Property costs in NZ - the heart of evil

[Brian d marge]

Wrong.

The government removed the tax deductions for rental housing two years ago. Plus losses are now ringfenced and unable to be spread across your other income. As a result many mum and dad owners of a rental house have faced negative equity and been selling which is why the property market is depressed.

Nevertheless your main points are well made. Our housing is expensive in places where the bulk of the population live. The longterm average house price is 3.5x average income but for the last decade it's been 6x and stays there despite the global meltdown. It defies economic logic.

Building is expensive here because of tight regulation among other reasons. Earthquakes. Back in 1991 the government tried to free up the regs and what happened...leaky homes. Shoddy building. Ordinary people ended up facing the loss of their homes and financial ruin which continues to this day.

So removing building controls is a non-starter.

My house is a "kit house " , first let me explain "land " in tokyo is err expersive , the house is a minor inconvieniece . So there are one or two companys that make houses , in a factory , all lazer cut pre built in many different configurations and styles , you can choose what cladding , roof ...etc
but its all production line ,,, and essentially PRE PERMITED .ie me old man had to pay 6 or 800 dollars just to have the man sign of the drain connection from his toilet ,,,,thanks chch council ( I said to him it would have been cheaper NOT to get the permit and IF he ever sells the house , then dig up a small section and get a permit .... that IF he ever sells

Me , if I could find a way of making a reasonable living , in Wamate on a 1/4 acre more or less freehold ( bare section , no electricity no water ...cheap as chip land ) I would be there in a shot

Why no water no electricity you ask ....haahahaha I have a plan says I

anyway , a house is a home not an investment a home for families to live for generations .......just a thought

Stephen

[R-Soul]

Agree 100 percent, all the young things want to live in Ponsonby yet not prepared to buy the unit in Otahuhu to start off, like my parents did in the Wellington equivalent.....with no furniture.....iPads I pods, home theatre, nice cars , OEs all seem to take priority, just saying

In Oz , teh homes are actuually not that expensive if you are prepared to travel a bit further to work. the homes on the outside of cities are not badly priced - about $450k for a 4/5 bedroom house - brand new! Here, its $450 k minimum for a 4/5 bedroom house in the crappest areas, that are a do up, and will cost you another $100k all up after working on it for another 2 years while your toddler kids get crap education in rubbish schools in the neighbourhood. Any new house of any size is $6-800k minimum!

But even the CRAPPEST areas in Auckland, and even the ones waaaaaay far away in PHUCKING OREWA and HELENSVILLE are still bloody expensive compared to the wages in a Auckland! I cannot really leave and work in the countryside. I am a patent attorney and can only really work where there is big indusry, so that pretty much leaves Auckland.

And the reason why the cost of living is so high is because there is no money to start up businesses to provide competition for the fatcat monopolistic providers of everyday goods, so EVERYTHING becomes high cost - at least 60% more than what it should be.

Even the cost of money was bloody high, until the government started Kiwibank - it was teh best thing they ever did for this country.

They should do something similar for other major industries, or they should regulate them heavily.

I normally am a big "free market" supporter, and regard givernment run parastatals as fatcat players in themselves, but in light of the current issues around competition that are faced everyday here, I am not so sure that selling off state assets is a good thing, because teh free market players become even worse in a tiny market. That free market model seems to work when there is a big enough market to encourage comnpetition, but maye not so well here.

[mashman]

Running with your numbers:

Purchase: $5,000,000 (Land purchase = Zero rated, no GST claim back). (Purchase price sounds cheap though...)
Development of 1500 sites @ $60k per site = $90,000,000
Total Sales at $145k per site = $217,000,000
PAY GST on sales of $217m = $28,304,000
CLAIM GST on development costs = $11,740,000

Gross Profit:
$105,436,000.
(Holding costs (finance etc.) need to be deducted from this as well as other business operation costs. Finance for a development like this is likely to be 11 or 12%, say it took them 3 years to do development and sell all sites, finance costs would be $34m.)
These are very very rough numbers, but yes....reasonably profitable.

dunno hoe good you are at maths, but 145000*1500 = 217.5 million.

Minus the 5 mill cost (i think it will be more like 50 -100mill) and there is a stack load of profit

1500 lot subdivision, where is that? Its massive

My bad, the last block brought the total up to $6.54 million for 246 hectares or so says the media.

[R-Soul]

One other thing that the government may not have considered in allowing the price of homes to become so inflated:

We are becoming a nation of tenants. There have been a few newspaper stories on this already.
Typically when people retire, they have paid offf their houses, and can live relatively rent free, or with minimal payemnts to be mde on their house. What happnes when the current nation of tenants retire? Their annuation costs will be enormous in light of the current rental costs!! The government is going to end up having to support retired pensioners in state houses because private housing just wont be possible! Can they afford to put an entire generaton of pensioners in state houses? Or does the taxpayer have to pay for that too?

