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. 


Text:

2021 has got off to a rollicking start. House prices in Whangarei have been going up by an average of $1, 230 per week for the last year. So the question is “ Will this continue or are there some pressures building to change this. I think so!!
Interest rates
Let look at the historical reason for the current rises.·

 

Low interest rates. its cheap to borrow money and you get a better return from houses than from the bank.· Supply and demand. There is still a chronic shortage of housing. The supply issue in partly being addressed. Higher property prices mean marginal subdivisions are profitable again. Building permits are steadily increasing across the country, so we are finally beginning to close the gap between supply and demand, but we have a long way to go and it will be 10 years before we actually catch up.· Returning Kiwis are buying up properties. Many of these are in the county where they were born, so the provinces are doing well.· Qualified KiwiSaver buyers are in the market in ever increasing quantities.· Building costs are going up fast. In 2016 the average cost to build in NZ was $1906 per m2, with many variances depending on size, quality, and location. In 2020 that had risen to $2238 and will be higher today. ( Canstar.co.nz) We are now nearly twice the cost to build the same house than our Australian cousins who are paying around $1,190 per M2. (Michael Yardney Property Update ) . Get your kids to get a trade if they are looking to be wealthy in NZ

Why Me?

Some years ago, I was standing in front of this famous Van Gogh Painting “Stary Night”. (It is in the Rijksmuseum in Amsterdam).  I remember standing amongst a crowd of other people and being totally under its strange and fascinating spell. I remember thinking “that’s so simple I could paint that!”. Years later I tried, and tried, and tried, and although some of my work was passable, I could never capture the movement, colour, and mood his painting drew from me.  (Incidentally, the view is from his asylum window, so he was quite mad at the time.) 

And strangely this relates to Real Estate sales.  If you asked me today   “Why would I use you , what can you do for me that I cannot do for myself?” or What makes you different from any other agent? I would have difficulty answering.  I could give you all the standard marketing, knowledge and negotiating answers, but that is not really any different from what anyone else would say.  What I have is 35 years of Real Estate sales experience and that has built a set of skills and a special kind of instinct.

  1. It is not what I do, so much as when I do it.  
  2. It is not closing the sale but knowing when and how to close it to your advantage.
  3. It is not simply negotiating the price, but knowing how to read the other party, so that I know what their top dollar is before they know.  
  4. It is not simply marketing your property through the various mediums but knowing how to target the right buyers and how to enhance and showcase your home’s special features and benefits. 
  5. It is not simply getting an offer on your property, but how to add value and desire to your home so that you get the best market price.
  6. It is not about just knowing the market today but being able to guide you through what is going to happen tomorrow.  

Based on my extensive experience I have a proven track record of getting the best price, far in excess of the fees you pay.. 

So call me if you are thinking of selling your property.

Contents
• The Current Situation in our Office
• Section Development Down
• Finding lions in Africa!
• Super low Interest Rates and Job losses.
• Banks Being Kind.
• Number of listings
• Changing Patterns Due to Low Interest Rates
• My Old Enemy the Media and Job Losses.
• Hiding in the Invisible Future
• Debt levels
• Making New Money
• Effect on Assets
• The New Migrants
• Election Year
• A Close Relative 
• Prediction
• The Two World bubbles.
• Can You Help

I pride myself on making accurate market forecasts of where the Real Estate market in Whangarei is going next. Over the past 35 years I have had past patterns to call on to predict the future. This market is unlike any we have ever seen before and therefore there are no patterns to look at, or follow. It is a big mistake to look at past recessions and say this one will follow the same patterns as this one has its own set of rules. Personally, I have felt the market is too uncertain to make a prediction, however I am being asked for some guidance now, rather than when the dust has settled.
It is the middle of winter and we would expect the market to have slowed down by now. What we are seeing is a property market behaving more like in a boom market than a recessionary market.
We are only a few months off an election, but instead of the market pausing for the election we have lots of sales happening. This is unusual. 
There appears no doubt the economy will hit a recession. The question is, will this recession behave as past recessions have.
Below I will look at the key factors and make an assessment for Whangarei based on the evidence I am looking at.

