New Zealand facts of the day

All of New Zealand’s major cities were rated as “seriously” or “severely” unaffordable, with a house in the least expensive city, Palmerston North, priced at five times the median income.

Mr. Pavletich, one of the report’s authors, said smaller markets like Tauranga, a coastal city on the North Island with a population of 128,000, had seen an influx of people who had left Auckland in search of more affordable housing. Average property values in Tauranga had risen to $497,000 from $304,000 in the last five years, and Demographia now rated it among the 10 least affordable cities in the world — along with famously expensive locales such as Hong Kong, San Francisco, Sydney and Vancouver, British Columbia.

People, I have been to Palmerston North (though not Tauranga, which seemed too empty and remote, now the fifth largest urban cluster in a country of 4.8 million), way back in the 1990s, and I recall a feeling of dullness above all else.  If you had asked me whether this outcome was possible, I sooner would have thought Donald Trump would be elected president.

Here is the full NYT story by Charlotte Graham-McLay.  P.s. they haven’t built enough homes.

Comments

"If you wish to kill yourself but lack the courage to, I think a visit to Palmerston North will do the trick“ - John Cleese

2/2/2019
Si usted no quiere que las Kardashian para comer su cerebro comprar iedad en Nueva Zelanda

The English speaking world comprising of Australia, Canada, New Zealand, United States, and the United Kingdom is very good at making housing very expensive. What's the point of all these newfangled distractions that we create like IPhones or Google, which are not necessary in our lives but command a large portion of our resources, when the price of necessities like housing, education, and healthcare are rising at rates far above inflation and seem to receive comparatively little attention. Are we pouring our efforts into the right things?

The English speaking world comprising of Australia, Canada, New Zealand, United States, and the United Kingdom is very good at making housing very expensive.

LOL. It's not the housing that's expensive; it's the WASP, high-trust societies that are expensive.

The pan-Anglosphere housing disease isn't at root due to migration and demand pressures. Though those probably don't help.

It's because these societies wanted to use this to smooth and transfer gains from younger to older workers, avoid excess housing stock and get a nice little debt fueled bubble consumption boom going (when X takes out mortgage debt to buy Y's home and Y spends the proceeds, that's a debt fueled consumption boom!).

Nice theory, but reckoning without the massive hollowing out of the hinterlands that drives loads of the population into the urban center and then drives urban prices into the stratosphere. This process is by far most advanced in the most centralized and most construction restricted Anglo country, the United Kingdom.

By the way, as a Londoner, I laugh at the idea that house prices of 5x annual salary is considered high. How about 10x? 5x is "severely unaffordable"? Wtf? That's an "outside major cities" ratio in this country and has been for about 20 years.

The problem is the politicians and the bureaucracy. Rules, regulations and laws ostensibly intended to do good things and even to lower housing coasts end up making homes cost more to build.

My comment above aka:

UK: "Let's restrict housing supply and transfer a ton through high mortgages on young couples who are making more money"

Also UK, 30 years later: "Where are all these angry socialist man-boys who live at home with their parents and can't afford to move out coming from?"

In England, by and large, Mum and Dad's housing equity is not in London or Manchester, but in some town that millennials don't want to live in, full of scary things like cars, doorbells, and children. So you can give young people housing equity in Crawley or Chorley, but if they all want to live elsewhere, why bother?

yeet, and yet
who decided high trust societies are more expensive than low trust
societies?
zardos doesn't actually remember deciding that.

multimillonario Mike/Killer Mike 2019

The Five Eyes countries and the Anglosphere are one and the same. The fact that it is home to the world's biggest spying organisations is proof that trust might not be so high after all. Employing all those spies with large pensions is also very costly. So low trust societies as least in this case is expensive which is the opposite of your argument.

good point
5 eyes is too many eyes
4 eyes is more symmetrical/affordable
lets dump canada

who wants to tell canada

The smartphone is like a solved problem, like growing wheat. We spend lots of money on housing and healthcare because decent communities and human longevity are not solved problems.

Building a house is a solved problem. Solved for at least few millennia.

we are sensing
you don't grow wheat

How much of the cost can be attributed to seismic regulations in the building codes? Is it significantly more difficult to build there than places that don't have earthquakes to take into account?

A fair question but it's not that much
A far bigger cost is the lack of standardisation and most builders are small companies
Look on Streetview and almost all NZ houses are different from one another
Not necessarily better in fact construction quality is not that good and insulation standards are a bit shit but there are not many areas where one developer with a small range of designs has done a whole suburb

It's a relatively small market and a few suppliers have a comfortable semi-monopoly on prices for materials also for the last 9 years the previous political party that was in power denied that there was a housing shortage at all
The usual normal boring human reasons

If true - why don't other people set up building firms to get some free money? I think these "housing shortages" could be solved quite easily myself - have the Government designate some large areas where you don't need any planning permission and then let auction off plots. People can then build their own houses - or hire small firms to do so. New Zealand is well under populated so surely the space must be there.