[Andy67]

In Oz , teh homes are actuually not that expensive if you are prepared to travel a bit further to work. the homes on the outside of cities are not badly priced - about $450k for a 4/5 bedroom house - brand new! Here, its $450 k minimum for a 4/5 bedroom house in the crappest areas, that are a do up, and will cost you another $100k all up after working on it for another 2 years while your toddler kids get crap education in rubbish schools in the neighbourhood. Any new house of any size is $6-800k minimum!

But even the CRAPPEST areas in Auckland, and even the ones waaaaaay far away in PHUCKING OREWA and HELENSVILLE are still bloody expensive compared to the wages in a Auckland! I cannot really leave and work in the countryside. I am a patent attorney and can only really work where there is big indusry, so that pretty much leaves Auckland.

And the reason why the cost of living is so high is because there is no money to start up businesses to provide competition for the fatcat monopolistic providers of everyday goods, so EVERYTHING becomes high cost - at least 60% more than what it should be.

Even the cost of money was bloody high, until the government started Kiwibank - it was teh best thing they ever did for this country.

They should do something similar for other major industries, or they should regulate them heavily.

I normally am a big "free market" supporter, and regard givernment run parastatals as fatcat players in themselves, but in light of the current issues around competition that are faced everyday here, I am not so sure that selling off state assets is a good thing, because teh free market players become even worse in a tiny market. That free market model seems to work when there is a big enough market to encourage comnpetition, but maye not so well here.

You should hang out at interest rate .co, lots of like minded folk over there.

There you go mate, solved 13k from CBD....


http://www.realestate.co.nz/1771489

[Tigadee]

They expect about 200m2 plus, and its got to have all the bells and whistles and they want it all pre-landscaped - no manual work thanks, so the price is comparatively high compared to figures of yesteryear.

So the big money in the future is charging exorbitant amounts of labour costs for services for a generation that has grown up with no manual skills...

[merv]

So the big money in the future is charging exorbitant amounts of labour costs for services for a generation that has grown up with no manual skills...

I reckon, no surprises there, just like those other countries where its not in their DNA.

I suppose I shouldn't laugh too much, I've been paying Jim (well my Jim is a Stuart) to mow my lawns for 10 years now and I sold my motormower.

[R-Soul]

IMO what keeps most NZ investors out of the shares/bonds markets is that the directors and executives of the issuers are either incompetent or crooked, or both. When people invest their money in what is laughably called 'the productive sector', the executives and directors, rather than using that money to continue to improve their productivity, turn around and give themselves large pay rises and assorted other perks for doing such a sterling job of raising funds, and therefore company value via the securities markets.

What do they do with this new found wealth? Most often it would appear that they 'invest' it in beachfront property, large houses in leafy suburbs, or in times past have started to dabble in property development of their own. What is not funneled through to themselves via payrises is used to lease exotic company cars, international "business" travel to attend bullshit conferences and trade shows for the next tier of management, to give them the illusion of being employed by a successful business, whose future is assured.

Fuck them.

I'll use my money to fund my own capital investment projects thank you very much. If I wanted to fund the purchase of a waterfront property it might as well be my property as some corporate fat cat's. The returns offered by the NZ markets is pitiful compared to the risk that investors are exposed to.

Thats exact;y what I am talking about - if you had some money to fund your own projects, you could start your own business in competition with the fatcats that pay themsleves hefty salries and overcharge the consumers. If they are fatcats, they are ripe fo rteh picking, but there are no market forces allowing competition to happen - its all tied up in illiquid property.

[Tigadee]

And the reason why the cost of living is so high is because there is no money to start up businesses to provide competition for the fatcat monopolistic providers of everyday goods, so EVERYTHING becomes high cost - at least 60% more than what it should be.

I normally am a big "free market" supporter, and regard givernment run parastatals as fatcat players in themselves, but in light of the current issues around competition that are faced everyday here, I am not so sure that selling off state assets is a good thing, because teh free market players become even worse in a tiny market. That free market model seems to work when there is a big enough market to encourage comnpetition, but maye not so well here.

Agreed. This has happened in so many areas in NZ, from houses to goods to groceries to motorcycle helmets and bikes. Sometimes, a Command economy is not a bad thing, especially for a small country but you do need competent people running the show, not the unqualified politicans who don't know anything about science, economics, engineering, etc...

[R-Soul]

Wrong.

The government removed the tax deductions for rental housing two years ago. Plus losses are now ringfenced and unable to be spread across your other income. As a result many mum and dad owners of a rental house have faced negative equity and been selling which is why the property market is depressed.

Nevertheless your main points are well made. Our housing is expensive in places where the bulk of the population live. The longterm average house price is 3.5x average income but for the last decade it's been 6x and stays there despite the global meltdown. It defies economic logic.

Building is expensive here because of tight regulation among other reasons. Earthquakes. Back in 1991 the government tried to free up the regs and what happened...leaky homes. Shoddy building. Ordinary people ended up facing the loss of their homes and financial ruin which continues to this day.

