Is the Auckland land bubble about to burst?

By in Featured Article, New Zealand Economy

| 33 comments

By Leith van Onselen

New Zealand’s National Business Review (NBR) has posted an interesting article today on how New Zealand’s Australian-owned banks have halted lending for projects on development land, which risks sending developers to the wall and causing a “freefall in prices over the next two years”:

Some of the country’s private finance companies say the banks literally pulled the plug six months ago making it difficult, if not impossible, to get major residential projects off the ground.

The consequences are likely to be dire for landowners who have development resource consents for big-scale projects but no capital or way of leveraging their investment. Holding costs are likely to become a major issue forcing many to sell at bargain prices.

But it could be good for the housing crisis as established developers will come back into the market and build new houses at reasonable prices on land they have been able to buy at bargain prices…

The Australian-owned trading banks are overweight in property lending following an apartment boom in New South Wales and Victoria and have been clipped by regulations across the ditch forcing their parent companies to provide less capital to their New Zealand operations. Some of the New Zealand banks have to repay their parent organisations billions of dollars over the next five years…

If a developer can’t borrow on land it leads to questions of its true worth and property experts believe the days of asking $30 million plus for substantial blocks of land with development resource consents are gone.

Land values are expected to halve over the next two to three years. It’s understood one developer with a swathe of South Auckland development land rejected a $39 million last year, now can’t borrow against the land, and the property value has plunged.

One private finance company that declined to be named says over the next two years as more developers can’t get leverage on their land there will be a massive drop in prices across Auckland. Even experienced developers are being affected.

“No one is touching land. If a speculator buys land, gets resource consents and then tries to flick it on they are stuffed. There are no buyers.”

If a large number of developments fall over, then surely it will also further reduce Auckland dwelling construction, which is already failing to keep up with population growth (immigration).

Could Auckland be facing a growing housing shortage alongside a deflating land market? I guess time will tell.

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. PeachyMEMBER

    Hopefully this will drive the concentration of more and more valuable land into fewer and fewer wealthy/wellcapitalised hands. While a shortage is maintained “for stability”.

  2. reusachtigeMEMBER

    NO… like here, the is NO bubble! Why do you lot keep saying such an embarrassing thing? It’s sad really.

  3. [email protected]

    Regrettably if backwaters like Kiwiland start going through the roof, that is the equivalent of the penny dreadful mining or tech stocks of the past. You must remember the aftermaths of those danger signals flashing bright red.

  4. Mike

    Any restrictions on development in Auckland will only fuel higher prices. The issue is migrant intake.

    The Auckland bubble is also a harbinger of future impact to Australia.

    Zealand and Auckland specifically is a well known back door & staging area for entry of third world migrants to gain nz resident status – and then enter Australia with full work rights (and nz residency and social welfare as well).

    It’s the back door for whatever type of migrant can not get into Australia.

    The New Zealand special visa third world migrant carry trade now sees over half of these NZ special visa in Austria being non NZ born. A trend that will accelerate as more third world migrants in NZ take up NZ residency to then enter Australia freely.

    The actual ‘NZ born’ in Australia appear to be going back or converting to Australian citizenship.

    Auckland like Sydney and Melbourne is replete with Chinese and Indian visa fraud,
    New Zealand residential housing purchased and converted to room and bunk share cash in hand subletting,
    an huge underground economy of illegally working ‘students’ and extensive criminal syndicate and black money money laundering, fraud in washing it thru property speculation.

    This is all part of the systemic macro visa fraud that exists in both Australia and New Zealand.

    A $105 billion underground illicit and highly damaging set of rackets that are destroying jobs, wages, housing, education and standards of living in both countries.

    The simple rule that needs to be enforced is that no New Zealander can get a special purpose visa to enter Australia with full work rights or any other special benefit … unless they are NZ born and vice versa for Australians in NZ.

  5. Andrew

    Prices have risen so far so quick in NZ that I think most people including myself dare not predict the end. I’ve normally found that when I think a market will just keep going and going the end is close so maybe this policy is bringing the end close.

  6. armchair economist

    schmucks….reusa is the only sane among u. Just bought 3bdr 2 car park 3 bath townhouse near melb cbd, 1.6M , 10% down, 1.4M loan @ 3.9% via CBA private rented @ 1400/wk…..im making money on rent & capital gain….anyone wanna rent my next investment?

    • Mike

      That’s good for $105,000 cash a year no tax.

