Property in New Zealand. Photograph by Sherelee Clarke

The property market in Auckland

Crises… What Crises?

I am not sure what all the fuss is about when it comes to the Auckland property market. It seems the journalists are talking up the property market once again as well as certain politicians. Especially David Shearer, who seems to be trying to save his leadership role by making outlandish irresponsible statements like the one about foreigners buying up all our residential properties! Where does he get these ideas?

I suppose a desperate man will do anything to stay in power. Like the statement he made during the Mighty River Share float saying that Labour will nationalise all energy companies. What this did instead was lose $500,000 of the share price. Was that good for New Zealand?  Of course not!  It is a type of economic espionage and in many other countries he would have been sent to jail for saying something so out of control in the middle of an asset sale. Now let’s get back on track to the property market.

I have studied the property markets in Australia, South Africa, USA and New Zealand and have been directly involved in the property market for 35 years. There is no magic wand or crystal ball but there are facts, trends and values. Markets move from time to time because of the prevailing political environment or financial and mortgage rates but, in essence, it is the old adage of supply and demand. For the past 5 years during the global financial crises property in New Zealand has plateaued and there were little, if any, increments of value during that period. What is happening is that the property market is playing catch up. If you go back 40 years of New Zealand property prices you will see that properties increased by an average of 10% per annum – not consistently but up and down zigzagging across the graph. Draw a straight line and the increase is, on average, 10% per annum. (See Dolph de Roos’s book).

Auckland property prices are only re-adjusting to this trend. The biggest mover is the lack of property stock caused by low building numbers. Before 2007 there were between18 000 to 20 000 new houses built in New Zealand every year with the bulk being built in Auckland. That figure dropped to between12 000 to 14 000 per year for the last 5 years, a drop of approximately 30,000 houses that were not built because of slow demand during the GFC, together with higher mortgage rates. New Zealand has fared extremely well during this period because of the tighter monetary policies of our banks and a more conservative attitude to risky derivatives which affected the rest of the world. I believe that Europe will take 15 to 20 years to get back to where they were before the GFC.

So crises, what crises?

Due to the shortage of stock with the 30,000 shortfall we need to build more houses, create the density that the City Council is advocating, keep the mortgage rates low and encourage saving. It has never been easy to buy your first home.

I can remember at 24 years of age and trying to buy my first home. Maxed out my credit card, secured a loan from my employer, 5 years of savings and a small loan from Daddy. It was the cheapest house in the street and in the worst suburb. But you have to start somewhere. Today, kids want double garages, two bathrooms and 200m2 of house as their first home. Get real.

As far as foreign buyers are concerned – are they buying up all the residential properties? The answer is no. Just because you see lots of Asian faces at auctions does not mean they are foreigners and not kiwi residents. They know property is more important than the average Kiwi. At this stage only 4% of the residential sales are to foreign buyers, which is a drop in the ocean comparatively. This investment is crucial to New Zealand’s economy. Suddenly because of all the misinformation we are in need of capital gains tax because too many investors are buying investment property. Well, imagine no house to rent, what then? The government of the day will be even more hard pressed to supply affordable rentals to people who need shelter at the cost of the tax payer and the economy. The more government spend on housing the less money it has for roads, trains, infrastructure, etc. New Zealand needs a rental pool of houses at no cost to the economy.

Capital gains tax is also not the answer. Most countries to have adopted this system would rather have not gone in that direction as the collection costs of such a tax is enormous and sometimes very difficult to monitor. It also has a tendency to reduce the rental pool. Most people who protest about capital gains taxes have no real idea about property, the way it works, or taxes at best.

Right now the law for any property speculator, buying and selling houses, is it’s a taxable commodity. For example, a so called property investor who buys a house, renovates it and then sells it, is liable for tax on the profit. Nowhere in all the articles in the New Zealand Herald have I heard this argument. It is always to nail the investor/speculator because he is profiteering. Rubbish! We all pay our dues and one has to look at the bigger picture. Ignorance is often bliss. Unfortunately labour has it wrong in this case but will get the votes of everyone who does not have a house. And if Labour gets into power the story will change again. I rest my case!

No government can afford to give houses away but they can have subsidised schemes where the deposit can be the rental for 5 years.  No one can change market trends unless you take drastic action. Unfortunately, like the Greens saying we should print money or Labour saying building a house for $340,000 can be done before doing any homework. However, it is possible with the co-operation of all organisations involved.

Written by Peter Woodberg, Property owner, Entrepreneur, Property Consultant, Mentor, Editor, Immigration Consultant.