November 2021 – Crazy times

November 2021 Newsletter

Contents

  • Predictions for House prices in Whangarei.
  • Significant Natural Areas called SNA’s
  • Brightline Test Simplified
  • Why Fruit Trees are Flowering so late
  • WDC experiment with Dog Rego
  • Lessons from a Withel!

Predictions for House prices in Whangarei.

We are seeing two very different sets of forces building in the market. One is driving prices up, while the other is gathering on the horizon like a fast approaching tropical storm.  

Forces driving prices higher :-

Demand. There are still not enough houses to satisfy demand. The population is growing faster than the housing supply. 

Listings. We are seeing less listing on the market than at any time during this boom period. With low interest rates people are choosing to leave their money in their houses rather than in the bank. With less listings there is increasing pressure on the existing available houses. 

Building prices are rocketing. Builders are reluctant to do fixed price contracts because building materials can rise during the build and eat into the profit. 

Building products are in short supply causing the cost of materials to skyrocket. 

Inflation is rising. House prices tend to go up in high inflation environments. 

Who let the dogs out.  The Aucklanders will be let out soon enough and they are sick of Auckland.  

Forces suggesting prices will slow down or stop rising :- 

Public mood. The perception that house prices are too high and rises are due to stop soon. 

Interest rates are rising.  Interest rates have proven to be the only effective tool in slowing house price rises. As they go up houses become less affordable and price rises slow or stop. 


Discussion and conclusion.

The Aucklanders are going to be released from quarantine jail soon enough and many of them will use their get out of jail free card to get out of Auckland for good. We have been surprised at just how active the market has been without a strong Auckland influence and their big fat wallets. 

There are some very strong upward pressures on the housing market such as rising building costs. Traditionally we have seen a three-year mini cycle, where building costs rise, a gap opens up between existing houses and new builds and then at three-year intervals the existing houses do a jump as they close the gap. Because the market has been so strong, existing houses have kept pace with new, so we haven’t seen the gap this cycle. 

The reserve Bank recently released figures that show a change in the house price to land ratio:- “Land now accounted for 60 per cent of a median house price, compared to 40 per cent five years ago, ….. which reflected the constraints on land availability? (Susan Edmunds. Stuff). 

Herein lies one of the biggest drivers of House prices. When the land value is now 60% of the total value in a property, then little can be achieved by reducing building costs. You must reduce land costs first, which most governments, local and national, seem unable to do.  You  must reduce compliance costs which most local Governments don’t want to do, as charging for compliance costs is a significant part of any Councils income.  If we think of the saying, “ Its hard to remember your initial objective was to drain the swamp, when you are up to your arse in Alligators.   Not surprisingly the local governments have realized there is a lot of money in Alligator skins and have no intention of draining the lucrative swamp. Unless change is forced on local Government by national Government, we will only see land prices and the ratio to the dwellings go up. 

 We come back to Mark Twain’s famous quote “Buy land, they are not making any more of it” 

There are only two factors working against further house rises. Public sentiment and interest rates. Of these interest rates is the one to focus on. Any interest rate below 4% is still historically low. You can still fix for 2 years below this, but all 5-year rates are now around 5%. 

Interest rate rises have two effects. People rush to buy before they go up, putting upward pressure on the market. The second is interest rate rises slowly strangle some people’s ability to buy, starting with first home buyers and affecting everyone’s income to loan ratio. The higher the interest rate the more you have to earn to service the loan. This is a rapidly rising barrier to qualifying for a loan. When you have a rising marketplace, and a rising barrier to getting a loan, you have an expanding gap between the market and your ability to qualify for a loan. This takes a large group of people out of the market for a number of years as they have to save more for a deposit and they have to have a higher income to meet the income to loan ratio. The most effected are the first home buyers and we will see these people dropping out of the market for 1-2 years. 

Interest rate rises are not going to affect the Auckland buyers as they are usually selling in the Auckland market and reducing debt to buy in the Whangarei market. Many will welcome the higher interest rates as they will get a higher return on any surplus funds left over from their Auckland sale. In every other market we have had interest rate rises have eventually cooled the market. These rate rises will do the same, but gradually as they raise the 1-year interest rate above 4%. There will be very strong pressures resisting the slow-down so we expect the slow-down to be hesitant.  

A side note !  Keep in mind that historically, over 130 years in NZ, house prices have averaged 8% growth. The median price in Whangarei is currently $700,000 (REINZ Sept 2021) up 27.3% on last year ($550,000.) At 8% , in 10 years’ time, the median price in Whangarei will be $1,400,000. To get to this figure prices have to rise an average of $70,000 per year. We have had over three years of that growth in the last year, so expect a period of 2-3 years of little growth within the next 10 years. 

