell residential real estate to non-residents.

Land tax

A few weeks ahead of a report that will show if foreign buyers have played any part in driving up Auckland property prices, Prime

Minister John  Key, who campaigned  saying there would be no new taxes,  has floated the idea of an annual land tax aimed at making foreign buyers think twice before investing here.

Trouble is, I don’t believe international investors — who think our property is cheap compared to other leading cities — will be too concerned about the tax (that may push up weekly rents).

Key is just throwing a bone to middle New Zealand who are starting to realise their children can’t afford to buy a home of their own, given average prices are well above $900,000 in Auckland.

A land tax may have had some merit three years ago, but even Key can’t afford to see Auckland house prices drop too much, not least because there’s an election next year.

New homes

The number of homes available to buy is at its lowest level in two years, according to Harcourts.

But  a new subdivision at Hobsonville Point  will see 400 new homes.
Up to 80 per cent of the properties will be sold at “affordable” and median prices. The development will  be on land known as the Village Precinct, but is to be renamed  Te Uru.

Auckland housing market out of control

The Auckland property market is out of control once again. Not only are first-time home buyers forced to look outside the city, but investors are too. According to Quotable Value, 45 per cent of all homes bought across the country are investment properties.

High prices lead to high rents, and people paying high rents can find it hard to save the 20 per cent deposit they need to put down on a home of their own.

Obviously, the government and the Reserve Bank are losing the war on property. Yes, the 30 per cent deposit requirement for property investors in Auckland dampened demand for a while, but now those investors are looking elsewhere.

So it’s time to extend that requirement across the nation, and perhaps even make it 40 per cent. But the Reserve Bank could go even further.

To cool the overheated housing market in the the UK, the Bank of England told lenders to restrict loans to 4.5 times a person’s annual income. It’s a simple solution that restricts what people can  pay for a home.

Not only that, borrowers will likely be in a better position to survive financial shocks, such as redundancy, unexpected bills and rising interest rates.  They’ll also have more money to spend in the wider economy.

But can it work here? The grandly named Property Institute  claims that if New Zealand was to follow the UK’s lead, then it  would “kill the market dead”. That is, of course, rubbish. The market is not dead in the UK or anywhere else where sensible lending is practised.
One of the problems is that because house prices are rising so fast, lenders are on a good bet when lending for property purchases.

Even if our  Reserve Bank Governor didn’t care about house prices, he must have concerns about household debt levels.
Average, hard-working Kiwis can’t compete with cashed-up foreigners (who may opt to leave a property empty) or investors leveraging one property against the other to build their portfolio.
Something will have to give if Auckland wants to retain the young people it needs to work in the city.

For an insight into some of the social implications of unaffordable housing, look at the excellent nzherald.co.nz/hometruths.

Nationwide rises

Economists at Westpac are predicting that property values across New Zealand will rise 11.5 per cent this year.

They were surprised by “the power of the housing  market’s rebound” and that rising house prices are becoming widespread.
Rising household borrowing, they say, strongly suggests that low mortgage rates are a powerful driver of the market.

One almost wonders if raising mortgage rates is an option.

De’Longhi Distinta toaster – second slice

My post about the awful De’Longhi Distinta toaster seems to be pretty popular and hit a nerve based on the number of hits the post has had.

After mentioning  it on Facebook – like one does – Melannie from De’Longhi wrote to say her company is “proud of this toaster”. Ho, ho!

She writes: “The issues you’ve described sounds like it’s a fault of that particular machine, not the range.”

Oh dear. I checked, and sure enough found a consumer review that mentions, in not such flowery language, the very issues I identified.

I share it with you here. These guys gave the De’Longhi Distinta toaster 3.5 stars out of 5. Way too generous in my opinion. I give it 1 star because it looks good.

As a functioning toaster. It sucks big time.

Auckland’s median price for a home now $820,000

The University of Auckland is selling its Tamaki Campus to property investment company Tamaki Village.
There’s already chatter the 11.9ha plot in Glen Innes could be used for hundreds of much-needed homes close to public transport and rail links.

Human hand add a  coin in the final row
Auckland  real estate prices are starting to rise again, with the media price for March standing at $820,000.