The Current Situation in our Office

Many owners are taking a wait and see approach. Listing numbers are building but a slow rate and are not keeping up with demand. We we are seeing active sales and are pretty much back to pre-covid levels. We would be selling more, but as there is a shortage of good properties and we have a supply problem.  Buyer inquiries are up in most areas and price ranges. 
 We are back to having multiple offers on most reasonably priced properties with one property recently having nine offers on it. 3-4 offers on one property are common. The sales are 90% in the $350,000-$650,000 price range with only the occasional higher sale. Higher priced rentals ($550 plus) are taking longer to fill, suggesting there is some resistance building in rental price  increases.  

Section Development Down 

Many of the building companies have had their development money pulled by the banks. This has happened in the past and will result in a shortage of sections in 1-3 years. The catch-up in total housing numbers that has been happening across the country will stall and once again we will see pressure on existing house prices as the supply of properties falls behind the demand. It is like one of those frustrating dreams where we are always chasing something but never quite catch up. We are still well behind the amount of houses our population size requires. (40,000-50,000)   The result is likely to be continued upward pressure on prices.

Finding lions in Africa!

If you are on Safari and looking for lions in Africa, you first look for the vultures. They are circling high in the sky either waiting for a wounded animal to die or for the lions to finish feeding so they can pick the carcass. In real estate we find the bargain vultures come out every downturn. They are easy to recognise, because they are looking for wounded or stressed out sellers, and they make low offers. They use words like:- “ we are cash buyers “ “and the market is stuffed” or “we don’t want to insult the owner but this is what we would offer” ( Invariably very insulting) or “the owner would be  foolish to turn this down” . These people will look at lots of properties and make lots of low-ball offers hoping to meet a stressed seller. Today these people are out in force trying to talk the market down. They use the media reports of massive price drops to justify their low offers. They are trying to pick up a bargain at someone else’s expense.
I have seen this scenario many times before. This time around I think we are going to see lots of starving vultures, certainly for the next 6 months at least.  I remember taking a well know economist to lunch after he made a low-ball offer on a property. Over lunch he explained all the perfectly valid reasons, (supported by graphs and charts and free form diagrams,) as to why the property market was overpriced and heading down. He was so certain of it; he had sold his own home and was waiting for the catastrophe to occur. The year was 2003 and sure enough he was right! Just five years later In 2008 the property market dropped all of 7% after a record 100% rise from the time of our lunch in 2003 to the 2008 global financial crash. After he had sold, and while he was eagerly making low-ball offers based on his graphs and charts, the average house price had doubled in value. 

Super low Interest Rates and Job losses

There is one key difference between this forthcoming recession and all the others. Low interest rates! . You can borrow for around 2.6% and there does not seem to be any threat of rates going higher for many years to come. That means a $500,000 loan taken over 30 years is going to cost you $461.68c per week to repay.Consider that it will cost you around $480-$520 per week to rent the same home.You have to ask, “why would people have to sell.” “Because they lost their jobs” the Vultures eagerly squawk!  Well yes there have been substantial job loses,  and probably more to come, and these are affecting many families in serious and concerning ways. However, some 43% of homeowners have no mortgage at all so you can take these people off your kill horizon. The average mortgage is over 10 years old so was taken out when property prices were half what they are today. Therefore the $500,000 borrowed today was only $250,000 when borrowed 10 years ago, and the repayments on that are around $280 per week. Most families today have two incomes so can survive for short periods of time if required, and there is substantial government hardship support. The people most affected by this crisis are the people in the Tourist sectors. That is the tourist towns like Queenstown, Rotorua and Paihia. And the people most effected are the minimum wage earners in those cities, most of whom do not own a house. The last time I was in Queenstown I was noted  that every person who served me, be that in a shop, a restaurant, or a service,  had an accent. I would ask them where they came from and the answers were Brazil, Peru, Ireland, England, Italy, and many other parts of the world. Not one was a Kiwi. They were on working holidays earning their daily keep. Tony Alexander has summed up this scenario in a few quick sentences; “Heading into the 2008 recession 4% of our workforce were people on a working visa. That now stands at 8% and such visa holders have accounted for 25% of the net job’s growth in NZ over the last 10 years. These people are not property owners.” Think about that for a moment. We may be heading toward double figure unemployment from the low figure of 4.6%. 8% of our current workforce are overseas people on working Visas. 10-12% job losses suddenly do not look so bad. This adds to the question “Where are the super stressed sellers going to come from?”