In previous articles I’ve discussed the link between funding for small business and the value of the owner’s house. When a small business owner goes to the bank for funding, the Bank will ask them to get a valuation on their house. The bank will then lend the business money, based on how much equity the owner has in their house, and secure the loaned amount as a mortgage on the house. The standard loan to asset ratios is applied, meaning you can borrow up to about 80% of owners’ properties value. The loan will usually be an overdraft but secured against the owner’s property. A rising market means more capital is available to small business.  The housing market is directly linked to small business funding.  

The Reserve Bank is very aware of this and has recently asked Banks to be “Courageous” and take a risk and lend on the business rather than the house equity. But like the many times this has been asked before it too will fall on deaf ears. Adrian Orr might as well have talked to a brick wall, Its pretty much the opposite of the Banks risk adverse culture, purpose, and processes. Here is the reality from the Reserve bank’s own research. “The central bank’s own data shows bank lending to businesses shrank by 5 billion between March when the Covid crisis began and September this year” (Business Desk 11/11)   

Due to the severe trading restrictions caused by Covid Lockdowns, there are thousands of small family-owned businesses who are heavily mortgaged to fund their businesses. Rising interest rates will affect these people first. Some will have very little equity left and any interest rate rise will result in them being unable to access further funding, nor to service existing debt. While rising interest rates will have a gradual and slow effect on house prices, they will have a rapid and disastrous effect of small struggling businesses. 

The Reserve Bank is fully aware of the impact rapidly rising interest rates will have on the business economy and employment yet needs to use its only effective tool to slow the housing market. Quite the dilemma and will be the one factor weighing against fast rate rises. The Reserve Bank is going to have to juggle how much collateral damage is acceptable (Business failure and its subsequent effect on employment) and walk the knife edge.  

This process is one of the most significant and misunderstood land grabs in New Zealand history since the Māori Wars.

It is part of the Resource Management Act, and as of 2016 requires councils to identify SNAs in their areas. Significant has not been defined and each council can apply different standards when assessing areas. I have no doubt that the WDC staff have sat down in front of a map and drawn lines around every larger area of native bush in the district. No doubt because some of the land recently designated is nothing more than Tobacco weed and Gorse.  It is clear no one has looked at the land in person. The vast majority of this land is privately owned.

While the owners don’t actually lose the land, they lose a lot of rights of usage of it and are now burdened with some serious restrictions in what they can do with the property.

It’ s a clear victory for Forest and Bird and they have made some of the many explanations to the public.

“Existing grazing, tourism or honey production can carry on. But these activities won’t be able to intensify, and new activities won’t be allowed to negatively affect SNA’s” (J Miller F&B)

“The sorts of activities that might harm a SNA are felling of trees for subdivision or clearing bush to convert into pasture”. (J. Miller F&B)

SNAS are the child of the Draft National Policy Statement on Indigenous Biodiversity. The group is made up of Forest and Bird, Federated Farmers, The Freshwater Iwi Leadership group, the Forest Owners Association, and representatives from the Extractive / Infrastructure Industries. (loggers)

There were no representatives nor consultation with the numerous lifestyle people who actually own large tracks of the land.

While this concept is not finalized as Māori have said “Hey this looks like another land grab”, when it comes to subdivision of land, the Councils are already treating it as law.

This puts a whole new process onto any subdivision consent and makes subdividing any bush blocks a very tricky and expensive business. If your subdivision involves clearing any bush for either a house site, or access to that house site, they can say no. 

  • Only applies if other land provisions do not apply e.g., subdivision.
  • Applies to estate or interest in land acquired on or after 1 October 2015.
  • Two-year period extended to five years for land acquired on or after 29 March 2018.
  • Five-year period extended to 10 years for land acquired on or after 27 March 2021.
  • Only applies to “residential land”.
  • Applies world-wide i.e., includes property acquired overseas by NZ tax residents.
  • Bright-line period commences on the date the property is registered in the client’s name
  • The sale date is the date a Sale and Purchase agreement is entered

Comment. 

Some people have been caught out by the start and end dates. It starts when you pay the physically pay the money over and your name gets registered on the title, but the qualifying period ends the day you enter into the agreement to sell your property.  You could enter a conditional contract where the other party have to sell their property and then you may have a delay in settling for say Covid reasons. That’s just tough for you, it counted from the day you entered into the agreement to sell. The way the Brightline test has developed has created a very unfair Capital gains type tax. Most taxes are fair and apply to the year you earn the income. The Brightline test applies to the year you sell the property, so you pay tax on say 9 years of investment in one single year, and you pay it at your top tax rate. That sale will most likely take your income over $180,000 so you immediately qualify for the top rate of 39% in the dollar for any income over $180,000. In effect it’s a 39% capital gains tax. No wonder people are holding onto properties longer.

I have moaned to all who will listen, which is an ever-diminishing group, that we in the winterless north are having our fruit trees flower way later than in cooler climates. My dear 90-year-old mum has fruit set on all her Christchurch fruit trees over 8 weeks ago, while here is the winterless north my Nashi hasn’t flower at all and my Apple is just showing the first signs of bud in November. 

