Real Estate

We don’t want your stinking apartments

Ever desperate to continue pitching for an intensified future Lawrence Yule and his buddies at Local Government NZ have organised a conference and found someone, anyone who will spout on about apartments.

The cost of properties with over-inflated price tags can be brought down with a rapid increase of high rise apartment blocks and granny flats, according to an expert speaking at a property seminar in Wellington tonight.

Local Government New Zealand president Lawrence Yule will lead a panel discussion on housing affordability with Finance Minister Bill English, Auckland Council Deputy Mayor Penny Hulse, economist Arthur Grimes and New Zealand Council for Infrastructure Development chairman John Rae.

Aha! Someone who will say that building apartments will make a difference to house prices and demand.

Normally Arthur Grimes is considered to be pretty smart and he has some good things to say.

But it appears he lacks understanding precisely how the mechanism of property and how the buying market works.

In fact – not many people do at all.

New apartments have to sell for between 8,000 and 10,000 per square metre of floor space in Auckland on average to allow a developer a margin. That can drop slightly in the CBD if car parks are discounted off the price by not building them. A 100 sqm apartment therefore would have a sales price around $1m.

New houses have to sell for $3,000-3,500 psqm. A $1m house will most often be a big 250-300 sqm house on land with yard and so on.

Apartments have terribly high ongoing costs distributed through body corporate fees. Houses don’t.    Read more »

Why is property around the world so expensive?

The opposition was crowing about an OECD report that said New Zealand has some of the highest housing prices in the world…which for most of New Zealand is a laughable joke. Just yesterday I spoke with a friend who has just sold a 3 bedroom house in Whanganui for $97,000, when the house was bought 5 years ago for $124,000.

The figures are being held up by Auckland real estate and other main cities.

In some places, though, like the United States – property is cheap. In others like New Zealand and London property prices are out of control.

Now officials say that London it is so out whack it is no longer affordable for people on high or low incomes – it’s just not affordable.

In 2010, Nick Williams oversaw construction of luxury apartments at London’s One Hyde Park, where a penthouse valued at 175 million pounds ($297 million) sold last month.

Now he works at the other end of the property ladder, building discounted homes for those shut out of the boom.

Local officials have “realised the housing crisis for people who are neither rich nor poor is massive,” said Williams, operations director at Pocket Living, which uses interest-free credit from the city to build homes selling for about 20 per cent below market value. “There’s a lot of pressure on us to deliver.”

In contrast to the $41.1 billion affordable-housing initiative announced this month by New York Mayor Bill de Blasio, London has opted for a piecemeal approach to taming home prices that have spiraled to records. The method has so far failed to meet Mayor Boris Johnson’s own expectations.

“The very fact that people above the median household income in London require subsidised housing is a strong indication of market failure,” said Andrew Heywood, a consultant who has researched housing for the Smith Institute, an organisation that describes its mission as promoting a fairer society.

“The housing market is fundamentally dysfunctional.”

Read more »

More good news

Another crisis that Labour has been campaigning on has had a shot in the arm, simply from Labour declaring that there was a crisis in the first place.

Residential building consents continued to rise in March, which was the best month for house approvals in more than six years.

Some 1999 new dwellings were consented, 186 apartments which were largely rest-home units, and 1813 houses – the highest number since November 2007, Statistics New Zealand said today.

Business indications manager Neil Kelly said the trend for new dwellings had almost doubled since March 2011, but was still 28 per cent below the peak in January 2004.   Read more »

Herald editorial on state house changes

The Herald Editorial discusses the changes the government have made to state housing.

An era ended yesterday. The idea that a state house was awarded to tenants for life has been consigned to history. Legislation that put an end to this idea passed through Parliament late last year, remarkably with little comment. The law came into effect yesterday just as quietly. From now on, tenants will face a review every three years to see whether their income or circumstances have improved.

The absence of much protest suggests the public attitude changed long ago. Yet it shows some courage on the Government’s part. Sooner or later an elderly person is going to be evicted from a house she loves in a neighbourhood where she has lived most of her life, so that a family may be given the three-bedroom home she has occupied alone, and she will be on television.

Normally Housing New Zealand would be able to offer her a smaller but reasonably alternative home. But another historic change that took effect yesterday means the corporation no longer decides who gets a house.

The role has been passed to the Ministry of Social Development, which will assess applicants’ housing need as part of all forms of assistance they require. That makes sense and should make the system fairer.  Read more »

Cunliffe goes over the top and signals Labour will continue to provide for bludgers

Aside from not wanting to let the facts get in the way yet again David Cunliffe is starting to adopt the verbal approach of his chief of staff, we had the Garner interview that was mate this and mate that which from a toff in a Herne Bay mansion is ridiculous.

We now have the totally over the top reaction to what is some pretty minor changes to state house tenancies, reviewing a tenancy in a HNZ house to someone whose luck has improved to free up a house for someone more deserving is now “disgusting”.

Clearly there is some media training going on but with the same results that Phil Goff and David Shearer had…you can’t completely re invent someone.

And what of the policy?

Sounds like pretty sensible stuff to me and no doubt any other working person out there paying private rent.

The changes, coming into effect tomorrow, give community housing providers greater access to money to subsidise people in desperate need of a home.

It means non-government groups can offer income-related rents for tenants for the first time.

Social Development Minister Paula Bennett said it would allow more diverse housing options for people on the waiting list, and make houses more affordable.

“It means significant savings for those renting the houses, with the state picking up a bigger part of the bill for them,” she said.

The government has set a target for 20 per cent of the country’s social housing to be provided by non-government organisations by 2017. Currently there are about 1200, but Minister for Housing Nick Smith said he wants that number to rise to 12,000.