Banks Being Kind.

This crisis is a medical crisis. It is not caused by poor lending policies and zero or negative property equity. The banks are financially healthy, so do not have to recover loan money to save themselves. Even better, Banks are inviting short term accommodations like interest only loans to get people over the hard times. Interest only over a $500,000 loan is $250 per week. You can even get a complete mortgage holiday where you do not have to pay any mortgage at all for a time, (I do not recommend this unless there is no other option) . So where is the pressure to sell going to come from? 

Number of listings
Another biggie from Tony Alexander’s observations, is that in 2008 we had 58,000 homes listed for sale. Today we have just 19,000. There is a severe shortage of properties for sale and a growing buyer demand. If there is any slowdown in our local  market it is going to be because we do not have enough listings and that is going to put upward pressure on property.

Changing Patterns Due to Low Interest Rates
In a previous newsletter I mentioned that the number of people who were buying a home and keeping their old home had risen dramatically. The low interest rates often mean you can buy new and keep your old house, rent it, and have the tenant pay the mortgage. A simple way to get into the rental market. We are also finding landlords withdrawing properties from sale, because the interest rates are so affordable. The result is more pressure on listing numbers.

My Old Enemy the Media and Job Losses.

The media should carry a health warning just like a cigarette pack. “Ingesting this material could be damaging to your Health “. The standards of reporting have dropped so low. Investigative journalism is rare and so much media information is based on the reporter following social media reports like Twitter and many of the reports are used to prove a story line, rather than have the story based on the evidence.  A glaring example of the Media sensationalism was the 1000 jobs Fletcher’s are shedding. It’s reported as being a result of COVID 19, but it’s not! Fletcher’s where is serious trouble in 2018 with a loss of $660 million in its Building and interiors division. Fletcher’s employ 21,000 people across all its divisions and like any sound business had to cut back to survive. They cut 4.7% of their workforce. That is equivalent to a company of 40 people cutting one job from its payroll. Fletcher’s had to reduce overheads including jobs based on its 2018 and 2019 performance, not Covid as reported. Many companies have taken the “Covid opportunity” to trim their fat and I would suggest that around half or the total job losses (excepting tourism) are simply businesses trimming their overheads and using Covid as the excuse. Locally we are about to witness some changes at the Marsden Point Refinery. They are going to rationalize the operation and may well end up closing the production side of the company, and there will be job losses. It will get blamed on Covid 19,  and admittedly the refinery will be affected by the airline cutback as Jet fuel is a big earner for them, but this restructure is a long time in the making. The refinery has only been borderline profitable for some years now and a rationalization was coming anyway. It is cheaper to buy refined fuel from overseas than it is to refine it ourselves. The changes in the refinery were going to happen anyway. Just as an aside …don’t forget that our petrol price is driven up by the Governments outrageous $1.03 tax* per litre tax on fuel. (aa.co.nz Petrol tax $0.73 c plus GST on total at $2.00 per litre). About half your petrol bill is Government taxes!!!  Rationalizing  the refinery is the right move as Fuel as we know it is changing. Volkswagen have just joined the rapidly growing electric car movement by declaring its Zwickau factory has produced its last internal combustion vehicle as they transition to electric vehicles. The year 2021. (next year) is when electric vehicle prices are predicted to match ICE vehicles and they will only get cheaper from then on. It makes little point to keep a dinosaur industry such as Oil Refining  going in a small country like ours going, when the future of fossil fuels is limited.
Hiding in the Invisible Future
Public enemy #1. the media have ignored the facts that property prices have risen since Covid lock-down and continue to report anyone willing to predict a property crash. With the current wave of data proving them wrong they have moved into the grey area of tomorrow. The imminent recession will come September, October, and November. This is just too convenient. If you make predictions into the future, then facts cannot prove you wrong. It is a certainty that our economy is in a struggle now and things will get worse and we will have some form of recession. It will probably get worse next year, when the election is over , but the problem is that this coming recession is like no other  recession. All the current rules do not apply. I see some economists are pushing the main impact of the recession out to 2021 now. Again, I don’t think anyone knows what will happen. Logic says we are heading into hard times, but the current evidence is saying differently. I drove from Whangarei Heads through town out to Ngunguru on Sunday and just about all the for-sale signs I saw had a SOLD on them.

