Tag Archives: Housing Affordability

Why Christchurch houses have become more affordable

Christchurch

Chris Hutching at The Press reports:

New Zealand’s second biggest city, Christchurch, is bucking national house price trends because politicians and building firms acted urgently after the 2011 earthquakes.

The earthquakes destroyed up to an estimated 20,000 Christchurch homes (12,000 red zoned), and the near-complete task of rebuilding them means prices have plateaued even as the city returns to net population gain.

The demand scenario was similar to Auckland’s migrant influx but the response was different.

I’ve often commended the ‘powers that be’ for freeing up the housing supply in Christchurch, which has largely addressed our city’s housing shortage over the past five years. Median sale prices are steady (currently at $442,500 according REINZ) and rents are falling – quite the contrast from the frenzied market of 2012 and 2013.

“It will take some real effort in Auckland. Gerry (Brownlee, Earthquake Recovery Minister) was lucky because there were builders like Ngai Tahu ready to go,” former chief executive of Ngai Tahu Property, Tony Sewell, said.

What they face in Auckland are owners of paddocks who aren’t necessarily developers, and they’re not ready to go,” Sewell said.

Christchurch’s rebuild was also fast-tracked by district zoning enacted by Brownlee, using special earthquake legislative powers.

“At Prestons (a 2300-home subdivision in north east Christchurch) we were already so close to starting, the nudge Gerry gave was not substantial, but he closed the gap,” Sewell said.

“Now we’re reaching a balance of supply and demand and there’s a risk supply will outstrip demand,” Sewell said.

Co-author of the annual house affordability Demograhia survey, Hugh Pavletich, credits neighbouring councils Waimakariri and Selwyn for speed in granting building consents for towns such as Rangiora and Rolleston

This acted as a vent on prices in the wider region, he said.

I’m a firm believer that Christchurch provides great opportunities for those looking to secure good value for property. There remains healthy competition for properties in the highly sought-after locations (Merivale, Fendalton, Strowan), where premium prices are being achieved. However, there is also a solid inventory of entry-level properties under $450,000, giving first-home buyers plenty of attractive housing options. This is great enticement for buyers to pursue these opportunities and actively secure property!

Reserve Bank exempts new builds from LVR restrictions

House ConstructionIn what some may consider an about-face, the Reserve Bank has announced that it will be exempting new builds from its new lending restrictions. The Press reports:

New builds will be exempted from new lending restrictions, the Reserve Bank has announced.

It comes after the building industry raised concerns the lending restrictions would affect the number of new houses being built, affecting Government efforts to increase the supply of new homes to help curb house price inflation.

The Registered Master Builders Federation had claimed the central bank policy could jeopardise the construction of up to 5000 new homes a year and they were seeing an increased number of planned new builds cancelled as a result.

Reserve Bank Deputy Governor Grant Spencer said they had decided on the exemption following consultation with the industry.

“While high LVR construction lending is only around 1 per cent of total residential lending, it finances around 12 per cent of residential building activity.

“This exemption will help to support the supply of new housing and, in doing so, reduce some of the pressure arising from excess demand in the New Zealand housing market,” he said.

It did seem that an exemption for new builds would be inevitable. Further, it is a good move for housing affordability. The exemption now creates an incentive for first-home buyers who are short of a 20 per cent deposit to embark upon a new build, which will in turn create an increase in housing supply.

A recent report entitled, Priced Out: How New Zealand Lost its Housing Affordability by the New Zealand Initiative notes that despite a richer and larger population, our country’s rates of building since the 1980s have not reached the levels of the 1960s and 70s. As a result, our new house building is lagging with a shortfall of at least 10,000 new houses annually – a shortfall that is continuing to grow. Here’s hoping that this exemption will go some way in mitigating that shortfall – but we still have a long way to go yet!

Govt unveils new first home policy

searchingAudrey Young at the New Zealand Herald reports:

Prime Minister John Key believes an additional 20,000 KiwiSavers will make use of the first-home deposit subsidy scheme in the next four years after changes announced yesterday.

About 5000 people a year use KiwiSaver for a deposit, Mr Key said, and he expects that to double to 10,000 a year.

And people accessing the Welcome Home underwriting mortgage scheme was expected to increase from 850 a year to 2500 a year, or an extra 6600 over four years.

By lifting the income threshold for eligibility and the price of a house for which the subsidies can be used, more people will become eligible.

However, not all the changes are beneficial.

Fewer single-home buyers will qualify for a subsidy because the qualifying income limit has been reduced from $100,000 to $80,000 for the KiwiSaver deposit and from $85,000 to $80,000 for Welcome Home loans.

And single buyers have comprised 37 per cent of savers who have accessed the KiwiSaver deposit subsidy.

