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Auckland's housing crisis is investor-driven, not shortage: NZIER

There is no housing shortage in Auckland, where prices continue to rise strongly thanks to investor activity, says the chief economist for the New Zealand Institute of Economic Research, Shamubeel Eaqub.

At a briefing in Wellington for the institute's quarterly economic predictions, Eaqub said the fact rents are not following Auckland house prices up indicates price rises there are being driven by property investors rather than a shortage of supply which has seen the government fast-tracking the creation of Special Housing Areas and changes to urban limits.

“There is no housing shortage in Auckland,” said Eaqub. “If there’s a real shortage of houses you would see both house and rental prices rising. In Auckland, that’s not happening.”

In Christchurch, where there are real housing shortages, rents are rising.

Eaqub also pointed to a six month falling trend in house sales, which tend to be a leading indicator for new building consents.

Building consents have been steeply rising, but could be expected to fall as much as 30 percent in coming months, based on the historical relationship between the two indicators.

That had potential to take much of the puff out of the New Zealand economic recovery, he said, noting that even without that fall, growth tapers considerably in NZIER's forecasts to below 2 per cent annually from 2018, slower than the 2.1 percent forecast for the year to March 2018 in the May 15 Budget.

Eaqub also suggested public discourse on high levels of immigration was occurring as a "conversation devoid of facts", especially as it related to the impact of migration on Auckland house prices.

The main driver for high levels of inward migration is currently the number of New Zealanders either returning to the country or not leaving for Australia, thanks to economic recovery on this side of the Tasman and more difficult economic times across the Ditch.

The effect of that was much more diffuse and regional than a very large number of new migrants arriving and settling in one place.

Meanwhile, cities like Auckland, where high income, high skill professionals have shown some of the strongest job growth in the latest economic cycle, migration is an important source of skills to underpin ongoing economic growth.

(BusinessDesk)

Comments and questions
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Oh no.. please this can't be true, there is someone that actually has a brain out there stating what should be the obvious?
Land lord baby boomers filthy rich from 20 to 30 years of enormous tax free capital gains, (which neither labour or national has ever done anything about in all that time). mopping up as much property as they can get their greedy hands on causing a shortage in Auckland? Surely not.
Meanwhile poor PAYE payers who pay full whack of tax without the years and years of income offsetting rental losses afforded to the chosen ones, miss out and become their renters.

Half of what you say is true. But it ain';t the 'baby-boomers' buying up property in Auckland, its the Chinese.

How wrong can you be, now don't get me wrong as I am not an Immigrant lover, but the Chinese buy around 4 houses in Auckland per month on average.

Hey Reg, that's your mum and dad you're slagging off. You sound mid-twenties; so why don't you just put your head down, work hard, save, and maybe you might own a house one day - even though it might not be in Auckland first off. Just stop getting stuck into your mum and dad you spoilt brat.

Alfred you are wrong on all accounts. Put your reading glasses on. I said "landlord baby boomers" emphasis on landlord. My parents are not landlords.They do not own multiple Auckland properties, they have not enjoyed 20 to 30 years of weak tax laws that have encouraged this situation, and they are not the ones reducing the availability of supply to people who do not own a home.
If the landlords of the past 20 to 30 years were paying their true quota of capital and income tax the PAYE being collected would not have to be so high. They have been the spoilt brats and continue to be so under the current tax system.

If as you say the buyers are landlords who built a property portfolio over the last 20 or so years, then a Capital Gain tax would not have solved anything. Investors would buy and Hold their properties and get the best return on their capital invested. There is very little incentive to churn a portfolio, which is the only way a CGT would deliver any tax.

As others have said, work hard, two or more jobs per person, save hard, only buy Stuff that is essential, get a deposit and buy a house further out from city centers. Then work hard on the property improving it with sweat equity, work all weekends on the section do all the work yourself then sell at a premium, your reward is $s for your hard work. Get off chuffs stop whinging and start at the bottom like us who own properties did.