Instead of this being a sign that “Climate Change” is a load of bumkin, this is further evidence that it is a real thing. Thanks to the very knowledgeable and talented Don Waterhouse of Open2view, I finally have the answer…. Vernalization! 

At least I now know why on the 8th of November my trees look like this

Vernalization or more commonly known as “Chill Factor”. Deciduous fruit trees require a certain number of chill hours over the winter months. This is when the temperature is between zero and 7% Celsius. While we did get the occasional mild frost, this winter has been warmer. In a mild winter the hormone that creates dormancy in the plant doesn’t get the spring signal that it’s time to stop doing its job, so it remains in place long into the season. When the tree finally flowers is can be sporadic and often results in a poor crop.

I was sent this by a dog owner friend who was disgusted with the following, especially as the WDC had just put-up fees to the law-abiding owners by around 40%. 

WDC signage; 

No penalties on registering previously unregistered dogs.

All dog owners who have never registered their dogs or failed to do so last year can have outstanding fees waived if they register in-person for the coming year, between 1 June and 31 July 2021.Owners who come in-person will face no penalties and previous registration fees will be waived. This offer is not available for online payments.” The gentleman concerned challenged the WDC and in an email was told they were trying an innovative way to get unregistered owners to register their pets.

They wrote: – 

“Unfortunately, if not surprisingly, only a very few small number of dog owners took up this offer and came forward during this period.” 

This reminds me of the time when the same Gentleman and I worked for Housing Corporation of New Zealand, and they brought in the most deluded of all policies.” The Kindness Policy”. If a tenant trashed a house, we were to kindly repair the house for them, have a gentle talk, and leave them to it. The result would be a tenant, overcome with the spirit of goodwill, who would reform their destructive ways forever. Of course the tenants promptly smashed the houses again and the policy died a quick death. The Policy maker no doubt got promoted for their cleverness. I suspect this W.D.C innovation won’t be repeated.

In 1974, I, and ten other 17 year olds embarked on the journey of a lifetime. We were the very last group to do Volunteer Service Abroad under the School leaver Scheme. We spent 12 months in various Pacific Islands, mostly teaching in Schools. Several times a year this now 65–66-year-old group meet either in person or via zoom for a catch-up. At the last meeting the newest hot potato cropped up…vaccinations versus antivaxxers. 

Enter one ex detective with the surname in the heading. He explained that since retirement he grew experimental flowers (Lets call them Roses) for an English company that was developing disease resistance varieties. He grows them on his acres in the North Island and presumably adds to the research being done across the world. He said the enlightening words. “When I grow these roses, I must keep an eye out for diseased Roses in the plot. The resistant ones can mostly tolerate one diseased rose as a neighbour, but as others succumb to the disease the number of pathogens in the environment slowly overcomes the healthy plants resistance.” 

It’s like a fortress. Enough sustained cannon bombardment will eventually crumble the strongest stone defence wall. People are the same, our resistance to a disease can be overcome by extremely high exposure to that toxin. We must stop calling vaccines immunity. its misleading. The word should be resistance.” 

George Bernard Shaw once wrote, “A smoker and a non-smoker cannot be equally free in the same railway carriage”.

 If we think of a vaccine as increasing one’s resistance to a disease rather than being an immunity from it, then second and third jabs make more sense. People not wanting to be exposed to people with high risk such as unvaccinated peoples makes more sense. Why vaccinated people don’t want to share space with unvaccinated people makes more sense. Why people with a vaccine are still at risk of catching the disease from others, although at a lesser level, makes more sense. 

Just like your watch is water resistance rather than waterproof. Under the right circumstances your watch can still leak but is less likely to do so at that resistance depth. Resistance is a clearer model than immunity. We should be talking about Herd resistance rather than Herd immunity. 

The last time I personally experienced a country so divided was in the 1981 Springbok Tour.  My birthday is the 28th of July and I lived in Hamilton, which happened to be a Saturday that year. It also happened to be the day South Africa played Waikato, and protestors tore the boundary fence down and invaded the ground. They successfully forced the game to be cancelled. 

It also happened to be the day I held my Birthday party. I had a very diverse group of friends (still do) and half the people had gone to watch the game and the other half had gone to stop the game. The protestors sat in the lounge, the rugby enthusiasts sat in the kitchen and dining room. The atmosphere was thick with tension, with mumbled threats from the kitchen/ dining area and the gentle humming of Kum- Ba- Yah from the lounge. This was the first day in my life where my personal acquaintances and friends became very angry at each other. The Birthday sucked and the country thereafter became increasingly split. It became difficult to try to see both sides and sit on the fence. If you did, you were the enemy of both sides. The country became polarized on one side or the other. Over time the good news is we healed, and those days are but a distant memory. New Zealanders are mostly good people and the Kiwi spirit will eventually heal the current rift….or maybe not. 

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