So removing building controls is a non-starter.

Yes, the government has EVENTUALLY moved to try and free up some of the cash - they are moving slowly towards this to try and hint at ma and pa investors to get the hell out of the property market NOW to prevent massive losses overnight. The writing is on the wall that it can and WILL happen. Eventually. They are popping the bubble slowly. But trying to deflate decades of bad policy cannot happen overnight. In the meantime we all leave for Oz, and our standards of living and wages drop.

Yes deregulation was a fuck up in the past- that does not mean that it is wrong - just that the deregulation was not handled properly. How come other countries manage to put up lots of houses without fuckups? Just do what they do dammit! In areas north of Perth, they have put up like 50,000 brand new houses in a few years. Why can we not do this? Because our government are freaking landlords and dont want this to happen to their investment or to their ma and pa voters! The whole thing is so endemic that is a self-fulfilling fuck up.

Perhaps the house insurers should have inspectors to check that building codes have been followed to ensure that it is done properly before they will insure it. Or maybe the government must just pull their finger out.

[HenryDorsetCase]

the key difference in australia vs here is material cost. the reason for that is the cost of materials in NZ is controlled by a duopoly (like groceries). My brother can (and has) imported container loads of mdf and that formica faced MDF way cheaper than he could have bought it here, even with his buy price. (which is very good). How else do you get a house in Straya for way less than it costs here when the trades are getting paid way more? two reasons: land is cheaper, and materials are cheaper.

Don't get me started on subdivisions.

[HenryDorsetCase]

Yes, the government has EVENTUALLY moved to try and free up some of the cash - they are moving slowly towards this to try and hint at ma and pa investors to get the hell out of the property market NOW to prevent massive losses overnight. The writing is on the wall that it can and WILL happen. Eventually. They are popping the bubble slowly. But trying to deflate decades of bad policy cannot happen overnight. In the meantime we all leave for Oz, and our standards of living and wages drop.

Yes deregulation was a fuck up in the past- that does not mean that it is wrong - just that the deregulation was not handled properly. How come other countries manage to put up lots of houses without fuckups? Just do what they do dammit! In areas north of Perth, they have put up like 50,000 brand new houses in a few years. Why can we not do this? Because our government are freaking landlords and dont want this to happen to their investment or to their ma and pa voters! The whole thing is so endemic that is a self-fulfilling fuck up.

Perhaps the house insurers should have inspectors to check that building codes have been followed to ensure that it is done properly before they will insure it. Or maybe the government must just pull their finger out.

You obviously know very little about the history of changes to the Building Act, the reasons behind the "leaky homes" "Crisis" or the drivers of house price inflation. Or indeed what insurance companies do and dont do, and how one gets from a bare patch of dirt to the 1/4 acre paradise. (actually these days 1/6th acre but whatever).

[Brett]

My bad, the last block brought the total up to $6.54 million for 246 hectares or so says the media.

246 hectares for $6.54 million closeish to town is a good buy.

[Brett]

You obviously know very little about the history of changes to the Building Act, the reasons behind the "leaky homes" "Crisis" or the drivers of house price inflation. Or indeed what insurance companies do and dont do, and how one gets from a bare patch of dirt to the 1/4 acre paradise. (actually these days 1/6th acre but whatever).

The governments approach to managing the leaky homes/buildings issue was a joke in itself. The resulting changes to the Building Act and processes around it are off the mark. I don't think that the government should have nearly as much involvement as they do....they seem incapable of responding sensibly to any major drama and respond with the good ol' knee jerk reaction that according to the legislation fixes the problem, but in reality does little to actually address the root causes of the issue. Hence, in the case of leaky building...they are still being built, albeit on a much smaller scale. Buy a plaster house at your own peril! The government answer to a problem 9/10 is to regulate. regulate, regulate regulate. If we regulate against it, it wont happen. *TUI*

[HenryDorsetCase]

The governments approach to managing the leaky homes/buildings issue was a joke in itself. The resulting changes to the Building Act and processes around it are off the mark. I don't think that the government should have nearly as much involvement as they do....they seem incapable of responding sensibly to any major drama and respond with the good ol' knee jerk reaction that according to the legislation fixes the problem, but in reality does little to actually address the root causes of the issue. Hence, in the case of leaky building...they are still being built, albeit on a much smaller scale. Buy a plaster house at your own peril! The government answer to a problem 9/10 is to regulate. regulate, regulate regulate. If we regulate against it, it wont happen. *TUI*

I kind of agree. the big thing is industry training. A couple of my clients are builders in their 50's: they started as apprentices and they did everything. started digging trenches for services, site setout, built the foundations and carried on from there. I am not that sure that the LBP regime will help that to be honest. Ze Chermans, when not invading other bits of Yrp, or propping up their economies*, sure know how to do trades training though.


*kind of the same effect, if not the same thing.