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Adviser slams RBNZ's 'damaging correction' claim

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NZ Adviser | 11 Nov 2015, 02:35 p.m. Agree 0
An Auckland adviser speaks out following the Reserve Bank's latest report this morning warning of a 'damaging correction' which could bring risks to financial stability in New Zealand
  • Dan | 11 Nov 2015, 04:21 p.m. Agree 0
    "A Damaging Correction" will be the best possible result for the New Zealand economy, particularly the Auckland housing market. It is high time that New Zealanders' begin to invest more in activities that promote real economic growth and create real investment value as opposed to gambling that unrealistic price rises will continue onwards into the future.

    It is a very true statement that Auckland house prices are exceeding the income of it's residents by nine times. I have seen the affect of this over the last 3 years. Lets get real, the population of the Auckland region is just on 1.5 million people. Auckland could hardly be called an international business hub, or city of global trade. There is no good reason for housing prices to be as high as what they are, other than that New Zealanders' feel there is nothing else in the country worth investing in & immigration is at am all time high.

    I would argue how is the populace going to be able to afford to continue purchasing houses when the price is exceeding their incomes by 9 times, the reality is they cannot. Reality is if the market was to crash tomorrow, over exposed financial institutions would cut back lending for a period of time as they did in 2008-10. But after a return to normalisation of prices you would again see a return to the market of your typical $100,000 family income NZ family. This is where the Auckland property market should be based, on the average family.

    So I think the sooner "the bubble again bursts" , which it surely will.. All the better..
  • Giles | 11 Nov 2015, 04:41 p.m. Agree 0
    "But Whittaker told NZ Adviser such a downturn could be a few years away yet and the downturn will be slow and small. "

    Hmmmmm, let me see, the opinion of the Governor of the Reserve Bank of New Zealand against the opinion of a Mortgage Broker. Personally I think the Governor has a little more credence and anyone with half a brain realises the Auckland Property market is well beyond overheating. Mike Whittaker's statement above is based upon what exactly? I worked in the Mortgage Market in the UK in the 1980's where we used lending Multiples of 3.5 times a single income or 2.5 times a joint Income which are paltry in comparison with the expected multiples being used in Auckland. The UK residential property Market eventually crashed and some people lived with negative equity for nigh on a decade.

    Like Dan above, I believe the sooner this Bubble burst the better.
  • Gopal | 12 Nov 2015, 09:24 a.m. Agree 0
    The foundation is getting stronger. Rewind back to Oct 2013, when Wheller announced new rules for Auckland, the trading banks were giving 32% of the loans over LVR of 80%. Now currently it is hovering around 16% of the loans are over 80%. Moreover, the house prices in the last two years from Oct 13, have gone up by 35% in Auckland. If the above rule was put for a litmus test, it was effective for 8 to 9 months. The new rules, I suspect will also have a smaller impact. Even if there is recession in the horizon, people can withstand it. Rewind 2009, during recession, not many people sold their homes for lower prices.(Auckland median price: $460,000 in Nov 2007, went down to $420,000 and National median price: $352,000 in Dec 2007, went down to $320,000 before it picked up again)

    The problem is more houses to be built. Governor Wheller nor any of his colleagues never spoke about building houses in Auckland from
    Oct 13 to Nov 14. The damage is already done due to shortfall in housing. Government can release more land for housing. Unless and until a developer wants to build affordable homes, the housing problem will be there for the next 3 to 4 decades. Can anyone tell how many developers are building a home of 100 sq. meter in Auckland? The gross return on these homes are not that good and therefore no developers are building these kind of homes. For an entry level first home buyer, these sort of houses are required to get into property ladder.

