July Property Report: big stats, curious theories and Auckland refugees

the_thinker

A new month means new data and a bunch of new questions to ponder. Onwards:

 

So, how’s it going?

The July edition of the NZ Property Report from realestate.co.nz broke a couple of records.

The national asking price of $465,191, up 8.4% from July 2012, has never been higher. Nor have the asking prices in Auckland ($639,685), Canterbury ($422,043) and the West Coast ($318,816).

New listings are coming thick and fast for this time of year. Numbering 9857 last month, this is up 9% on June’s rather low figure and 5% higher than this time last year. This influx is good news, but with buyers not taking the winter off it wasn’t quite enough to keep the asking price from rising.

 

What are the banks saying?

The BNZ’s Tony Alexander sees prices continuing to rise for a while yet. He puts this down to a number of factors that include first home buyers and investors making up for four years of inactivity, a looming builder shortage, and sellers still being nervous nellies. As for agents, “each listing gained is a guaranteed pay check. [sic; it’s spelled “cheque” round these parts.]”

ASB keeps tabs on the Canterbury economy via something they like to call the ‘Cantometer Index’. We’ll take a closer look at it one of these days; in the meantime it ticked upwards in July to 0.9 thanks to plenty of housing and construction activity.

The Christchurch real estate market is behaving much as you’d expect: supply is tight, demand is firm, thus prices climb. As long as building consents continue to flow in, and out again, this pressure should eventually ease.

And Westpac has come out and agreed with pretty much everything we’ve said about the Reserve Bank’s forever-looming Loan to Value Ratio restrictions. Namely, it’s awful for first home buyers and a boon for their rivals in the market – property investors.

Restrictions on low equity mortgages mean less competition for investors from first timers who, perversely, will wind up renting houses they wanted to buy from the investors they can no longer compete with. Good times.

 

Wait, aren’t you forgetting something?

In last Saturday’s Weekend Herald, Simon Collins spelled out his ‘five steps to restoring an affordable housing market.’ They are, in short:

  1. Government to provide low-interest lending for first home buyers, plus buying more land for development.
  2. More equality through compulsory union membership and progressive taxation.
  3. Tax rebates for first home owners, fewer tax advantages for investors.
  4. More lending limits and controls.
  5. Restricting, or banning, foreign investment in housing.

There are some problems with each of these:

  1. First home buyers are very active in the market, and as we’ve said when others suggested similar policies, it’ll only further fuel demand and push house prices up. Demand isn’t the issue.
  2. A “culture of high pay” isn’t the issue either; it’s more about the ratio of incomes to house prices, which is being pushed ever further apart. Higher incomes for everyone is ideal – but it won’t really impact house prices if another important factor isn’t addressed.
  3. Bernard Hickey once said that the economy is essentially a “housing market with a few other things tacked on”. A Capital Gains Tax may diversify investments. It still isn’t the issue that needs to be tackled.
  4. The LVR controls planned by the Reserve Bank is part of this. Don’t expect any exchange controls though; we haven’t had anything like that since 1984 and in this free market economy we never will.
  5. Won’t change anything.

The biggest problem with Collins’ prescription is something we hinted at above; the complete absence of anything around supply. It’s a lack of supply – specifically land scarcity, too few listings and a lack of construction – that is pushing prices up and up.

Until the causes are addressed, fighting the symptoms won’t cure anything.

 

Will the last person to leave Auckland please turn off the lights?

Appearing in our inbox earlier last month were a series of articles on a similar theme:

“Auckland’s rampant house market is creating a nationwide group of middle-class refugees – sick of the overheated prices and willing to trade the big city for a better quality of life in the regions.”

One transplanted Aucklander is looking to sell her Nelson home for $372,000 – a place that would likely have costed $1 million in Herne Bay. And if she can’t sell?  Another summer in Nelson isn’t the worst thing to go through.

Meanwhile, another sold her Mt Albert home for $1 million, bought a house in Kerikeri for $400,000 and banked the difference.

Is this the start of a massive reverse migration out of Auckland? No. It’s still the place to be for young professionals and new migrants. A number of people, however, are fed up and looking elsewhere, which might cause some higher prices in the regions. Be nice to your new neighbours.

 

What do you reckon?

Are you an Auckland refugee wannabe? Did Simon Collins deliberately forget about supply? Are the banks making sense? Is the market? Is anyone? Sound off below or on our Facebook page.

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