The Government has also abolished a major feature of the Welcome Home loan – the ability to access a loan without having a deposit, as long as the buyer could service the mortgage.

It’s clear that this new policy is aimed at taking the edge off the Reserve Bank’s anticipated moves to restrict low-equity mortgages. But as far as housing affordability is concerned, it does very little to address the problem. It’s providing access to credit rather than making homes any more affordable for first-home buyers. Of course there is no silver bullet to address the country’s housing woes, and both major parties are proposing a package of policies aimed at addressing this important issue.

Young outlines the main housing policies of the major political parties:

National

  • Boost KiwiSaver First Home Deposit Subsidy scheme and Welcome Home mortgage insurance scheme for low-income earners.
  • Housing Accords with councils to increase land supply.
  • Moves to speed up consent process, reduce development fees, and building costs.

Labour

  • Get the private sector to build 10,000 new homes a year for 10 years under the KiwiBuild programme for first-home buyers.
  • Introduce a capital gains tax on housing, but exempting the family home, to reduce speculative investment adding to prices.
  • Ban non-residents from owning a home in New Zealand, unless they build a new home.

Greens

  • Government to build and own homes that low-income families would pay off over time.

As to which ones are best, I’ll leave that up to you. I’m a realtor, not a political pundit!

With regard to the market in Christchurch, according to REINZ the median house price for July was $385,000, up from $380,000 in June and 8.6% higher than a year ago. This is largely being driven by a dearth of listings – in Harcourts alone our stock is down nearly 25% on a year ago. There are also reports that some first-home buyers are acting quickly to avoid moves by the Reserve Bank to restrict low-deposit lending.

Westpac senior economist Michael Gordon said the latest house prices ”extinguish any hope that the market might be slowing of its own accord”, making Reserve Bank action likely once details were finalised (i.e. introduction of LVRs and a possible increase in the OCR).

Kiwi homes for Kiwis only?

Labour leader David Shearer has announced a new policy to restrict foreign ownership of residential property.

I’m sure many of you have heard of Labour’s new policy to restrict foreign ownership of residential housing. The New Zealand Herald reports:

Real estate industry commentators are questioning whether Labour’s new policy to restrict foreign ownership of houses will work.

“We’re going to restrict, almost totally, foreign ownership, to buy established houses that are here.

“What we want to do is to make sure that first home buyers are Kiwis and they have the best chance.”

New Zealand was one of the few countries in the world that allowed foreign ownership of established houses, he said.

The policy mirrored Australian housing policy, Mr Shearer said.

It’s becoming increasingly apparent that housing will be one of the hot button issues at the next election. For what it’s worth, I do not think this policy will make a discernible difference to the level of house prices in this country. Much of the data cited by Mr Shearer in his policy announcement had come from the BNZ-REINZ Residential Market Survey, so let’s have a look at what it says:

What percentage of your sales are to first home buyers, investors (whatever the source), and offshore buyers?

Results to this question are basically the same as in our March survey. A gross 23% of sales for our 549  agents nationwide are to first home buyers, 19% are to investors, and 8% to people located offshore. There is no upward trend evident in the proportion of sales offshore.

And what of the offshore buyers that Labour’s policy seeks to target – those who have no intention of moving to New Zealand?

… 3.6% of dwellings sold each month go to people staying out of the country. This is the gross sales figure and were we to have the proportion of properties being sold occurring on behalf of an offshore buyer we would be able to calculate a net figure.

In Alexander’s June edition of the BNZ REINZ Survey, he examines the proportion of sales made by offshore owners:

This month we asked agents to estimate what proportion of the vendors they represent are located offshore. Our aim is to see if this is vastly different from the estimated 7.8% of sales in May which agents said were to people located offshore. The March result for this offshore sales measure was 9.2%. Our survey gave the following results by percentages which we calculated adds up to some 4.5% of vendors being located offshore.

This is interesting because taking the many sampling uncertainties into account the proportion comes close to the proportion of sales we estimate are to people offshore who do not intend shifting to New Zealand – some 3.6%. The implication? There could be close to zero net transfer of NZ home ownership occurring to offshore investors.

I tend to agree with NZIER principal economist Shamubeel Eaqub that the policy is a “solution in search of a problem”:

The bar on foreign house buyers would not have much of an impact on the market anyway. The real question was whether foreigners were really driving up house prices.

“Until you have established that, having a policy is silly, because you don’t know what problem you are solving,” he said.

“House prices for the past 15 years have trended up relative to incomes and rents for that entire period. To suggest that’s because of foreign interest in the property market seems ludicrous.”

The influence of overseas buyers was “very much at the margin”.