Many of those new projects will be in West Auckland – where about 1200 of the 5500 people on the national state house waiting list live.  Read more »

Wait Til The Oldies Die To Own Their Home

All over the world, (but only really in cities desirable to live such as Sydney, Auckland, London, New York and Hong Kong), there is mass outcry from younger people demanding solutions to this myth of “affordable housing”.  At the moment it is not affordable – to the taxpayers who are having to subsidise these crazy buy-a-vote schemes.

Here is yet another example why governments should not intervene in the property market.

Pension Funds about to be tipped into housing in UK.

That’s right, the baby boomers are about to get their cash all at once.  And are tipped to throw it all into housing.

Added to that simultaneously a bottom-about face “Help To Buy” scheme in the UK that is encouraging massive amounts of cheap debt to people who say they currently cannot afford a home therefore further driving up prices.  A crazy policy but one that you would be a fool not to sign up to considering that future governments will be forced to bail out any bubble pop in the market. Easy credit is fuelling prices, not assisting affordability.  Read more »

Don’t blame Chinese for house price increases, blame Labour and people like Selwyn Pellett

Our politicians, particularly the more xenophobic of them, like to blame Johnny Foreigner for the rise in house prices.

The same is happening in Australia, with all manner of things like Chinese investors being blamed. The real reason though is somewhat different.

Labour and the Greens claim that restricting foreign investment and applying capital gains taxes will lower prices…and yet the opposite is true in Australia.

Foreign investors are not to blame for rising house prices. The real culprits are the taxing and regulating activities of Australian governments that raise the supply price of new housing.

Despite this, the House of Representatives economics committee is set to inquire into the impact of foreign investment on the Australian housing market at the instigation of Treasurer Joe Hockey.

According to committee chair Kelly O’Dwyer, the inquiry will consider whether the current restrictions on foreign investment in residential real estate serve to increase supply, as is their stated intention, or raise prices.

This is rather like asking whether foreign tourists increase the production of goods and services or raise consumer prices. The answer depends on how flexibly Australian producers can accommodate changes in foreign as well as local demand through increased output.

Is more red-tape and bureaucracy the answer for Christchurch?

Apparently the Christchurch City Council thinks more red-tape and bureaucracy will solve the housing problem in the city.

City councillors have voted unanimously to explore options for setting up a register of residential rental properties in Christchurch.

The proposed register is the idea of the Tenants Protection Association (TPA) and is part of measures that are being considered to help address the crippling shortage of rental accommodation in the city.

TPA manager Helen Gatonyi told the council’s housing committee that New Zealand was one of the few countries that did not have a register of residential rental properties.

“It has been said there is more legislation required to house pigs than there is to house people in this country. We need to register our car, our dogs, we need to register our businesses, so why is there so much resistance to registering our residential rental housing,” Gatonyi said.

In view of the housing crisis in Christchurch a rental register was critical as authorities needed to have a comprehensive understanding of the rental market so they could plan to meet the accommodation needs of the estimated 10,000 workers who would be coming into the city to assist with the rebuild.

“It is absolutely necessary for planning,” Gatonyi said. “We need to know what residential accommodation is available and where it is.”

The level of homelessness in Christchurch was a “great deal bigger than any of us want to contemplate” and a key to changing that situation was having accurate information on where the gaps were.   Read more »

A guest post – Debunking the debunker

by Phil Hayward

The annual Demographia Housing Affordability Report always brings out a bit of discussion but little or nothing in the way of strong committal to reform. On the core issue of housing supply, this is a sensitive issue of “local democracy”.

The battle for public opinion has obviously been dominated by the supporters of “compact city”, anti-car planning; Auckland’s democratically re-elected Mayor is the personification of this ideology, and the Councillors who have been re-elected are largely the same people who signed off on notification of the grossly flawed Spatial Plan.

The arch-Greenie urban planner Joel Cayford has now posted a criticism of the latest Demographia Report that is typical of the arguments mounted by the compact city ideologues and vested interests. 

He actually has the gall to accuse the NZ Herald and the Auckland Council of “giving the Demographia Housing Affordability survey an easy ride”, which is rich given the entrenched position of both in support of the grossly flawed and under-scrutinised Spatial Plan and the whole compact city concept.

One form that denial of the existence of a housing affordability problem takes, is that “everyone had it tough in their day and our young people should harden up”. Principally this involves the argument that mortgage repayments relative to income might be not a lot higher now in comparison to historical episodes of very high interest rates when house prices were lower. Cayford’s “debunking” covers this – Demographia “doesn’t take interest rates into account” – shock, horror.

But why should it? Demographia are demonstrating the difference between housing markets with well-functioning supply of houses, and those without. In the latter, house prices inflate as fast as interest rates are cut, leaving no buyer any further ahead; and the lower the interest rate (and larger the loan) the higher the risk of future interest rate hikes leaving young first home buyers dangerously exposed. The large size of the principal really matters.

But if the advocates of a measure of “affordability” want one that does take interest rates into account, perhaps they should examine the affordability under this criteria, of houses in the affordable-price cities in the USA. Here is a graph of the rates at which a mortgage can be obtained in the USA, with rates fixed for 30 years.

30yearinterestrates Approximately 4.5% Read more »

Tweet of the Day

Cactus Kate is of course commenting on the news that Auckland is now second only to Hong kong for unaffordable housing.

Hong Kong is of course land constrained, Auckland is not except by design.

The NZ Herald reports:

Housing is increasingly out of Aucklanders’ reach as incomes drop and house prices rocket, an annual global study shows.  Read more »