    Unless and until the above problems are sorted, we will have issues of housing for the next 3 to 4 decades. People who own their homes are winners and whoever helps their children to get their first homes will move forward in the next 3 to 4 decades.
  • Richard | 12 Nov 2015, 12:00 p.m. Agree 0
    There are a myriad of reasons house prices have risen in Auckland and wont necessarily tumble....
    1. Shortage of supply
    2. Less opportunity around the world and Aussie so less Kiwis leaving
    3. Gen Y couples with good incomes put off having kids so based house buying affordability decisions off two incomes vs traditional one income.
    4. Global instability, people with money around the world looking to live in a safer environment.
    5. Climate, it rains here, don't underestimate the value of water.
    6. It is a beautiful area with a lot to offer so people want to live here.
    7. There are 1.3b people in China. 10% of those people deemed now middle income to rich....that's 130,000,000 people. It takes 1% of those people to decide they want to live outside of China for a better climate and lifestyle and live in Auckland, and that's 1,300,000 with money who now have cash looking to buy in Auckland. Then consider the same for Indonesia, India.....etc etc. Our borders are fluid.

    End of the day you cant base what house prices "should be" based on what the current local peoples income levels are now because it is an international city and people with money have choices on where they live and buy. There is always others who will have more money that are willing to come and live in NZ and pay that bit more for the priviledge. The unfortunate reality is that you will either get into a house and afford it, you will be a life renter (like many are in other expensive international cities) or you will end up living in a different city. Easy for a lot of middle class NZ'ers to sit around now saying its not fair and it needs to be stopped.......yet we didn't 100 years ago as we pushed a lot of Maori out into the regions as we migrated in.......we are now just dealing with the next wave.....
    • macfudge | 12 Nov 2015, 12:30 p.m. Agree 0
      1. Quoting another comment form "We actually have heaps of houses, even in Orcs, it's just hype to justify the speculation. We could increase population by 50% without building a single house, and still be within a bulls roar of the OECD average. In New Zealand, the average home contains 2.4 rooms per person, more than the OECD average of 1.8 rooms per person and one of the highest rates in the OECD."

      2. Higher unemployment in NZ and rising, slows immigration and more leave. 50% of immigrants are "students" - renters.

      3. Always been that way, couples always struggle to balance work/life.

      4. Auckland is a hedge city - where offshore money resides. But that has changed a little with requirement to register with IRD.Open homes are silent and famous "Chinese buyers" have disappeared.

      5. It rains even more in Ireland.

      6. Very true. But won't last with current level of pollution. Kiwis are welcoming and tolerant.

      7. 1% of Chinese are not going to move to Auckland. And they are too smart to buy in a falling market.

      Here's the truth. 50 % of Auckland buyers are investors / speculators. They have all but disappeared from the market in the last two months. Brace yourself!
  • Richard | 12 Nov 2015, 01:49 p.m. Agree 0
    1. It is kind of you to want to share your house with another family......but most wont, and will happily keep their spare rooms.
    2. Go where for more opportunity jobs? Ireland?
    3. I'd disagree, did a majority of middle class "likely house buyer" baby boomers wait till they were 30-40 to have kids? Or was it more common for them to have them at 20 - 30? Yet they still could afford a house - why - because generally 1 person stayed home to look after the kids so families calculated what they could afford to buy a house for off 1 income. Late Gen X and early Gen Y saw the world differently, "didn't want to do what their parents did and be young parents", so held off on having kids, looked after number 1 for a while and enjoyed life, coupled up and had 2 incomes to calculate debt servicing over. Hence it was such a strong period of price rises between 2000 and 2007. Now its a necessity to have 2 incomes, that choice is gone.
    4. Lets assume you are correct and the city is awash with thousands of empty houses owned by wealthy Chinese speculators (there probably is). Will they now sell up desperately at a loss, or just sit on them? Meanwhile our population grows and people need houses to live in.....(the people not sharing your house with you I mean!)
    5. Yes they are fortunate also in terms of balanced climate to a degree, but many cities aren't, I wouldn't underestimate the effect that climate will play on migration in the coming years.
    6. Pollution is an issue everywhere and populations are continuing to grow in most countries which will only add to it....not unique to will be a case of what city is the least polluted, not whether there is pollution.
    7. 1% of the top 10% might though.

    Reality is that house prices will only likely take a real hit when interest rates start going up because in reality until then if you own a house that you live in or rent, and can afford it now, what reason do you have to sell it?
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