Recipe – The Sure to Rise Housing Crisis Cake !  (warning can cause indigestion )

 

Ingredients

  • Find a large smooth pot then grease it with a thick coating of Resource Management Act to ensure that all ingredients stick to the sides  in a tacky gloop,  thus infusing the recipe with a strong flavour of bitter bureaucracy
  • From a strong stock of 72,000 state houses in 1991 , slowly reduce the number to 62,000 by slicing and dicing  off both ends  of your houses .
  • Liberally sprinkle more people into the mix. The amount can vary each year but  ideally about 70,000 new people per year
  • Add a dash of 40% deposit ratios into lending to reduce, or better still drive private landlords out of the dough.
  • Use part of the deposit ratios to make housing unaffordable to the young therefore trapping them in the gooey
  • In a separate pan reduce the amount of fat available to developers until they are reduced to shrivelled husks of their former selves, unable to build anything other than canary cages.
  • Pour all ingredients into a large Terra- Firma pot ,  then add  a generous spoonful  of  homemade  “ shortage of supply rental rate rises” . Knead  into a smooth paste and leave  in a globally warming environment until the batch has doubled in size.
  • Bake together until nicely golden brown or slightly burnt,  then  sprinkle   5,000 refuges on top to ensure all support  services are completely  and entirely overloaded.
  • Best served hot  on a bed of fragrant  crushed hopes.   ( Serves 4-5 million people )

 

 

‘When Will  They  Ever Learn !    When Will They  Eeeeever   learn! 

 This chorus from Pete Seeger’s famous folk song “Where have all the flowers gone “, best describes the current round of Reserve Bank meddling in the financial markets.  We have long said the safest way to regulate the real estate cycles is to not regulate it at all. Let it find its own level  just as we let bananas, boats and boots find their own level. The market decides what these items are worth just as it should decide what property is worth.

The latest attempt by the Reserve Bank to regulate the money supply by restricting its availability is going to have unintended and serious housing consequences.

We have already talked about how the Reserve Bank decision to increase deposit rates on purchases squeezed the investors, which in turn squeezed the supply of rentals, which in turn squeezed more tenants into  homelessness.  ( April Homeless Reserve bank Link)

The new credit restrictions are going to have as dramatic an effect on supply. You will already be hearing in the media how developers are finding it hard to get finance , and how some projects have already been  cancelled and more are due to be cancelled . Developers are high risk from a banks viewpoint so they are the first to get their money supply reduced or cut off when money supply is restricted.

Yet we are in a housing crisis!

Auckland is about 35,000 houses short of the current need and this figure is growing daily. Building consents in Auckland are struggling with around 7,500 per year. So what will happen when the developers are told  “No you can’t borrow the money “. The very housing projects we need to see go ahead to meet demand are going to be cancelled or postponed and the shortfall of housing is going to get worse.

Surely we should be encouraging the developers, who are the real heroes in a housing crisis, to build more. We should be making access to funding easier not harder, cheaper not more expensive. Any thought that government of local bodies can fill this housing shortfall is fanciful. The only people with the skills, experience, expertise and drive are the developers. Cut off their money supply and you have just cut off the housing supply for everyone.   .   It doesn’t seem that the shortage of houses is going to be addressed anytime soon.

We continue to argue that that house prices should be left alone to find their own level without political or external financial interference.   We only need to look at the Auckland market as an example.  We have supplied a series of graphs showing how house prices have a natural upward progression. If left alone, they head up at about an average of 8% a year.  If held back for a few years, either by global conditions or financial interference, they have a correction period where they catch up. This is commonly referred to as the Boom/Bust  cycle.  The graphs show Auckland has caught up with its natural level so should rise at around 8% for the next few years .

The Reserve Bank is being given credit for stopping the “ Auckland Boom”. We think the Reserve Bank had very little to do with it and the Auckland market had reached its peak for that time and simply run out of steam. If growth was the effect of lending restrictions then we would see that growth stifled across the country. The reality is the opposite.  Auckland has slowed to around 8%   but the provinces are rocketing along despite the lending restrictions and will continue to do so until they have caught up with their natural level.  In Whangarei that will be around $550,000.   (Boom and Bust explained )

 

Rental Demand.