Debt levels

In past recessions the debt level has been predominantly carried by individual persons through borrowing. Our personal debt level is at record highs but most of this is in housing mortgages, which many will argue is an investment rather than a true debt. Today the government have shouldered the lion’s share of the new debt with its 60 Billion budget this year. The 60 Billion budget is a Government debt, and not individual debt. You and I wont lose sleep over our new debt levels, but the minister of Finance Grant Robertson may! Unless he could magically make some more money!!! Magically Making More Money Unlike individuals, Governments can create money through their Reserve Bank to stimulate the economy and pay back debt (Quantitative Easing) which is exactly what Grant Robertson has said they will do.It has taken me a while to get my head around this concept but here is an example from England of how quantitative easing works.  “The Bank of England purchased financial assets, almost exclusively government bonds- from pension funds and insurance companies. It paid for these bonds by creating new central bank reserves (this is the created money) and is the type of money that banks use to pay each other. The pension funds would sell the bonds to the Bank of England and in exchange, they would receive deposits (money) in an account at one of the major banks. The bank ends up with a new deposit (a liability from it to the pension fund) and a new asset, Central bank reserves at the Bank of England.
Quantitative Easing therefore simultaneously increased A) :- the amount of central bank money , which is used in the system that banks use to pay each other, and B):- the amount of commercial liquidity ( deposits in the bank accounts of people and companies). Only the deposits can actually be spent in the real economy, as central bank reserves are just for the internal use between banks and the bank of England” (positivemoney.org)
Effect on Assets
What impact does this creation of money have? Firstly, is spreads the financial shock over several years rather than having it all in one year. Secondly it creates a big supply of money into the system which boosts the economy, but devalues money as there is more of it in circulation. If money is worth less, then the things it buys are worth more. Traditionally this is the cause of inflation, however for now inflation is a thing of the past, and even countries like Japan who are actively printing money to get inflation, cannot get it rising. But what does rise in price are assets. Assets like property, gold, and to a lesser extent shares. The equation is simple. (More money + the same amount of property(assets) = rising prices.)
The New Migrants
We have the huge number of Kiwis returning to NZ. The Covid crisis is not going away anytime soon so our people are coming back, and they are buying property. Statistics NZ estimate that 21,000 New Zealanders returned home during December – March and that is accelerating. The quarantine facilities are talking about 2,000- 3,000 new arrivals per week, most of which will be Kiwis. Many of these people have come home for good and will be able to buy a home. Statistics NZ also estimate there are a further 800,000 New Zealanders still living overseas, so the pool of potential returning Kiwis is very large. To put that number in perspective , that the total population of Wellington, Hamilton, Tauranga and Whangarei all in one. 

