Investors blame first home buyers for housing crisis

It’s become increasingly apparent that New Zealand is facing another housing bubble.

New Zealand’s housing market has brushed off the COVID-19 pandemic, recording 2.1% value growth in the two months to October to be up 8.0% year-on-year – reaching another record high:

According to CoreLogic:

The support mechanisms put in place by the Government (wage subsidies) and banks (mortgage deferrals) have helped cushion the market, while the Reserve Bank of New Zealand’s (RBNZ) intervention (Quantitative Easing programme lowering interest rates, temporary removal of loan-to-value ratio (LVR) restrictions) now appears to be boosting demand and therefore contributing to the uplift in value growth.

CoreLogic Head of Research, Nick Goodall, says, “Indeed, the RBNZ has acknowledged a consequence of its monetary policy is increasing asset prices, but that this is a better outcome than the counter-scenario of a loss in confidence, resulting in decreasing property values.”

A lack of supply of available properties on the market is also a key contributor to increasing prices, with listings hovering at all-time low levels across the country.

As noted above, part of the reason for the price rebound is that the RBNZ lifted LVR restrictions in May for at least 12 months, due in part technical reasons around the mortgage deferral scheme, which runs until March 2021. These LVR limits had been in place in some form since 2013.

The upshot is that mortgage commitments are now booming which, when combined with low stock levels, is fueling price rises:

According to the RBNZ, $7.3 billion of mortgage lending activity took place in September – the highest month on record since the survey began in 2013 and almost $2 billion (32.8%) above the same month last year.

ANZ’s latest Property Focus reported that FOMO (Fear of Missing Out) has now infested New Zealand’s property market:

A “frothy” speculative element appears to be emerging, with FOMO (fear of missing out) part of the equation. Buyers are of the view that it is a good time to buy despite being in the midst of an enormous economic downturn, and house prices appear to be moving against the tide of fundamentals from already very elevated levels. That could contribute to a more volatile cycle if a turn in the market comes – particularly if buyers entering the market have high debt to income, making them more vulnerable to income strains.

Hilariously, New Zealand’s Property Investors Federation is blaming first home buyers for “making the housing crisis worse”:

The Property Investors Federation is blaming first home buyers for the housing crisis, warning that by taking rental properties off the market they’re making it worse.

Speaking to RNZ on Tuesday, executive officer Sharon Cullwick argued that while property investors aren’t helping solve the crisis, they’re not the problem.

“If a first home buyer purchases a property that was a rental property, then you’ll need another house to house the extra people living in that rental house,” she told reporter Eva Corlett.

“So every time a first home buyer buys a house – even though it’s great they are getting into the market – it actually makes the housing crisis worse.”

Sharon Cullwick’s argument defies logic. If a first home buyer buys a home rather than rents, they remove rental supply in the same proportion as they remove rental demand. So it’s a nill all draw.

She also has conveniently left out that investor demand has surged more than first home buyer demand:

Or that investors are engaging in riskier lending:

Regardless, Prime Minister Jacinda Adern has her work cut out if she is to fulfil her promise of tackling New Zealand’s housing crisis.

Unconventional Economist
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Comments

  1. Sharon Cullwick’s argument defies logic. If a first home buyer buys a home rather than rents, they remove rental supply in the same proportion as they remove rental demand. So it’s a nill all draw.

    I think you missed the key part of their logic, The 7 people living in that rental who now cant will have to find a place as the FHB doesnt want to share the 1 bedroom dog box with anyone else… So you have 6 people who are homeless as a result…

    • A lot of assumptions in that logic. i.e. how many lived in the rental that was bought or was it an OO house sold to a FHB. If it was a rental, was there more than one occupant, or did the FHB leave a multiple share house to move into their 1st property so the share house only has to replace the one leaving.

      • In my case, there was a lot of Mocking in my logic….. It doesnt matter who buys the property, it doesnt magically dissappear from the accommodation pool… in some circumstances 2 people buy a house and move into it together, reducing 2 other properties needed to 1. In other cases the opposite thing occurs, either way over time its a zero sum game only changed by population increases and property development.