      Trip to freedom furniture : 6 sets of twin bunk beds, plywood partitions, cellophane window covering, 3 rice cookers and wifi & you are good to go !
      Get an agency agreement with a lead tenant : an Asian or Indian TR transient : $400 week declared rental income.
      Then sublet to another 11 temporary visa migrant guestworkers at $220 each a week ($2,420 cash).
      Standard deal : bunk rice toilet rolls wifi…
      Advertise via gumtree or word of mouth via the lead tenant.

      Lead tenant collects the money as the ‘manager’ and lived there rent free, you ‘declare’ $400 rental income and pocket the other $2,020 as cash.

      Any issues with the council or neighbours?

      Blame the real estate agency, then blame the lead tenant (who will have long disappeared),
      The council can do nothing.
      Then wait a while & and then do it again.
      But another one. Do the same. Then another.
      You are on you way to what every Chinese and Indian etc is already doing here.

      • Jim

        Mike, what would be a good way to highlight this rort so that government is forced to act?
        ATO must surely be interested as they stand to claw back $M in avoided taxes.
        4 Corners would do a good job of investigation if they got some referrals. Any ideas?

  7. Hugh PavletichMEMBER

    The Auckland housing market is on the verge of losing all the capital gains it made in the last 12 months | interest.co.nz

    https://www.interest.co.nz/property/86771/auckland-housing-market-verge-losing-all-capital-gains-it-made-last-12-months

    By Greg Ninness

    The Auckland housing market is on the verge of having all of the capital gains it made in the last 12 months wiped out.

    Prices of Auckland properties have fallen so much in the last few months that median prices are within a hair’s breadth of going into negative territory on an annual basis.

    They may already be there. … read more via hyperlink above …

    … A great pity John Key didn’t get on to this out of the 2008 election … as promised … view and read more at …

    Performance Urban Planning
    … just updated …
    http://www.performanceurbanplanning.org/

  8. V

    No risk of this happening in Australia with the undynamic duo of Do Nothing and his opposition sidekick Shorton Action.

    • Hugh PavletichMEMBER

      v … There has of course never been a sustainable bubble in history.

      This is a lesson Australia will learn in due course … sooner rather than later I suspect.

      • V

        Hugh,
        I am a fan of your work.
        However I have pointed out for the following to people for a while now.
        When too many people are screaming bubble, by definition the bubble has further to run (as insane as that outcome might seem). Unfortunately it’s going to make the damage worse.
        Remember grandmas advice: ‘a watched pot never boils’. Thats where we are.

        Remember when the Imperial Palace in Tokyo was worth more than California? I’m waiting for similar levels of criminal insanity, not just every day Mum and Dad-level insanity.

  9. Hugh PavletichMEMBER

    George Lucas, managing director, Instreet Investment writes …

    The housing crisis just needs some political goodwill | Nest Egg

    https://www.nestegg.com.au/property/10643-the-housing-crisis-just-needs-some-political-goodwill

    Everyone’s talking about it, but what are politicians really doing to address the ongoing housing affordability crisis?

    It’s become the political issue of the day – housing affordably, especially for first home buyers. When you hear a Liberal treasurer talking about making it easier for first home buyers to get into the market, as well as tackling the issue of rising rentals pushing low-income earners out of that market, you know there’s a crisis. … read more via hyperlink above …

    Bank watchdog cracks down on property speculation | The New Daily

    http://thenewdaily.com.au/money/finance-news/2017/03/31/apra-crackdown-property-investors/

    Deluge of affordability data forces government’s hand | The New Daily

    http://thenewdaily.com.au/money/property/2017/02/02/housing-affordability/

  10. Hugh PavletichMEMBER

    Reserve Bank of New Zealand Governor Graeme Wheeler back September 2015 …

    Auckland market in danger zone – RB | Radio New Zealand News

    http://www.radionz.co.nz/news/business/283784/auckland-market-in-danger-zone-rb

    … extract …

    But Mr Wheeler this afternoon told MPs the faster house prices rose in Auckland, the greater the likelihood of a steep price reversal.

    He (Reserve Bank of New Zealand Governor Graeme Wheeler) said Auckland house prices were not sustainable.

    “The house price to income ratio for Auckland is at nine. It’s twice that for the rest of the country,” he said.

    “A ratio of nine puts you, according to Demographia figures, in the top 10 most expensive cities in the world.