Election Year

An election year is usually a bad year for Real Estate. In a previous newsletter I said that I did not think this would be the case this year as the worst-case scenario is moving from a left-ish government to a right-ish government so no major worries for homeowners. Being an election year, I think we will see some major pushes on the job and economy front and as many negative recessionary effects are going to be delayed until after the election.  The government is going to be pushing companies to retain jobs so the overall impact,  while severe, will not be as bad as many are predicting and thus we are seeing the new predictions that the full impact of a recession won’t hit until 2021.

A Close Relative- 

…. drives trucks for a big national trucking company. During Covid the company reduced the guaranteed driving hours from 40 per week to 30 per week in anticipation of less work. My close relatives experience was  NO drop in hours. He still regularly drives 40-50 hours a week.  The fears of a slow-down were worse than the reality. Many firms have paid the government wage subsidy back as they have had no drop in work. While the predictions have been dire, we are seeing a lot of evidence that the situation on the ground is not as bad as expected.

Prediction

So back to the circling Vultures and the dire media led predictions about property prices. This crisis is very  different from any other. We have healthy banks, who have a big safety level built into their house lending and very low interest rates. Listing numbers are dropping from an already low level and demand is increasing. To get housing prices reducing you have to have stressed owners, who are forced to take a lower price or lose their  home. You have to ask the question. “Where is the financial pressure to sell going to come from? When is the Bank pressure to force mortgage sales going to arise?  Where are the super stressed sellers going to come from?  On the reverse we have upward pressure as more buyers enter the market and an already existing shortage listings. Prediction # Its too early to look at 2021 which could be a very different year,   but the current evidence for the rest of 2020  shows the Whangarei property market  remaining steady and probably rising .  

Roll on the Vaccine.

Unless we get a vaccine, we are heading for two different worlds. A world that has come to live with Covid and a world that has contained it. The smaller of the two worlds will be ours. The island nations that have a big moat around them and have either contained or eliminated Covid.  The bigger of the worlds will be those that have lost the containment battle and now live with the virus. In Qatar 3.3 of every 100 people has or has had the virus. In the USA they are closing in on 1 in every 100 people had or having the virus. In Brazil it is 1 in every 160. At this stage you would have to say the battle is lost in these countries.  At best they can slow it down , but their chances of elimination are long gone.  They are going to have to live through the crisis and in terms of numbers the virus has only just started. In the USA over 99% of the population have not had it.  The only way they can win this war is with a vaccine or effective treatment.  Until there is a vaccine, we will have two bubbles. Those with and those without. Unfortunately, we will be in the smaller without  bubble, but fortunately,  we are only small ourselves and don’t need a big bubble to survive. It doesn’t mean we can’t trade outside our bubble, it means we can’t visit each other and therefore overseas tourism is going to be in trouble for a time to come. A vaccine or effective treatment will join these two bubbles together, however while I hope a vaccine will be found within the next few months, the reality is that this is a corona type virus. The common cold is a corona type virus and we don’t have a vaccine for that.

August 2019 Newsletter

Contents

  • Update on My Daughter-in Law.
  • House price Drop in Whangarei.
  • Rental Prices Jump.
  • Are Markets Signalling a Recession?
  • What Does That Mean for You?
  • House Battery Technology Versus Car Battery Technology.
  • How I Became a Volunteer Policing the Anti Money Laundering and Terrorism Act
  • Tips on Saving Tax Dollars. My revenge!!

.

Update on My Daughter-in Law

She is at home with her family and feeling a lot better as she travels the slow road back to full health. It will take time as Sepsis is the result of Septicaemia (Bacteria) getting into your bloodstream. Your body reacts by shutting down your organs to survive and the bugs together with your own immune system can turn on your organs and damage them.So many of you have sent your best wishes and we all feel humbled by your concern. Thank you.

House price Drop in Whangarei for the first time in years.