On paper the average rental price paid in Whangarei has stabilised at just over $400 per week. It has actually dropped a bit from its high of $421 to a figure of $403.  However this apparent stabilisation of rents is an illusion created by a number of cheaper properties becoming available particularly units and two bedroom homes.

Just Rentals had their highest rental demand ever for the month of May with just under 1,300 people enquiring about property to rent from Trademe alone. Compare this with the 15-20 available properties at any one time and we have a ratio of over 65 people per property just from the Trademe enquires.

Two inevitable outcomes.

Firstly rents are going to go up and our earlier prediction of rents being around $460-$470 by the end of the year is still looking likely.

The second outcome is going to be homelessness.  To date Whangarei has all but been insulated from the sight of homelessness but with the growing number of renters and the slowing amount of rentals available, it is inevitable that this will rise and the local  social support networks will be stretched then overrun.

Evidence of rising rents is in Renee Wilkinson’s latest report (BDM for Harcourts Just Rentals) :- the  highest residential rent she could find on Trademe for Whangarei is $850 pw  and the lowest is $220.  There were 14 rentals advertised at over $500 per week.

 

House Prices

Corelogics’ May figures still have Whangarei house price rises rocketing along at 19.4 year on year growth. This is in line with our New Year prediction that saw growth rise for the first six months and then start to decline to around 12 % by the end of the year.  The average Whangarei property is now at $483,049 and growing at an average of $1250 per week.  This will see the $500,000 average house price prediction made in September 2015 being reached in September this year.

 

Some Observations From The Coal Face

  • The number of buyers has dropped off
  • But then again so have the number of quality listings. If there were more average priced listings there would be a lot more sales in the city.
  • Midway through June we saw a small jump in activity. There seemed to be more Auckland buyers  in the market and we had a lot more  properties going to  multiple offers than we had in previous weeks
  • Buyers appear to think they have a bit more time to buy but the multiple offers are proving them wrong.
  • The winter is traditionally our slowest time . Once daylight savings stops, the days get shorter and there is less time and inclination to look at property .
  • The serious long term investors are still in the market but the mum and pop investors are in short supply.
  • The Asian buyers ( from Asia) are all but gone .

 

Its Tough Being a Real Estate Agent .

We are such easy targets.

Recently one of my colleagues ,  who is incredibly  street smart but struggles a bit with  writing skills, received an email with these encouraging words :-

“Have you read this ? If I was the vendor I would be utterly ashamed. Oh . and how much are they paying you for this “.

This type of email is just so harsh and unfair. I know that in a perfect world every word would be spelt correctly and every comma would be in the right place but in this day and age the people who actually know what is spelt correctly and where all the commas and apostrophes   go,  are a rare and dying breed.  Over 30 years I have meet a lot of Agents who are Dyslexic or have writing difficulties, some, including the recipient of this email,  have been truly great at their profession, despite their challenges.  I am  very proud to say Real Estate is one of those rare occupations where these people are not only welcomed and accepted, but helped to learn how to overcome these difficulties in a positive supportive environment, and in the process become better educated and earn an income at the same time .   The saddest part of this email is the writer has published a paper on the negative effects of shame on learning.

As an aside, my spell check is telling me that I have spelt the word “Spelt” wrong. I have checked its meaning  and spell check has it wrong !!! . I am either writing about spelling in the past tense or i could be describing “an ancient form of wheat with long spikelets containing two light red flattened grains” . I’ll leave it up to you to decide.

 

Good Buying .

We tend not to advertise in this newsletter but will make the exception for this property.

The property is 8 Selwyn Ave. It’s a rough looking weatherboard home right on the corner of Rust Avenue and The Western Hills Bypass. Its on it own freehold section ( less a R.O.W ) which is great, but what makes it a great buy is the location. Same side of the road as Burger King, but on the other corner. It’s zoned residential but would suit a number of professional occupations. Probably one of the highest profile locations in Whangarei with ample parking and good access at the rear.  Needs a bit of a tidy up, but a great property to buy for the future. It  was purchased for roading purposes and is going up for Public Tender  on the 17th July.  Call or email for more information .  (8 Selwyn Ave)