With the housing market so volatile, vendors are girding their loins while buyers are hopelessly confused

Our little house in the hood is on the market. It smells like orange zest and window cleaner, and I don't see how it could look any cuter—it is a plastic red Monopoly house brought to life, squatting on a prominent corner, palm trees and agaves gathered round it like disciples.

All we can do now is wait for those cashed-up buyers we were promised to come rushing through the doors.

We may be waiting some time. Not long after it was reported that property prices had hit a record high, the Real Estate Institute has released January sales figures that show house sales fell to their lowest point in nearly 20 years last month. In fact, says the Herald, there is a "flood" of unsold houses on the market, a year's worth of them.

You would expect house prices to take a tumble and fairly quickly, at least in centres such as Auckland and Queenstown where housing affordability is worst. But no, according to the Real Estate Institute, house prices dropped just 1.6 percent in January. What gives?

Certainly, my experience in Auckland is that there are a lot of people sniffing around houses—but how many of them are serious about it? It's hard to gauge when you throw off your jandals at the front door next to a pile of boat shoes, trainers and Kumfs (practical people, house buyers) then get stuck in the loo with three strangers all smiling foolishly and trying not to look one another in the eye. Nor does the picture become any clearer when you oh-so-casually ask the agent, "So, what are the vendor's price expectations?" as barefoot couples clutching glossy brochures eavesdrop, to get the inside scoop.

Some properties pull the punters like flies to the honey pot. A tired Meadowbank home with a glorious garden and potential to subdivide made me tearful. I will not soon forget the woman who toured the house sucking a red lollipop, ta very much, turned to her partner and whined, "I want it!" That place was snapped up in a twinkle.

Likewise the ugly brick tardis in Kohimarama. Gone before the first open home. I am still wistful as I drive by on my way to other homes with less potential and bigger price tags.

I am now at the point where I look for less desirable properties to view because I can't handle the competition at open homes. Even then I get it wrong. A musty do-up with cell-like children's rooms was a crowd-puller. A teeny bungalow with a weird extension that felt like it belonged to another house, overlooked by a toilet block for pity's sake, was buzzing. A dank, subterranean-feeling townhouse with no outlook and no yard swarmed with people. Okay, it was in St Heliers, but still. It smelled. It's nuts. The whole scene. Crazy.

But the REINZ figures tell a different story, a sobering story, and one that has echoes in the Tax Working Group's efforts, Allan Bollard's recent comments, and the number of unemployed. Meanwhile, the little house in the hood is yet to be swooped upon by someone looking to get on the property ladder.


Comments (4)

by stuart munro on February 12, 2010
stuart munro

With a rising population and practically static construction, together with the opening of the market to foreign buyers a few years ago, demand is high for what is frankly, by world standards, aging and often inferior property.

But with the destruction of the manufacturing sector following the removal of tarrifs, property became the only truly promising sector in a chronically depressed economy - and this is reflected in unusually high numbers of real estate agents per capita, and artificially high prices in terms of local wages and salaries.

With an average house costing the whole of 25 years of pay on an average wage, treasury exhortations to increase savings are pure farce.

Real estate tends to soak up all the free money in any economy which is unbalanced, with the result that, since the time of Solon, real estate reform, and encouraging investment in industry over land are the hallmarks of governments that wish their people to prosper.

Guess that's why this government isn't doing anything about it.

by Lowell Manning on February 15, 2010
Lowell Manning

Hi Eleanor,

The Property Market isn't crazy - in fact it's quite "rational".

Let me explain.......

Most NZ bank deposits now "belong" to the unproductive investment sector.  They represent accumulated unearned income ( about $263b end September 2009) paid as deposit interest on the country's total debt which (September 2009) was around $450 billion ($156b foreign, $292 b domestic). The figures do not include cash.

Our productive economy is literally being starved of credit - there is now just $29b or thereabouts ($292b-$263b) to "run" the productive economy because the banks are not lending enough and incomes are forced down by our collective failure to stimulate the use of our productive capacity.  

Meanwhile, the unearned income in the investment sector driven by the interest rate on deposits has gone up by about $16 b through the worst of the recession period September 2008-September 2009 despite lower deposit interest rates.  

Those institutions and individuals holding the pool of investment sector deposits can (in aggregate) either leave them in the bank or use them to exchange existing assets like property, shares and securities. Their trading balances (as distinct from reserves) have to be used eventually otherwise there can be little or no profit to offer investors after costs and taxes.

There is a very strong long-term correlation between the size of the investment pool and property prices. It would be even better but for "market volatility".... an extremely complex phenomenon when demand (from population increase, smaller households, immigration), new development and events offshore are thrown into the mix.  The choice confronting investors is not whether to gamble, it is when to gamble.  They will do so as long as the productive economy is expanding, because the increase in the investment pool that perpetuates price increases must be paid by the productive sector.  The investment pool itself is parasitic, producing nothing at all. 

So, (and I am pretty much the only person working in the economics field anywhere who said asset prices in NZ  wouldn't collapse far and would recover quickly) share prices and property prices have recovered primarily because the investment pool has continued to grow despite the recession. Inward migration has firmed and construction has declined stabilising demand, while so far our productive activity has slowed but not collapsed. 

But the slope is still slippery because the NZ economy is now being squeezed by the government.  Contrary to orthodox theory, there appears to be no difference between government spending and private spending as long as the quality of the government expenditure is good. In our debt-based economy economic performance depends on the total debt, not government debt. So there is no reason at all why the government should not create useful economic activity in health, education, job training, alternative energy/conservation, and public works even if it increases its debt by doing so.

Oc course, the government doesn't have to borrow from the private banks, it can legally borrow from the Reserve Bank tomorrow to pay for investments in health, infrastructure and education . And it could issue electronic cash (e-notes) to pay for some of what it does instead of using debt .... the safe amount can easily be quantified (I've already done that in global terms in a proposal put to the government last year).

So the solution in NZ is easy. Incomes in the productive economy must rise by stimulating the economy  (I am neither Keynesian nor neo-liberal/monetarist).  Tax cuts don't do this because they simply shift productive economic activity away from government to the private sector. That's an ideological shift some may agree with but it does nothing for the economy as a whole because it doesn't change total incomes.

But unless a serious effort is made to stimulate the productive economy the recovery in asset prices could stagnate or falter because homebuyers and investors will continue to sit on the sidelines.

Lowell Manning











by on November 01, 2011

I suppose that this way property market is reorganizing. Obviously we can still sense the obvious effects of the financial crisis, people don't have the money to buy real estate and that shows on the market, it's that simple. I checked so prices for Cleveland apartments recently and indeed they are low, this is a really got time to buy.

by danniel on June 15, 2013

If everybody knew how the housing market works we wouldn't go through a financial crisis today. The best we can do is to stay well informed about our options and make sure that our decisions are based on a good expertise. This is a reason why I rely on the Jimmy Welch Team most of the time.

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