Average prices dropped by $500 June to July with the current average price for Whangarei being $547,711.  This is a very small drop, but well worth watching over the next few months. If it continues then we will be seeing the market dropping from its peak.

The most likely cause is the increasingly large number of smaller sales to first home buyers and nothing to worry about.

Rental Prices

The average rent for our companies’ rentals is now sitting around $455pw. This is a significant rise on earlier this year and shows how the limited supply is pushing rents up. Our rental team have been recommending rent rises for some time now only to have many landlords reluctant to raise the rents and have chosen instead to keep them below market. With the increase in compliance costs, recently introduced by the Government, rents have risen sharply as landlords take the opportunity to recover costs. Tenants are paying $40 more per week now than they were at the beginning of the year. Funny how that works eh!

The lowest priced property rented with Harcourts is $260 PW for a one bedroom and the highest is $580 PW. The highest demand from tenants is for a three-bedroom, one-bathroom home around the $475-$500 pw range.The number of written applications is down to around 40 pw, but this reflects word getting around that we are very fussy in our client selection.

Are Markets Signalling a Recession?

While this topic is beyond my specialist knowledge I have never been short in having an opinion. I am a keen observer of the financial markets  and believe the signs are now clear. A recession is coming!   Real Estate is a safe place to have your money in a recession as long as you don’t have to sell in a hurry.  NZ be is in a better  space than most to ride it out and we could even  see buying pressure in this one.  Worldwide the indicators are bad. (Source Andrew Walker BBC World Services Economics Correspondent.) 

  • Inverted Yield Curves. These words are gobbledygook to most people, but they are important indicators to everyone. Basically, an ” Inverted Yield Curve”  is about a Government borrowing money. They borrow it mostly from their own or another countries citizens , usually via your bank or financial advisor. They are called bonds. They promise to pay it back in a set number of years plus interest. An inverted yield curve is when it is cheaper for the Government to borrow money for 10 years than say 2 years. This means the savvy lenders are saying there is higher risk in the short term and it’s safer to lend the money over a longer term. Historically  Inverted Yield Curves happen before a recession. The USA and the UK are both showing these feared curves in their bond markets now.  
  • Global Trade Conflict. The trade war between the USA and China is affecting every corner of the world. Trade conflicts can lead countries protecting  their own interests rather than trading freely with other countries. The last time we had countries abandoning Global trade and concentrating on their own markets was the start of the great depression of 1929.
  • A “No Brexit” deal with the UK pulling out of the European Union will plunge both the UK and the EU further into a financial crisis.
  • The USA, China, Germany and England have all recorded financial slowdowns for the last three months.
  • The stock markets in the USA, Germany and the UK are having wobbles where there are sudden selloffs and then recoveries the next day. This indicates  nervousness and the possibility of panic selling.
  • German Bond markets are in negative territory. That means the money Fritz lends to the government reduces in value while it is lent. Fritz lends his Government $1000 and gets $990 back.
  • Our Reserve Bank has signalled they fear the worst ahead by dropping the official Cash rate to 1%. Twice the drop the markets expected. 

What Does That Mean for You?