    “This is just dangerous territory.” …

    Via http://www.PerformanceUrbanPlanning.org

  11. Mike

    Jim – I can’t reply directly to your question but the answer is to publicly expose it as systemic and everywhere.
    Where do people think 2.4 million migrant guestworkers live ?
    They live in ‘private shared accomodation’ DHIA 2025 and SCC housing study 2016.

    Putting aside say that half the nz visas are actually being nz born and some of the 457 are skilled – all the rest – that is nearly 2 million of them – are very low or no skill third world slum or rural clearance sent here to work on pretext visas;
    all are in debt, fake or sham partners, fake names, fake pretext, all part of the industry : almost all bonded to a foreign agent procurer, all living week to week on fake multiple jobs, most underground in cash in hand or vice activities as their source of income to repay that agent procurer and also to remit everything they earn back to their Country of origin.

    The migrant guestworker sub let housing racket is at least at $20 billion cash industry.
    (2 million x $200 week bunk or mattress share x 52 weeks) – and at the usual ratio of 8 or more ‘renters’ not declared for every 2 that are declared (80%)
    then a $16 billion a year tax avoidance industry as well.
    That now occupies at least 250,000 to 300,000 modest low end (what was first home buyer) unit dwellings units and now the trend to modest suburban houses now to escape building managers controls and allow even higher density in the sub letting rackets.
    Unit dwelling record : 53 people in 3 bed in pyrmont
    Small house record : 47 Nepalese in 2 bed house in parramatta.

    Exposing the racket & enforcement of building and housing occupancy, fire & safety rules etc has to be done in conjuction with mass cancellation of a million or or more pretext visas – otherwise we end up literally with a million or more migrant guestworkers on the street with no form of ‘affordable’ housing.

    The public exposure is easy : any apartment building in the city from town hall to broadway.
    Or Rhodes or zetland or mascot square : all subletting migrant slums.
    Any second or third house in Ashfield, Burwood, Strathfield, Auburn, North parramatta, Liverpool, anywhere near a train station in inner or suburban sydney.
    Or just go and collect the address details of any 8 year old English 4 year visa ‘campus’ or where the 711 worker lives, or follow up any one of the 53,000 room share ads on gumtree or the ethnic sites or plastered all over street poles in the CBD..

    Back Taxing the subletting fraud.
    Proving the owner sublet via a lead tenant is very difficult which why almost all prosecutions fail.
    Technically the sublet ‘manager’ is at fault and the recipient of the ‘cash sublet income’ – that’s why it’s often a transient or fake ID used as that person will disappear.
    What’s needed is that every migrant guestworker here on a temporary or tourist visa is forced into a proper identity check and non fraudable ‘visa identity card’ including full details of their place of residence, who exactly they pay rent to – and this data matched against the landlord owner and declaration of income.
    The migrant temporary visa holder has to update this with severe penalties if they don’t and report via the local police station each month where they live.
    Just like in any other country.
    And then we need building by building unit and house by house, suburb by suburb inspection of all dwelling usage
    plus a reward system for dobbing in the foreign (and Australian no doubt) criminal landlords running these rackets.

    • TailorTrashMEMBER

      “Unit dwelling record : 53 people in 3 bed in pyrmont
      Small house record : 47 Nepalese in 2 bed house in parramatta.”

      Mike ……..you seem particularly well informed first hand ? …..or well connected to stories on this issue of slumification of Sydney ………..are you in a position to feed this info to where it might matter …..or has the corruption taken that over too ?

    • Jim

      Thanks Mike. I’m think 4 Corners could do this topic, although willingness will likely be inversely proportional to the number of investment properties held by the producer. Michael Moore docos ‘Where to Invade Next’, ‘Sicko’, etc provide the template. If property barons like the PM or Treasurer get in the way that will just make things more interesting. MSM will never touch this topic so throw them under the bus too for being complicit.

      Now some in the RE game might think exposing this systemic rorting will be bad for house prices. But think of it, thousands of homes seized by the ATO will get resold. Churn, that is important for RE agents and is good for Stamp Duty receipts. Back taxes as you say might be difficult to get at, but returning homes to Aus buyers and cancellation of visas is still a good outcome.

    • GavinMEMBER

      Mike good lord. If you’re correct and this is systemic and I believe it very well is… Then this needs the lid blown off it and visas cancelled. But perhaps those dobbing in will be given amnesty as reward for exposing this rort? That would give incentive to turn a slumlord in.

