Property costs in NZ - the heart of evil

[Ocean1]

Make the infrastructure the developers problem then including the required upgrades ,keep the councils out of it


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Infrastructure is already done at the developers cost, the council fees are simply parasitic compliance charges.

And no developer is going to sign anything requiring them to upgrade anything to a future, undefined spec.

I think councils have a part to play in managing development, but ANY monopoly causes costs to rise without any relation to actual value. The trick is firstly to define the services councils are supposed to provide and secondly to make them accountable for the value of their performance and charges. Not easy.

[flyingcrocodile46]

Just put my thoughts down in writing on this issue in another forum. Thought I would share them here.


Politicians debating the housing cost issue do little more than demonstrate how little they really understand about the problem. None of them have any genuine expertise or in depth knowledge of the industry, where it is at or how it works. They tackle these political issues on an ad hock basis by doing a bit of study so they are partly informed on about 33% of the influencing factors then climb in with solutions that don't actually work for the 66% of the problem which they have no knowledge of.

Govt can’t sell or make land available in Auckland (or other cities) at cheaper prices when demand by people with access to money is driving the cost up. Demand establishes the cost. Anyone who sells land for less than it can be sold is going to take a loss. Is a developer going to give away potential profit or take a loss on land they already own? Hell no. Is the govt going to do it by using taxpayer money (or more realistically using or increasing the public debt) to buy and sell land in a non profit venture? Not if they expect to get voted in again.

The problem is that of supply and demand. If the demand is inflated by easy access to money, how on earth is pouring taxpayer money into the problem going to solve it? It can only make it worse.

Yes there is some merit in looking at the issue of material costs, but who is going to diminish the potential capital gain of a $400,000 section by putting a small 120M2 $120,000 to $140,000 3 bedroom house (with no garage) on it which will only sell for $550,000 when a 220M2 $350,000 to $400,000 5 + bdrm house with double garage will turn it into a much more easily marketable $1,000,000 + property (that the market with money demands)?

The answer is to side step or reduce the inflationary pressures created by demand and easy access to money. Part of the problem is because of market players who are investing for reasons other than providing a roof over their own heads.

First step is to kill the subsidies that artificially and/or inappropriately assist returns to rental property speculators.

Second step is to introduce capital gains tax so that tax is paid on the profiteering that drives up demand. Home ownership should be confined to the purpose of putting roofs over people’s heads. It should not be used by investors as an investment mechanism which serves no purpose other than returning an investment profit, when the side effect of investing promotes the inflation which enhances the return to people who have no need of the housing for any purpose other than making money (and drives the cost beyond the means of people who don't have easy access to the ever increasing amount of money needed to put a roof over their heads and forces them into paying rent which pays another person’s loan off). It's crazy in every sense except for that of the short term return on investment.

Third step is to remove all import protectionism on building materials (yes there is plenty of it) which would force local manufacturer's to compete in a proper open market and reduce the NZ sale prices of their materials down to at least match the prices that they get for their exported materials in other countries (yes you can buy NZ timber and gib board cheaper in other countries than in the country of their origin). This would not be undue interference as it would only be correcting an unnatural market imbalance.

Fourth (and much harder) is to address the supply and demand cycle by increasing the supply, but that only works when the land is genuinely cheaper (rather than subsidised). Forcing people to sell land cheaper than the market will pay would ruin some people and would be unfair to those who have invested. It would be interfering directly with the market to create an artificial impediment to natural market forces. So the alternative has to be to provide alternatives to the market. You can't buy cheap land and move it into expensive areas (land is not a refrigerator, TV or car). You have to shift the demand to where the cheaper land is located. Decentralisation is the only way that is going to happen. Shift the demand to where the affordable supply exists. That requires societal change and that is where the politicians come in. That is the area where they should be focusing their efforts. It is no small task but it is the only real alternative. Centralisation has created the problem, reversing the process is the only real solution.

[Ocean1]

Just put my thoughts down in writing on this issue in another forum. Thought I would share them here.

Concise. And I think you're right on just about every count.

I'm not happy with a capital gains tax myself, unless it allows correction for inflation, and even then it'd be almost impossible to administer if taxing non-resident dwellings only. And if you tax the lot then what does that do for the idea of capital improvement? New driveway? Not if I'm paying to do it and getting taxed on top.

And new development. Of all of the opportunities for govt to interfere in the market that's possibly the least damaging, buy up a couple of square kilometres of farm, institute a public "Works Development" department and sell the result for cost. I might be wrong but I think that approach would halve the price of a section, at least. Which, as you implied would have a beneficial knock-on effect to downstream costs.