The policy has also been met with some skepticism within the real estate industry:

Hayden Duncan, chief executive at Harcourts, which is the country’s largest agency with 180 offices and 1895 people, doubts the proposal announced by Labour leader David Shearer would work.

The policy was lacking in detail and the real problem was housing supply, particularly in Auckland, Duncan said.

“My concern about Labour’s suggestion is that by fixing one problem we’re creating another,” he said referring to the potential for rents to rise if overseas buyers were banned.

These buyers rented out properties, providing vital accommodation and excluding them could tip the balance in the market, he said.

And Peter Thompson, of Barfoot & Thompson:

Peter Thompson, chief executive of Barfoot & Thompson which sells one in three Auckland houses, said Labour’s policy wouldn’t solve the housing affordability issue.

“The reason prices are going up is lack of supply. We need more building, to free up building processes and free up more land,” Thompson said.

I’m sure all can agree that the increasing unaffordability of housing is concerning and that we need bold new policies to address this important issue. However, I think that a policy such as this is merely a knee-jerk reaction aimed at appealing to the prejudices of a certain portion of the electorate rather than actually seeking to achieve effective policy outcomes. I’ve said it before, and I’ll say it again – it all comes back to supply and demand. Land supply needs to be increased considerably, and demand needs to be curbed by removing some of the incentives that lead to a hyperinflated property market – such as tax-free capital gains – and the promotion of new, accessible investment opportunities that are something other than property. Sky-rocketing house prices in Christchurch and Auckland aren’t being driven by offshore buyers, but rather Kiwis’ own love affair with real estate and years of government inaction (both local and central) in failing to free up land and development.

What do you think should be done about housing affordability in NZ? I’d very much like to hear your thoughts.

A dissenting view on LVR restrictions

Reserve Bank governor Graeme Wheeler has indicated that he wants LVR restrictions as a way to shore up stability and take the heat out of the housing market.

Reserve Bank governor Graeme Wheeler has indicated that he wants LVR restrictions as a way to shore up stability and take the heat out of the housing market.

A guest post by my son, Caleb:

The proposed move by the Reserve Bank to curb low-deposit lending has received a fair amount of attention in the national media. In previous speeches, Prime Minister John Key has called for an exemption for first-home buyers. However, as Brian Fallow states, because first-home buyers represent about 30 per cent of new mortgage lending, with probably a significant chunk of that being on deposits of less than 20 per cent of the value of the property, such an exemption would undermine the effectiveness of the policy. Fallow continues:

… in a speech to Local Government New Zealand’s conference yesterday Key contented himself with saying that “first-home buyers are a priority for the Government”.

He moved swiftly on to acknowledge that for the Reserve Bank its plans to regulate high loan-to-value-ratio (LVR) lending are primarily about protecting the stability of the financial system and averting the consequences, apparent in recent years in several Northern Hemisphere countries, of a property bubble bursting.

Now I can understand part of the rationale for the policy embarked upon by the Reserve Bank. It’s undesirable for banks to be making high-risk, low-deposit loans to home buyers where there it there is a risk that a downturn in the housing market could result in a number of people being saddled with debts that far exceed the market value of their properties.

It is also an attempt by the Reserve Bank to an extent deflate the housing bubbles that are becoming increasingly apparent in Auckland and Christchurch. But I don’t think trying to dampen demand is the right way to go about the problem. What is needed is wide-ranging supply-side reform of the housing market. Metropolitan limits need to be extended, intensification allowed for in certain areas, and brownfield development opened up. Local and central governments must also examine options surrounding the granting of building consents, and bringing down the costs of construction. At the end of the day, this country needs more houses for its residents. An increase in the supply of homes will bring prices down in the long-run and lessen the need for high risk, low-deposit loans.

We must also ask whether low-deposit borrowing is really a significant problem that needs addressing. David Farrar at Kiwiblog provides some useful analysis of the data from the five major banks:

Farrar Graph

Farrar provides some analysis of the data above:

So the top three lines are all mortgages with LVRs below 80%.  They comprise four fifths of the total mortgages, and this was much the same in 2008.

There has been virtually zero growth in high LVR loans (over 90%) since 2008 despite there being solid growth in the housing mortgage market.

Essentially, of the approximate $185 billion of housing lending in NZ currently around $150 billion worth of it has an LVR of under 80%.

I think both the RBNZ are the Government somewhat over egging the problem and the need for LVRs.

We also have to be careful of the possibilities of unforeseen consequences. Restrictions on how much a bank can loan to home buyer may mean that they seek unsecured funding, rather than secured funding. This actually happened in Sweden, and actually works to decrease financial stability.