  12. TailorTrashMEMBER

    Where is Janet ? …or does she work for ASB and her bonus has been threatened………….( Joke ……..Janet …..please do come back ….)

    • Drew

      Yeah Oz is close to the top but when who knows. I do believe that this current Melb/Syd rally is the blow off top. When this finishes in 3/6/9 months or whenever that is the top I think. Out of cycle rate hikes/apartment oversupply biting/Global interest rates rising/China banning 50k they can take out of the country on property/lowest income rise since WW2+some extra APRA tightening. These are bad signs/not good signs. Still we’ll probably be listening to property bulls gloat for another 6-12 months yet..

  14. Hugh PavletichMEMBER

    Housing Mayhem Reaching South … Stuff / Kiwiblog

    http://www.kiwiblog.co.nz/2017/04/does_invercargill_have_housing_mayhem.html/comment-page-1#comment-1902615

    Housing … The National Party’s Great Shame …

    Do check out my recently updated archival website PERFORMANCE URBAN PLANNING to get a sense of the sheer enormity of the National led Government’s failures with respect to housing …

    http://www.performanceurbanplanning.org/

    … with former Leader and Prime Minister John Key highlighted with the ‘John Key – Housing Reform – 2007’ video near the top …

    https://www.youtube.com/watch?v=cWPgoAI1cLE&t=16s

    That’s why I voted for the guy in 2008 !

    Do check out the ‘Gone Gone Going’ section as well … and Labours Housing Spokesman Phil Twyford doing a demo job of Building & Construction Minister Dr Nick Smith a couple of weeks ago in the Parliament …

    https://www.youtube.com/watch?v=YznZ6HjUmFU&t=4s

    Kiwiblog readers need to start being honest with these housing issues.

    They need to ask themselves how this current supposedly centre-right government screwed it up so badly.

    Note at the bottom of the ‘Going’ section the important late 2015 article by Allister Heath of the UK (Tory) Telegraph … ‘The real ticking time bomb for the Tories is home ownership’ …

    … extract …

    ‘ … Remarkably, 354,700 new homes were built in France last year, compared with 140,880 across the UK, a pathetically inadequate number barely half of that required. The French were actually bitterly disappointed with their own performance: their recent average has been around 400,000 homes a year. …’

    The idiot National Party leadership has handed this issue to Labour on a plate !

    Why ?

  15. Hugh PavletichMEMBER

    The (New Zealand Public Service Association) PSA weighs into the Auckland housing crisis with tales of woe and suggested solutions from its members | interest.co.nz

    https://www.interest.co.nz/property/86814/psa-weighs-auckland-housing-crisis-tales-woe-and-suggested-solutions-its-members

    The Public Service Association (PSA) says its Auckland members are deeply affected by the city’s housing crisis with many at breaking point.

    The comments come in a 56 page submission the trade union has made to the Auckland Mayoral Taskforce on Auckland Housing Supply. … read more via hyperlink above …

    … but what have they done since early 2007 … after the NZ Planners Institute and Local Government New Zealand publicly supported the Annual Demographia International Housing Affordability Survey ? …

    NZ Planning Institute strongly supports Demographia Survey … Feb ’07 … Scoop News

    http://www.scoop.co.nz/stories/PO200702/S00134.htm

    … via updated …

    Performance Urban Planning

    http://www.performanceurbanplanning.org/

  16. Hugh PavletichMEMBER

    IRISH HOUSING: REPEATING THE MISTAKES OF RECENT HISTORY …

    Remarkably … there has been no focus in Ireland to deal with the regulatory / planning impediments to responsive new housing supply …

    … When will they learn ? …

    ‘A bit of a dogfight’: Being a first-time buyer in 2017 … The Irish Times

    http://www.irishtimes.com/life-and-style/homes-and-property/a-bit-of-a-dogfight-being-a-first-time-buyer-in-2017-1.3032193

    … extract …

    … He (economist Ronan Lyons) says supply issues remains at the core of a largely dysfunctional market. “We are building around 15,000 homes a year when we need three times that number. The real challenge is getting supply at the right level, in the right place, and at the right time.”

    To address supply, Lyons believes key questions need to be answered not least why it costs so much more to build in Dublin or Cork than then in Belfast or Copenhagen? “I don’t think the Government knows the answer to that question and if the Government doesn’t know how else can anyone know? Is it developers’ profit margins? Builders’ wages or the price of nails? Or something else entirely? Until we figure that out we have a problem.” … read more via hyperlink above …

    How could they be SO dumb ? !