That would work, to a point
You'd run into infrastructure constraints quite soon
The country is long and skinny with quite a few natural bottlenecks for roading
Certainly the Texan model of no zoning and let anyone build would go a long way towards solving the housing problem

NZ planning permission is not particularly easy to get outside of long established norms -- especially for residential above 2 stories.

For example with NZ real estate, a big focus is on how much of the property is exposed to the sun (especially in locations like Dunedin etc)

Planning permission and neighbours who may complain about nearby proposed nearby buildings that may block the amount of sun is a consideration.

Essentially NZ homes are in a bit of a time warp - there has been no substantial changes in residential 'style' since the 1950's despite changes in demographics etc. The suburbs are still king.

Furthermore, there is reluctance to build more housing due the infamous leaky homes crisis:

https://en.wikipedia.org/wiki/Leaky_homes_crisis

the article was a little vague
did the government effectively dissolve the apprentice program
when they rebranded the building authority?

Quieres decir
usted no tiene una gran fuerza de trabajo económica para construir casas?

yeet, and yet
there has to be some pretty big zoning& regulation costs

When I was in Queenstown the locals providing us services all had to live far from the city and said it was because big money from outside could simply outbid them for places in the town.

Are those peoples lives really improved? The capital surely, but I got the impression many of the locals would have been happy living in a smaller less tourist trap town.

I've been to Tauranga, one of the most beautiful and consistently climatically pleasant places on Earth. The cruise ships all seem to stop three, and everyone gets off and immediately adds the place to their short list of retirement spots.

Wait, I mean, forget I said any of that, stay away, nothing there, horrible place, complete mystery as to those unaffordable prices.

good point!
climate is often underated
rarely overrated

I am a non NZ resident who has invested (before the ban) in Palmerston North rental properties.

Part of the issue is cultural.

Kiwi's like houses generally, and do not like apartments. So population density in the country is low and building costs high.

Mortgages for apartments are also more difficult to obtain, there is a complex leasehold system, also zero mixed use properties (residential/commercial) etc etc.

So, supply is limited by internal factors.

The UK is similar - small country, restricted zoning and preference for houses (even terrace houses) over flats.

As for Tyler Cowen's comments on Palmy being boring - sure, it is a quiet medium sized university town. Not bad, not great. Investment wise, it is away from earthquake zones and coastal areas (global warming) and home to companies like Toyota, Hino etc. The gang problems that exist in other parts of NZ exist, are limited.

If you are an American reading this, please note that mortgage require 25% down in NZ --- and almost everywhere else in the world, and rates are about 4.84% fixed for 5 years.

The American Fannie Mae 10% down 30 years fixed rate mortgage is unique in the world.

In fact, to compare with American real estate, the real asset is a 30 year fixed rate mortgage -- not the actual home.

A mortgage fixed at 3.5% for 30 years and inflation at 2% --- that's almost free money.

This is all true
Also Palmerston North has a very high amount of Brethren living there

so we invoked senor google visavi the brethren but didn't get a good idea of what they are all about. gotta cult or notta cult?

do you really expect the rest of the world
to believe that new zealanders naturally prefer
unaffordable houses to affordable flats?

It is more nuanced than that with flats vs houses in NZ

1) flats are harder to get mortgages for (especially smaller studios, NZ banks refuse to lend)
2) flats have high management fees (body corp)
3) flats have complex leasehold regulations - and are renewed quite frequently
4) there is a lack of history of growing up/living in flats
5) vacancy rates are higher for flats than houses
6) in earthquake prone NZ, Kiwi's prefer to live in homes (Christchurch etc)

(I have never understood this myself, as Japan is earthquake prone, but is largely apartment oriented.)

I suggest you talk to NZ real estate agents about what sort of properties rent better than others.

Is it 100% that Kiwi's prefer houses over flats? No. Of course. Nothing is 100%.

But anecdotally the vast majority do.

The UK is similar - preference for houses and not HK or Tokyo or Toronto or NY style apartment blocks - especially post Grenfell.

yeet?
headline
"New Zealand Vowed 100,000 New Homes to Ease Crunch.
So Far It Has Built 47."
then we get
"While the government missed its initial affordable housing target, the program, as the article correctly stated, has not failed."

socialism never fails
it just runs out of time and food and money and clean water
and medicine
and then you get typhus

"... it just runs out of ..." other people's money.

yeet
and if ya not gotta lotta the medicine
its hard to get the runs out of typhus

If memory serves, "Tauranga" was Leela's family name on Futurama.