  2. Jumping jack flash

    Hopefully she has learned the lesson (albeit the hard way) and not made any promises regarding “improving” housing affordability.

    Apart from the fact that housing affordability isn’t actually a thing in the New Economy (it is instead debt eligibility) there is NOTHING that can be done to push house prices lower without intense wailing from the vested interests, and they are many, and powerful.

    Of course she could go down the road and hastily say that when she said “housing affordability” she actually meant “public housing affordability”, i.e, public housing rents, but since people in true publicly-owned housing pay a fixed percentage of their income as their rent, that’s usually not a big problem. The other angle she could use is very similar but instead of publicly owned housing she could say, “housing affordability? No, I really meant subsidised private rentals for our impoverished and downtrodden”. Everyone loves that, especially investors.

    These are all good ways to recover from the embarrassment of accidentally mentioning anything that can be construed as “lowering house prices to enable poor people to buy them.”

    There are no poor people in the New Economy, just people who aren’t able to get hold of enough debt to buy the things they need.

    • “.. housing affordability isn’t actually a thing in the New Economy (it is instead debt eligibility)”

      Truer words never spoken. I like this take.

  3. The light at the end of the tunnel is an oncoming train …

    The RBNZ had better ready the printers as there’s going to be a lot of folks to bail out.

  4. So in last night’s: Edwin’s Monday Property Rant with Martin North Edwin said his Chinese whispers from NZ were that NZ Chinese were preparing to sell out of their investment properties in NZ, and maybe the family home, because they thought that with all the recent capital gains that they wouldn’t make more money there and that the prospects for the NZ economy were pretty grim. Where were they going to put this money? Apparently they have decided that Australia has a better economic future ahead of it than NZ in the short to medium term so they are looking to come over here, cos as NZ citizens they can, easily. Anyway Edwin said they were looking at Sydney, but not the usual Chinese suburbs. They wanted house and land, so apparently the Blue Mountains are on their radar. I wonder if that, as well as all our HK Aussies who got their insurance citizenship a couple of decades ago but have had bugg3r all to do with Straya in the meantime but are now cashing in that policy, will mean that the ups and downs of various markets in Straya will be interesting. Does anyone think that the HK Aussies could come in and buy in Sh1tney and Hellbourne and the Aussies here will go regional/interstate?

    Given that regional re prices are supposed to really take off in the second half of the real estate cycle that could definitely play out (as the main capitals went up the most in the first half of the cycle).

    https://youtu.be/vyxcuLCNwsE

    • It’s always nice hear a migrant cohort with such an affinity for the people of each country they move to.

      These are the Days of the Locusts.

      • Haha oh yeah

        So once towards the end of my years in Beijing I had someone explain to me that their family was in the process of getting nz citizenship or pr and that them they’d move over to Australia because they thought they’d make more money in Australia and what did I think if that? I basically told them to fck off. I said that if I was a kiwi is be disgusted at the disrespect and disloyalty shown to my nation that had offered them am amazing opportunity. As an Australian I was doubly repulsed and I didn’t want them as a fellowcitizen as I thought their morals were ratsh1t, they we’re mercenary in the extreme and that they were breaking the unspoken but nonetheless explicit migration contract that held in Australian and nz society and involved a series of morals and values they were obviously unfamiliar with the were essential to all of the ‘social goods’ like institutional trust, universal healthcare/education etc, an absence of social unrest etc that they were so desperate to have in their lives and were the only reasons why they were migrating (they knew they’d make more money in China). I told them that migration like they were planning was actually harmful to Australia and if they continued that then the wonderful life they wanted for themselves and their children would not exist in 20 years time as parasitic migration at scale, as Chinese engaged in, would have killed it. You should have seem the look on their face. Utter surprise, then a bit of shame. I did manage to have a little bit of a conversation beyond that to explain my reasoning (they we’re a connection of a friend) but they moved on pretty quickly. By that stage i was so over the mercenary motivations of Chinese actual and potential migrants I didn’t even bother being polite in expressing my opinions.