  • The World going into recession doesn’t always  mean we have follow. It’s highly likely that we will, but we navigated the last crash in 2007 without disastrous results, thanks to some very clever stewardship by our government at the time.
  • A global financial crisis is not by default a NZ financial crisis. 
  • If we do go into recession then there will most likely downward pressure on house prices HOWEVER  there is a key difference this time around and that’s interest rates. The last few times we hit bad times; interest rates were very high by comparison to today. Those that couldn’t afford their mortgages were forced to sell at any price.  Banks sold people up in forced mortgage sales and these sales set new low prices, from which other properties were priced, thus creating a downward spiral.
  • From our experience Banks are very reluctant to force a sale and only do so when the borrower has either abandoned the property or gone all septic and refused to co-operate. Banks go out of their way to make the loan work for both parties, so most forced sales today are because the borrower has completely abandoned their responsibilities.
  • The current low interest rates mean most people who were able to afford to buy a house in the first place will be able to afford to keep the house, so we shouldn’t get the forced sales of past recessions. 
  • Rents are way higher now and rising, interest rates are way down and dropping, so the option of selling the family home  and reducing outgoings is going to be limited. Why sell your current house with its fixed or dropping mortgage payments,  to rent a house where the payments are going to go up every 6 months.
  • Jobs. We are currently at our lowest ever unemployment rate of 4.3%. This means we have a serious oversupply of jobs and serious undersupply of workers. This means that if thousands of jobs are lost through a recession, there is a lot of fat in the system and the unemployment rate would have to rise to 7-8% before the ordinary employable people started struggling to find employment.
  • Alternative income sources. Because there is such a shortage of accommodation NZ wide, owners can rent out a room for around $180-$220 per week or provide an Airbnb service. This income together with the low interest rates will make a significant contribution to a mortgage.
  • The first home buyers are coming onto the market in increasing numbers as their Kiwi Savers qualify for home ownership. The cost of renting and the cost of a mortgage is closing fast so there is little reason to stay renting unless you have to. Thus, the lower end of the market has a strong driving force that will continue through a recession. As long as the lower end is selling there will be a flow through affect to higher priced properties.
  • As interest rates drop, people with money are choosing to re-invest their money and a lot of that is going into housing. So we could see more buying pressure than less. 
  • Word of Caution. In a recession there are two types of property that tend to be adversely affected. The luxury market such as holiday homes/Baches and Strata Title properties such as high-rise apartments.

In summary I think a Global recession is very likely and within the next 12-18 months, and we in NZ will feel the pain, but we will come out of a recession far better than most countries and may even scrape through through without joining the recessionary swamp. While the market will slow, we should survive it without significant price drops and in specific price ranges ( $380,000-$500,000) we may see a rise. 
Real Estate and Gold are the places to be in a recession. 

Real Estate and Gold are the places to be in a recession.

House Battery Technology Versus Car Battery Technology

 I read an interesting article recently about the difficulties of using car battery technology in house batteries. This led to watching a YouTube clip about the Redflow Z cell battery. The Company owner  says the difference between car batteries and house batteries is the difference between a sprinter and a marathon runner. The sprinter needs heaps of power for short fast runs, while the marathon runner needs consistent power over a longer term. The “Flow Battery” is a technology where power is stored in the form of zinc on a plastic plate, very similar to galvanizing steel to prevent rust. The batteries work by pumping a Zinc Bromine solution over plastic grids. Through electrolysis, the zinc coats the plastic plate as future releasable energy. The liquid keeps circulating as required, either putting zinc onto the plates (storing energy) or taking Zinc off the plates (releasing energy) and has an infinite shelf life. Redflow is already producing units for residential use that store 10 KWH of energy. Two of these should power a house. They already have houses set up which are nearly 100%  power neutral. The battery stores the energy for years if necessary, has no fire risk, as Bromine is a chemical used in fire extinguishers and puts fires out, as opposed to Lithium which burns like a volcano on steroids.
The flow system appears to have no loss of storage capacity and provided it is being charged by solar cells keeps on working indefinitely. They are currently dearer than the equivalent Li-on battery packs, but are currently being put together by hand, so with automation, prices will come down and are expected to be comparable to the equivalent Li-ion battery packs.

How I Became a Volunteer Policing the Anti Money Laundering and Terrorism Act

Have I ever mentioned that I REALLY REALLY hate this act?I’m sure its intentions are noble, and it’s fit for purpose, ( actually I don’t) but what I hate is my part in it.  No one asked me if I wanted to be involved. I don’t!  and no one pays me for my time , but by law,  I have to comply or else they will throw me in jail! Nice one!!! 