My father commented in his latest blog post:

Call me old school, conservative or irrelevant but I fully support the reining in of “high risk/low equity” lending. What was wrong with the old days when a minimum deposit of 20% was required? And yes we worked, scraped and saved to get it but somehow we used to do it.

My response is that we are now in a different age. This proposed policy is not merely a return to the “old days”. Yes, while back then 20 per cent deposits were the norm, housing was also considerably cheaper not only in nominal terms, but also relative to the median household income. Twenty per cent deposits aren’t so bad if the price of your property is relatively affordable. This graph from a paper presented at the Centre for Housing Research Aotearoa New Zealand displays how much property has become unaffordable since the “old days”:

RBNZ Graph

While the ratio has eased off since the housing boom of the mid-2000s, we are now seeing it move upwards yet again, largely driven by the Auckland and Christchurch markets. The New Zealand Herald also provides a handy infographic with the latest data.

The prospect of owning one’s own home is becoming ever more elusive for young New Zealanders. It’s my view that the proposed changes to LVRs by the Reserve Bank is a blunt instrument that seeks to correct market distortions primarily in Auckland and Christchurch, but will restrict access to credit for all home buyers, and will result in the door being firmly closed to those who might have otherwise aspired to getting on the property ladder. Clearly the Reserve Bank is using this policy to attempt to take some heat out of the housing market without raising interest rates, which would otherwise negatively impact exporters with an appreciating dollar. Should this policy be implemented – and it’s looking increasingly likely that it will be the case – it will certainly be interesting to see whether it has its intended effect.

Caleb has works with Griff as a marketing and administration assistant. He has recently completed his LLB/BA (Political Science) at Canterbury University. 

Tony Alexander on housing affordability

Tony Alexander’s BNZ weekly overview contains some interesting points with regard to housing affordability:

 If the housing problem is home affordability then special generalised Auckland (or national) imposts such as minimum deposit rules will make things worse for the already cash/deposit-strapped group we want to be able to afford houses. One instead will need to take buyers out of the market which are not the ones we think deserve to buy affordable housing. That means something like a law banning second property purchases, banning purchases by foreigners, and forcing people to sell houses they own but are not occupying – perhaps because they are overseas.

A capital gains tax (CGT) would have little impact as people would simply not sell existing holdings thus worsening listings. Plus we have seen LAQC and depreciation changes have no impact on investor willingness to buy property. And Australia has a CGT but affordability is also poor in the major cities. So CGT will not solve the affordability problem and neither will higher interest rates by definition.

Affordability can only be improved by boosting cheap supply or stripping out non-desired buyers which sounds a bit too much like social engineering for Kiwis to tolerate. Only a radical cheap supply boost will improve affordability.

Regardless of any solutions or ideas, the bottom-line still remains same and is quite simply acquisition of real estate. The sooner you own a slice of NZ real estate the sooner you are on the property ladder. Maybe we have just become so used to buying what we can’t afford or without having to pay the price of saving before we buy? Perhaps a simpler and more affordable option for the first home and low income Auckland buyer is to purchase a property (or even two) outside of the Auckland market?

I must take my hat off to a young lady (barely 20 years old) who last night secured her first home from me in a respectable neighbourhood for well under $300,000. While getting plenty of moral support from Mum and Dad, she had largely saved the deposit herself – obviously seeing the price of saving well worthwhile, proved quite clearly with a 4.00am start for work this morning. Now isn’t that the true Kiwi can-do attitude?

What do you think should be done to improve housing affordability in New Zealand? I’d like to know your thoughts.

Government Land Moves Welcomed

From the New Zealand Herald:

The house-building sector has welcomed the Government’s moves to solve the housing affordability crisis, saying it could be a big boost to the multibillion-dollar industry.

Philip King, Fletcher Building’s investor relations manager, said freeing up land was the key.

“Any moves that will facilitate greater land availability for new housing construction, particularly in the Auckland region, are welcome,” King said.

The Government announced yesterday that it would put a six-month time limit on councils processing consents for medium-sized projects, including housing developments, as part of a range of measures to make homes affordable.

While it does appear that there is no ‘quick fix’ for housing affordability at least the government is tackling the issue and taking some positive steps in the right direction.

Personally, I think it will be interesting see how things pan out here in Canterbury with large quantities of sections coming on stream over coming months. It is predicted that around 20,000 sections will be freed into the local Canterbury market. Now that is a lot of land and literally new communities!

While it is difficult to predict the actual effect that this will have on both land and building costs I do question whether demand will actually be as high as what is expected. I guess the big question is just how many of the earthquake displaced have already purchased? From experience I have found a lot of the post quake purchasers have gone and bought existing homes once cashed up with their insures. I think the jury is still out on this one – will we see a building boom or will we have a glut of land, I guess time will tell?