And while we're getting all commie, let's have a public building supply department, eh? I don't feel much sympathy for the existing outfits, and it's about time the Commerce Commission started doing the job they're supposed to. A public supply chain would eventually stagnate, like every public service endeavour always does, but it'd last long enough to see the existing parasites gone.

[mossy1200]

I find it hard because im just about to hit settlement on the house we are buying and change could mean I end up with zero capital in the house.
Failure to buy now will leave me to little deposit to buy later on. So im stuck in lose lose. If I don't buy now guaranteed when new buyers cant buy rent will lift in demand areas a lot and the people wanting to buy wont be able to save money for the larger deposits.

[flyingcrocodile46]

I find it hard because im just about to hit settlement on the house we are buying and change could mean I end up with zero capital in the house.
Failure to buy now will leave me to little deposit to buy later on. So im stuck in lose lose. If I don't buy now guaranteed when new buyers cant buy rent will lift in demand areas a lot and the people wanting to buy wont be able to save money for the larger deposits.

Don't worry, you are in a much better position than many. If you can get a start in the game you are usually ok unless the market crashes and the signs are positive for continued growth at present.

It is the people who can't get the deposit together because they are forced to pay high rent that are the losers. Once you are in the high stakes game in the bigger cities you are generally exempt from the inflation cycle.... as long as you are making good progress in reducing the principal of your mortgage.

[slowpoke]

Concise. And I think you're right on just about every count.

That's funny 'cos I reckon he's wrong, not to mention contradictory. It's OK to invest in land and force up land costs, but it's not ok to invest in housing? And if you aren't allowed to own any house except your own....what happens if you can't afford a house? Who's house do you live in? And having lived in Perth I can tell you that property investment is probably even more rife than in NZ despite a Capital Gains Tax and hefty Stamp Duty, so what does CGT accomplish other than line the Governments pockets?

If you want a tax that will accomplish something how about institute a tax on Auckland businesses inside a certain geographic boundary? Say 0.1% of profits per employee up to a maximim of 10%. They'll soon move, along with their employees, and it's problem solved.

[Indiana_Jones]

If you want a tax that will accomplish something how about institute a tax on Auckland businesses inside a certain geographic boundary? Say 0.1% of profits per employee up to a maximim of 10%. They'll soon move, along with their employees, and it's problem solved.

Not sure about the approach, but I agree with making some sort of incentive to get businesses to spread out of Auckland. Too much focus of Auckland being the be-all and end-all.

-Indy

[flyingcrocodile46]

That's funny 'cos I reckon he's wrong, not to mention contradictory. It's OK to invest in land and force up land costs, but it's not ok to invest in housing? And if you aren't allowed to own any house except your own....what happens if you can't afford a house? Who's house do you live in? And having lived in Perth I can tell you that property investment is probably even more rife than in NZ despite a Capital Gains Tax and hefty Stamp Duty, so what does CGT accomplish other than line the Governments pockets?

If you want a tax that will accomplish something how about institute a tax on Auckland businesses inside a certain geographic boundary? Say 0.1% of profits per employee up to a maximim of 10%. They'll soon move, along with their employees, and it's problem solved.

I never said or implied

It's OK to invest in land and force up land costs

property developers pay tax anyway. Subdivision developers do not drive prices up. It is the demand for the property that drives prices up.

Communities can own houses. They can be tax exempt (as they don't invest for profit). If a community can't provide housing to cater for an increasing worker population (that can't afford local housing prices), then there are Hotels, Motels, Boarding houses etc which can grow to meet demand (they are businesses and pay taxes on all aspects of potential profit). If not, then growth through centralisation will stall and imo that is not a negative.

The business tax idea might work ok to a point. Need to think it through a bit more, but it would likely have the added benifit of discouraging monopoly through devouring the competition and would give small businesses an advantage to help offset some of the advantages that bigger competitors gain as they grow.

[Flip]

What a lot of twaddle.

NZ has a working class poor problem, who want to live like middle class people but dont have the income to do so.

Rents are historically low because the govt let ma and pa investers run their rental properties like a business.

The problem now is the user is paying the real market rental price.

[flyingcrocodile46]

What a lot of twaddle.

NZ has a working class poor problem, who want to live like middle class people but dont have the income to do so.

Rents are historically low because the govt let ma and pa investers run their rental properties like a business.

The problem now is the user is paying the real market rental price.

Well, at least you pre qualified your opinions clearly

[mashman]

These guys believe in a Land Value Tax. Personally I think they're out of their fuckin minds as I don't see anything really changing other than the usual rob peter to pay paul. Still, for those interested they've made the movie available fwee of charge. It's worth a watch and iffen ye give enough of a shit, I've got the book that they've written that accompanies the movie, also for fwee (primarily due to a nice couple of poker wins).