Sick and tired of those who want it all on a plate, there is no such thing as free lunch, it's an old physics output is work for a period of time. So many have forgotten.

The article says the shortage is investor driven. I agree with this.
The investors are made up of rental Landlords many who have been accumulating over the last 20 to 30 years due to a tax system that has encouraged this and yes overseas investors also but these are already getting plenty of media/political coverage and are certainly not the only investors sitting on portfolios of property.
I agree with you a CSG is not a very targeted approach for the reasons you say. A LAND TAX would be a much more effective approach to curb this over investment and more easily administered.

Baby boomers that generation that paid 20% interest on their mortgage, paid 20% deposit for their first home, were prepared to buy their first home in a working class suburbs. Suburbs where they commuted on public transport to work. The generation that spent their weekends working on improving their homes and not in trendy bars/restaurants or brunching.
A generation that knew you could achieve it so long as you worked hard which often meant working at two or more jobs.
Stop blaming baby boomers or anyone else, stop your excuses and get off your butt and work for it. BTW the tax levels today are better than what they were back in the 70s and 80s when baby boomers were trying to make a go.

Absolute RUBBISH!! most baby boomers lost every cent in they had in the Financial crash a couple of years ago, it is common knowledge that anyone with half a brain, puts a dollar down and a Mortgage to meet the Sky on a rental property investment in Auckland, as you are guaranteed a huge Rent, and a huge capital gain.
Tip.. buy up anything you can get your hands on down Pokeno way.

Precisely, all we see at auctions are older people investing in rental properties driving up the prices. Yes interest rates may hve been higher in the past - but 20% interest on homes costing $50-75k is very affordable compared to current prices. Talking to my parents and their friends their mortgages were affordable- they paid the same in mortage payments as they did for their grocery bill back in the day - if only that were the case now!

The disingenuity in this article of Shaq's is in the fact he does mention who the investors are in Aucklands market and where they live or dont live.. Also how many of them have bought houses which are currently EMPTY for the most part.
I know not only becuase do I keep my eyes open and doing research in areas where their interest very high indeed, but personal experience as my own home is also of interest to some of them
What is your affiliation with the current government Shaq.

Don't co-mingle Shamubeel's argument that it is not net inward migration causing the boom with non-resident buyers. In fact he was quite silent on the latter issue.

Land Tax is the answer if they ACTUALLY want to deal with this issue and curb this over investment in property.
Labours woefully late idea of a Capital Gains tax is 30 years too late with property prices at historical all time highs and NZ in the top two of worlds most overvalued property criteria. These idiots would bring in CGT just in time for it to become Capital Loss (no) tax.

There is no shortage of houses in Auckland. Everybody has a house to live in.
The problem is that as investors see house prices going up, they will jump on the band wagon and push genuine owner occupiers from buying. This creates an artificial boom in house prices.
It is obvious some politician without self interest in mind and with balls must make housing investment less attractive to local and overseas property investors.
There MUST be a property gains tax on investment property AND restrictions on foreigners buying property for the sake of future generations!!!

Given the poor return on capital that residential property in Auckland gives, the nomenclature "property investors" is optimistic, speculators would be more accurate I humbly submit.

net migration growth of 40,000 pa is an increase of 40,000 people irrespective of whether it is Kiwis returning home or not leaving for auzzie.... with an average of 2.9 residents per household this is a required increase in household units of 13,700 just to stay neutral. Am I missing something here?

What rubbish. We are building a huge amount of accommodation predominantly to fill the gap in the housing market for residential tenants who have had years of crap poorly maintained property to live in and who are prepared to pay for quality. When a bedsit is achieving $320 per week in South Auckland, it means that there is massive preasure on the current supply. To say that the boom is not supported by rental cccupiers is complete nonsense. Again congratulations to the trolls and xenephobes who would prefer to see us lock the gates to our country and turn our back on the cultural diversity we have in NZ which I am personally proud of and enjoy, while wanting to tax anyone who has any desire to stick their head up over the parapet. I'm always fascinated by the monsterous stupidity of an argument that states, "we are the only OECD country other than Switzerland to not have CGT". Well stone the crows! I'm all for being like Switzerland rather than Spain, Italy, Ireland or any other broke nation. Any recent visitor to Auckland would no doubt realise that they have come to an international city that is coming of age. What a magnificent city to live in and current house prices are the new normal folks. Suck it up because it could be worse, you could have to pay Swiss prices.

