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DON BRASH: PERHAPS HOUSE PRICES DON’T ALWAYS GO UP

There was a rather revealing headline in the Herald on Sunday today (12 May). It read

“One in 8 Auckland homes on market were bought during boom, may now sell for loss”.


The first line of text noted that “New data shows one in every eight Auckland homes going on sale is at risk of selling for a loss or minimal profit”.


The clear implication seems to be that even though the housing market in Auckland boomed between September 2020 and January 2022 to the point where the median house price was some 11 times the median household income in Auckland – a ridiculously unaffordable level of prices – it is somehow shocking and regrettable that house prices have fallen slightly in the last year or so, to the point where house prices are only wildly unaffordable.


The other implication is that, notwithstanding the recent slight pull-back in house prices, the great majority of houses being offered for sale currently – seven out of eight – will still sell for more than they cost when purchased.


I have deep sympathy for people who, as in the accompanying Herald article, are forced to sell their home at a loss because of circumstances beyond their control – losing a job, experiencing a relationship break-down, and so on. People can suddenly find themselves in a desperate situation through no fault of their own.


But it is surely a serious indictment on policy-makers in central and local government that it is taken as holy writ that houses should almost always be able to be sold for more than they cost years earlier, despite their being older and presumably in poorer condition than when they were first purchased.


We talk about “getting on the housing ladder”, with the clear implication that once that has been achieved, no matter how modest the house acquired, the lucky buyer is going to be OK, with house prices “guaranteed” to rise faster than almost all other prices and certainly faster than incomes.


The tragedy of the still wildly unaffordable house prices – the median house price should be around three times the median household income in well-functioning markets, not around nine times as in Auckland – is that a very substantial minority of New Zealanders, perhaps 40% of our entire population, will never be able to afford to own the roof over their head. They will arrive at the “normal” retirement age of 65 and either be forced to continue to work or live in utter destitution: certainly, at the cost of renting even a very modest home (which of course reflects the price of houses) it is simply not possible to live comfortably on New Zealand Superannuation.


Far too many New Zealanders already suffer from serious financial stress because of the ridiculous price of houses. The problem is only going to get worse unless the Government delivers on the promise made by the Minister of Housing, Chris Bishop, who, in a major speech near the end of February, said the Government is aiming to get house prices back to where the median house price is between three and five times the median household income. To protect himself from the anger of thousands of property-owning voters, he did say that that was his ambition over the next “ten to twenty years”, but if he is at all serious New Zealanders better get used to the idea that house prices will not be rising steadily year after year into the indefinite future.


Increasingly, as houses get older and in need of repair, and if the market is working as it should do, they will sell for less than they cost to buy.


But what about the land they sit on? Surely that won’t decline in value? Certainly there will always be land which has special appeal: that will quite likely rise in value faster than other prices and faster than incomes. But given New Zealand has a great abundance of land, section prices should be nowhere near where they are currently in most of our cities. That implies that section prices are likely to stagnate or decline from present levels if Mr Bishop delivers on his promise.


In an earlier article on this blog I quoted the case of a 455 square metre bare section on sale in Drury – nearly 40 kilometres from downtown Auckland – for $842,000 including GST, or $1,850 per square metre ($1,609 per square metre excluding GST). This is more than 10 times the average price per square metre of sections in the US. This difference is caused primarily by the tight restrictions imposed by local governments on where houses are allowed to be built.


Those who demand that housing be confined within tightly prescribed urban boundaries – as is true in all our major cities – must be told again and again that they and they alone are primarily responsible for the appalling social costs arising from the outrageous price of housing in New Zealand’s major cities.


Don Brash

12 May 2024

2,959 views52 comments

52 comentarios


Semperfi
Semperfi
13 may

Free markets are free markets. Housing, it appears, should be exempt the impact of market forces... why. The property quoted in Drury may be more expensive than in the US but as cheap as chips compared to the Ginza in Japan. It is what it is. Bricks and mortar come in at $4000 per sqm for new build nowadays, then there’s the dirt… you’re looking at $1m plus for a small family home. Who in their right mind will build knowing the market will be artificially suppressed to meet government and Reserve Bank market expectation. Interference in the housing market has created countless self fulfilling profercies since the State Housing boom of post WWII. Boom was followed by small bust…

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zekewulfe
zekewulfe
14 may
Contestando a

Its the only way!. Free up the market.


Get rid of all those protection rackets.

Sack every dickhead in government that exist for the sole purpose of creating hurdles for others, via, licensing, restrictions, controls.... or by way of targeted taxation.

Half of those employed in councils exist for much the same reasons .... to suppress others and keep land from development. All so as to keep vested interests in a monopoly situation.


How many times does it have to be said!

We need a rule book... A constitution, a real one! one that the half-bred baskets are unable to alter and concoct so as to give special dispensation to chosen segments of society. Such as their mates, disguised within…

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I think Don should have written and warned us all about this when what they called the NZ Housing Market became an uncontrolled ponzi scheme. Financial wizards are always at their best reflecting on the crap they didn't see coming.


Growing up in the 1950s people didn't even consider having more than one house, it was a roof over your head that when paid off you had a freehold place to live when you could no longer work.

When many unskilled and semi skilled workers can't even afford a home in the most deprived parts of Auckland even with government assistance, NZ needs a fiscal rebalancing.

Government says it struggles to pay superannuation, see how it goes in 30 years…

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Productive wage and salary earning workers could afford to own their own homes if they were not prevented from doing so by government decisions, legislation and excessively restrictive regulations and bureaucracy..

This detrimental interference increases the supply of human labour, decreases the demand for human labour and reduced the real incomes of wage and salary earners. It also reduces the supply of and increases the demand for homes, property and other real assets causing the prices to increase. The minority of people with influence in the main political parties become more wealthy and powerful at the expense of the rest who struggle to afford the costs of living or become beneficiaries that are supported by taxation of the struggling workers. Immigration, welfare, inadequate…

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It would be interesting to see some breakdown of costs for housing for say a 3 bedroom house on a 450m3 section in various areas of the country, with the costs divided into categories for land, building materials, labour costs etc with the profit margins factored out. This would give a true cost as I believe excessive margins are a contributing factor to the overall cost,especially in the area of council regulation. Maybe these figures are available somewhere?

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Council empire building by increasing regulations. Higher property taxes. Government debt spending which is solved by printing money are all causes of historical house prices rising.

You and your government spending cronies are at fault Don.

There will be corrections, but land will always retain it's intrinsic value. As long as our money is devalued prices will rise.

Who's fault is it that gold prices go up as government debt rises?

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