[avgas]

well with me packing the family up into boxes and shipping off to the u.s. I have put the house on the market. So hopefully a couple of suckers will try an out-bid each other on the auction day and I get a good price.

Won't have anything to do with the govt and tax either. Just 2 dude (actually prob gonna be 2 chicks) going el mano against each other to buy my house. Market forces and all that doo-dacky.

[flyingcrocodile46]

These guys believe in a Land Value Tax. Personally I think they're out of their fuckin minds as I don't see anything really changing other than the usual rob peter to pay paul. Still, for those interested they've made the movie available fwee of charge. It's worth a watch and iffen ye give enough of a shit, I've got the book that they've written that accompanies the movie, also for fwee (primarily due to a nice couple of poker wins).

No comment on the land tax as I really need to give that more thought.. I do see good potential (as there is in many alternative and the current system[sans Fiat money]). Most systems have potential to work ok as long as they aren't perverted to suit the interests of the ellite.

However the video (which I have seen before) is a timely reminder that my own earlier musings (like those of the politicians over this issue) are really all for naught as they relate only to dealing with the symptoms of the real problem that drives ALL inflation. The Fiat money system is the root of all inflation problems and we must get rid of it. Good reminder thanks.

[mashman]

No comment on the land tax as I really need to give that more thought.. I do see good potential (as there is in many alternative and the current system[sans Fiat money]). Most systems have potential to work ok as long as they aren't perverted to suit the interests of the ellite.

However the video (which I have seen before) is a timely reminder that my own earlier musings (like those of the politicians over this issue) are really all for naught as they relate only to dealing with the symptoms of the real problem that drives ALL inflation. The Fiat money system is the root of all inflation problems and we must get rid of it. Good reminder thanks.

Well with any luck they're going to push that alternative, well, they're making the right noises and they certainly have the contacts. There's a group in NZ who advocate LVT although I haven't kept up. But as you say, the root problem isn't being addressed and I have to take "issue" with your assertion that fiat money is the primary driver of inflation. Main reason being that once a single $ is created, you have debt... and the only way to balance that debt is by inflating the "value" of that which that single $ was loaned against, which requires more borrowing, which leads to more interest, which requires economic policy to re-value shit (write-downs) etc... So for me the primary driver is the issuance of money as a means of valuation. Someone is always gonna have to have the shitty end of the stick debt wise and therefore we'll end up those who know how to dodge the shitty end. Tis a seriously fooked way of valuing effort/production etc...

Oldrider threw up The Guernsey Experiment as a way of negating inflation and interest by giving the money a timestamp for use. Interesting theory that seemed to work in practice until the banks stepped in. T'would make a $ worth a $ and housing materials/land/labor could be set prices. This would probably lead to a much less complicated financial system and likely a fuckload less compliance costs etc... Still though, there'll always be that race to the bottom somewhere or other.

[flyingcrocodile46]

Well with any luck they're going to push that alternative, well, they're making the right noises and they certainly have the contacts. There's a group in NZ who advocate LVT although I haven't kept up. But as you say, the root problem isn't being addressed and I have to take "issue" with your assertion that fiat money is the primary driver of inflation. Main reason being that once a single $ is created, you have debt... and the only way to balance that debt is by inflating the "value" of that which that single $ was loaned against, which requires more borrowing, which leads to more interest, which requires economic policy to re-value shit (write-downs) etc... So for me the primary driver is the issuance of money as a means of valuation. Someone is always gonna have to have the shitty end of the stick debt wise and therefore we'll end up those who know how to dodge the shitty end. Tis a seriously fooked way of valuing effort/production etc...

Oldrider threw up The Guernsey Experiment as a way of negating inflation and interest by giving the money a timestamp for use. Interesting theory that seemed to work in practice until the banks stepped in. T'would make a $ worth a $ and housing materials/land/labor could be set prices. This would probably lead to a much less complicated financial system and likely a fuckload less compliance costs etc... Still though, there'll always be that race to the bottom somewhere or other.

I think adding dollars into circulation would work perfectly ok as long as it is limited to the increase in national product (not productivity) and that the increase in product is measured net of retired product (such as broken or functional but abandoned product that goes to the tip). This would mean that in some years money would be added (but fuck all) and other years money would have to be taken out of circulation. Then the amount of money will always match the value of product and the dollar wouldn't devalue/product price wouldn't inflate. The form of the money doesn't matter as long as it can't easily be counterfeited and isn't a finite resource (like gold). We could even go back to wooden tally sticks