Tom T,
Turanga, from the Turangalila-Symphonie by French 20th century composer Olivier Messiaen. (The words are of Sanskrit origin.) Matt Groening is a fan.

Ha! I stand corrected, and I'm delighted to learn that.

P.s. they haven’t built enough homes.

They haven't built enough homes?

4.5M people have homes, and the other 300K are living in the streets with their pre-approval letters, waiting for homes to be built?

This is awful!

5 times median income is supposed to be expensive for a house in a city?!? 10 times median *household* income would still be an utter bargain for a house in most major cities.

2.5x income is usually cited as the reasonable spending limit

"usually" where?

Mortgages are about 5x salary at most, usually 3.

Unless you have a large cash deposit from family money or a looong history of savings at high rates, it doesn't matter how much of a bargain an asset is, if you can't take out the required debt to purchase it.

Maybe it's still a good deal for someone, but not a good a deal for the majority of natives of these places, no matter the rate of return on investment in theory, from rising prices and low mortgage rates (if they ever had enough to afford the property).

You could argue that's all fair, but it's hard to accept this kind of choice of either massive dislocation and dispossession from place of your birth and community or rent-serfdom for life when prices are fairly obviously rooted in from political choices to restrict supply. Ultimately there will be consequences....

All true and a source of never ending complaints, but try buying a condo (much less a house - if those even exist) in a major city for 5 times median salary...

Reason #1: NZ for many, many decades refused to tax capital gains from increases in real estate investments (including the family home). This meant that almost everyone put all their eggs in one basket, because all other investments were taxed -- it was free money.
Reason #2: the immigration rate (and the 'points system' to get high-value immigrants) to New Zealand has historically been very reliable at steadily adding new people who need homes, especially in Auckland (with the highest prices in the country). This has made real estate dips shallower than they otherwise would have been.
Reason #3: Middle-class investors have increasingly been acquiring additional houses in recent decades; for example, the average Member of Parliament (think Congressman) now owns three or more houses.
Reason #4: affordable types of homes, like apartments or townhouses, are seen as undesirable compared to standalone dwellings with a lawn and gardens at both front and back. This causes sprawl and ramps up local government infrastructure costs.

reason #4

Those damn people with their stupid preferences

and a drag on building due to the leaky homes crisis .... $11 billion in repairs estimated ....

Even on Horse Racing from New Zealand the country looks like an absolute paradise. The housing crunch is no doubt due to all those Hollywood celebs fleeing The Age of Trump

"P.s. they haven’t built enough homes"

Incorrect

They let in too many fucking people.

But the current population growth rate is nothing special compared to historical increases -- which consisted of both fucking and non-fucking people. In the past it didn't result in comparable increases in residential real estate prices.

yeet
so visavis f***ing/nonf******* p*****
what do you crikey!
think are the causes for the huge increase in real estate prices?

Dieser Superbowl-Sonntag. Essen Sie die orangefarbenen Doritos nicht. Gehen Sie mit
Milliardär Mike/Killer Mike 2019

My guess -- and this is just a guess, mind you -- is that it has something to do with supply and demand.

got it.
so crikey mate
is this for real?
https://www.odt.co.nz/news/politics/nz-women-most-promiscuous-world

That's completely nuts. Sports in New Zealand has always been publicly funded so the government has always been paying for young men and women to play around.

I have fond memories of when the New Zealand female netball team crossed the Tasmen to play in my town.

If you don't build more homes, housing still gets expensive even with a flat population.

Australian real estate has been on a similar track to NZ for years; the countries' economies are highly integrated.

One of the biggest spurs for real estate prices has been credit availability -- not just interest rates, but relatively lax lending standards. Regulations have tightened this up over the past 12-18 months and Australia is currently looking at a 15% peak-to-trough fall in real estate prices (and that's a conservative estimate).

But my question to anyone who has a quick answer is this: Around 50 per cent of FDI in NZ comes from Australia. Will tighter credit conditions in Australia impact NZ real estate? I understand this will depend on flows/stocks of investment in from Australia into the NZ RE market ...

Here is John Cleese on Plamerston North.... https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10371568

He couldn't be more right!!!

I live in NZ and consider PN or Palmy to be the biggest hole in the entire country... including the holes at the top of the NZ volcanoes that plunge into the heart of the earth... its dull, cold, windy (so windy) and miserable...

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