C'mon mate - Auckland is okay, but that's it. You talk about it like you haven't been out of it. It's not a destination and the fact it's houses prices are high is due to the stupidity of investors like you

Personally I live in Cambridge but am in Auckland tomorrow so happy to buy you a beer :-)

PS I'm a stupid developer and pay CGT anyway

I agree. Equab is wrong. Rents are as much as the tenants can afford to pay.and the landlord expects the property to appreciate in value. Why do people keep talking about a capital gains tax. Show me a country where cgt has kept house prices down in fact the reverse occurs as the sellers add the cgt to their selling price. Why do people want yet another tax. we already pay enough. The problem is the shortage of land because it is artificially constrained by local government. Look at the price of a section in Auckland compared to Hamilton.

We have a s***load of land. NZ is the size of the UK but with only 4.5m people.

Our prices are going up because Kiwis are getting themselves into a craze - buying houses in anticipation and fear of future price rises.

It started off with low interest rates pushing things along and now everyone has jumped on board. It's a bubble. They happened everywhere else. It will pop here, too.

I truely feel bad for those who recently bought their house.

I completely agree. As a developer I pay CGT anyway so it makes little difference to me.

If we have stamp duty I would pass it on to he end user and so will 1,000's of ordinary kiwi mum and dad investors do the same thing with CGT. We will have more of an affordability issue.

In addition investors won't be inclined to sell if it crystallises tax which which will mean we have less supply and therefore more pressure to build new stock.

Reading back my comments, I think I must be mad. Let's have some CGT and I will make a boat load of cash and smile smugly to myself at the bucolic idiocy of those who want it ;-)

Lb is anybody going to mention the number of corporate moving to Auckland and taking their staff with them.

The IER is just wrong. I just checked the actual statistics on landlords.co.nz and rents in Manukau and Remuera as spanning the range of poor-rich have both risen at least in parallel with house prices in those suburbs. I looked at 3 bedroom houses.

It's worrying and most entertaining although hardly surprising that the muppets in Wellington struggle with statistics.

It must now be obvious to even the most strident objectors that there should be a capital gains tax on investment properties.
Parties should stop playing politics and correct this blatent distortion in taxation.

agree.

I work in funds management and would never admit that at work - but privately - and how I will vote - is that we need one. THe market is just messed up.

Why insist on capital gains tax when it doesn't bring house prices down and Equab has made a mistake about rentals?

I have to agree with the core points in the article.

I know of a stand alone unit in the heart of Milford at $455 a week. The owner keeps it not for rental return, but for the capital growth, 10 years = 250%.no tax

The owner says the rent just keeps up with maintenance and wear and tear.

Anyone got kids who are trying to establish themselves in home? It is tough.. RBNZ and Government seem focused on screwing the kids who want to get ahead, but live somewhere close to family. That Milford unit has a QV of 850k apparently.

Send the 30 to 40,000 inwards immigrants to the country places, I would like my kids to be close to us - or allow immigrants to buy only new builds, That will slow/stop speculation overnight.

On land agents, prices in Auckland have increased significantly, the work to actually sell a property is the same or less that say 10 years ago, Fees should be less.

An agent could argue he or she now has to truthful and accountable for untruths and there is a cost to that. But that is rubbish.

.

Paleo has hit the nail on the head; the lack of a capital gains tax on investment properties is an obvious distortion in our tax system.
We need a government with enough courage to correct this-even if it costs a few votes in the short term.
liberte