The University of Auckland is selling its Tamaki Campus to property investment company Tamaki Village.
There’s already chatter the 11.9ha plot in Glen Innes could be used for hundreds of much-needed homes close to  public transport and rail links.
It’s early days, and no announcements have been made, but it could be a much-needed game-changer to help meet demand for new homes.
The bad news is there’s talk of rising prices for new builds on the back of new tougher health and safety regulations in the construction industry.
Prices push up
According to the Real Estate Institute this week, median house prices across the city are sitting at a record high of $820,000.
The institute says record median house prices have also been recorded in Waikato, Bay of Plenty, Wellington, Nelson, Marlborough, Canterbury and Central Otago Lakes.
In Auckland, one in three properties sold are valued at more than $1 million — that’s 35 per cent of the market. The institute says the national median house price is now $495,000, and for the 12 months ended March the total value of residential sales across New Zealand was $55 billion.
Mortgage rates
Citing   low inflation, economists at the ASB predict more cuts to the official cash rate this year, and expect the Reserve Bank to take it down to 1.75 per cent.
When the OCR goes down, so too should loan rates. However, it seems the banks are hedging their bets, waiting to see if the US Fed will  raise its interest rates (which has a bearing on local rates).
Despite all the US fluffery, I don’t believe the Fed will raise rates any time soon. Backed in to a corner at the end of last year it increased rates by the smallest amount it could, just to save face. And while there’s plenty of talk, the US has been kicking the rate hike can down the road  for years.
Frankly, it’s time our local banks started offering much more competitive fixed-rate deals. One of them  must be itching to offer a  two-year deal at less than 4 per cent. There’s certainly scope to do that — it’s just a case who will blink first and start a mini mortgage war.
Pause for thought
BNZ chief economist Tony Alexander says Auckland’s market has ended a pause and is now going up again “underpinned by a worsening shortage of property”.
He says: “Regional markets are well underpinned by investor demand and that is propelling more construction which, in some smaller lifestyle-like centres, will eventually lead to excess supply.
“Falling interest rates will encourage more investors to seek property assets while having little impact on already outbid young buyers. A new wave of out-bidders is coming.”
Queenstown
Queenstown is facing its own housing crisis with a new home and land package at the Bridesdale Farm subdivision being advertised for $755,000.
The subdivision is in a special housing area, and the 360sq m section offered has plans for a 124sq m home.

Building consents in Auckland not keeping up with demand

Strong construction activity continues to boost the regional economic outlook especially in Auckland and Canterbury, say economists at Westpac. They report that building consent data for February, released on 30 March, confirms that Auckland is cranking up production of housing, currently up 23 per cent year-on-year.

Strong construction activity continues to boost the regional economic outlook especially in Auckland and Canterbury, say economists at Westpac. They report that building consent data for February, released on 30 March, confirms that Auckland is cranking up production of housing, currently up 23 per cent year-on-year.
The bank’s weekly economic report says that after January’s breather — following three months of solid growth in the number of building consents for the SuperCity — consents bounced again, and have totalled more than 9500 in the last 12 months.
However, the report’s authors say there is still a long way to go to have consents meet demand.
The economists say: “We have long forecast that Auckland needs to deliver around 11,000 dwellings a year over several years to eat into its housing shortfall, and strong net migration continues to widen this gap.
“Even in Canterbury, where consents fell particularly sharply last month, there was a rebound that was surprising in its scale, although we were already expecting some recovery.”
Wellington is on the up and up. The economists say that after years of little growth in the capital confidence is returning as concerns about government job cuts fade. With the highest salaries in the country, unemployment down, and house prices half those in Auckland, they say there is little reason to be pessimistic.
Population growth
BNZ economist Tony Alexander says demand for housing in Auckland is growing by about 15,000 a year, while actual supply is less than 8000. Therefore, he says “prices rise”.
He says: “The rest of the debate regarding Chinese buyers, interest rate changes and so on is just fluffery.
“Things will get a bit difficult when and if supply is rising over 10,000 a year and population growth has slowed.”
But he doesn’t know when that will happen — but it will one day.
Alexander also theorises that some investors are content to let their properties sit empty as the rise in value is more than the rental yield (and the risk of damage by tenants). In essence, a small proportion of properties are being taken out of circulation — compounding the housing shortage.
Prices up
Property prices in Auckland are starting to rise again, according to Peter Thompson, managing director of Barfoot & Thompson.
He says the average sale price obtained by the firm during March was $866,782, and the median price reached $798,000. The median price is the second highest on record, within $2000 of the all-time high and up 8.1 percent on February’s median price.
“As it has been for the past two years, lack of supply remains the main price driver,” he says.
Interest rates
There’s still talk of two further interest rate cuts, with the official cash rate expected to end the year at 1.75 per cent. One can only hope the banks pass on the full cuts to its floating rate mortgage payers.
Among the fixed rate deals that caught my eye this week is ASB’s 4.15 per cent for 18 months.

Suzanne Snively of Transparency International on corruption in New Zealand

This is an interview I recorded with Suzanne Snively of Transparency International New Zealand on 22nd April 2014 to talk about corruption, and the corruption ‘perception’ index.

This is an interview I recorded with Suzanne Snively of Transparency International New Zealand on 22nd April 2014 to talk about corruption, and the corruption ‘perception’ index.

Turns out the New Zealand organization is mainly funded by government, and says there is no corruption within government departments.

It was first broadcast as part of my weekly Steve Hart Radio Show.