As an example of the time commitment: – I recently listed three sections for sale.The first section belongs to  a person I have personally known and dealt with for over 20 years. His land is owned by himself and a trustee company. To comply with the AML Act ,  I had to sight and take a copy of his passport (proof of identity). Plus sight and copy a utility bill sent to his address (proof of address) . I then had to ask him how he got the money to buy the property( proof of income)  The Trustee company is owned by his accountant with three directors. I then had get the “Company Extract”  and the ” Certificate of Incorporation”  of the company  from the Companies office and do CDD (Customer Due Diligence) on all directors by sighting and copying their passports  and a utility bill as proof of identity and address. Remember they are just the trustees and have no financial interest in the property. Then I had to find out the trusts source of  wealth (how they managed to buy or own the property in the first place) and source of funds (how is the trust getting its funds to service and maintain the property). 

The other two sections are owned by a company that specializes in developing  sections. I have known and worked with the developer for around 15 years. I had to sight the passports of both directors of this company along with obtaining a copy of an account addressed to their homes. I then needed to ask them how they got the money to develop this section, ignoring the fact that I know its’ their profession and frankly none of my business.!

It took nearly a week to get all the required proofs. Meanwhile I had photographed the three properties, entered them into our computer system, and written the advertisements for them in 2 days. Due to the legislative requirements I could not begin marketing the properties for another 5 days. I would have spent as many hours on the compliance requirements as I spent on the entire listing process. I can’t charge anyone for this, (although the accountants and lawyers can) , and I am required to do this volunteer service, free for the government without any thanks and the overriding motivation that if I don’t do my job properly, they can fine me $300,000 or throw me in jail for two years!!! I wonder how many money laundering terrorists I will catch ?   Thanks, Jacinda, Winston and John! I just love being your volunteer. It would have been nice to have been consulted,  but I presume my Knighthood is in the Mail. (Sorry John but this stupidity started under your watch.)

I’m Very Immature for my Age and here is my Way of Paying it Forward!

To balance my “volunteering” , I have collected some obscure ways to get “Better Value” out of Government departments. I hope someone pays less tax, or gains some financial benefit from any of the following:-A rental property is a business and your business-related expenses are tax deductible. ACC. If you pay ACC levies you can negotiate your own deal under a secretive policy called “Cover Plus”. You negotiate what your weekly cover will be and pay your fee based on that set  amount. In the event of an accident you get paid the weekly amount agreed without having to revert to the current formula of 80% of your weekly income. This is especially pertinent if you are self-employed where your remuneration may not reflect your real earnings.Don’t Ask IRD a Tax related question. In a survey by the Dom.Post , 25% of the answers IRD gave to customers were wrong and in the case of GST, 50% were wrong. IRD are not responsible for giving you a wrong answer, as it is your responsibility to understand tax law and get it right, even if they tell you the wrong information.But wait!!! there’s more!! You can ask for a “Binding Ruling” from IRD. You pay about $6000 for this but when it hits the fan and you go to  IRD  with your “Binding Ruling” folded in your fist and a smug  “I’ve got this”   look on your face, IRD  can refuse to accept their own ruling.If you have a company and you have lent the company money as Shareholder funds, you can have the company borrow the money and pay it back to you. (you will still need to personally secure it with the bank ), but the loan is then tax deductible to the company and you can pay off personal loans like your mortgage. It’s a plus for your company and a plus for you.Check your personal credit card each month and don’t forget to charge all business expenses back as business costs.Donations are Tax Deductible. Lots of expenses are donations. You don’t have to have an actual  room set aside to claim for business use at home. You can claim for the portion of your house that you use for business purposes. It’s based on a percentage of space rather than an actual room.Renting out a room or flat on your property. If you let part of your property to another, the rent becomes income and you have to pay Tax on it. However, is you take in “Flatmates” then there is no Tax payable on the income. I am merely trying to volunteer my further assistance to the government to ensure my early Knighthood, but please check this information with an accountant or someone who specializes in this stuff before taking it as gospel. Tip …don’t ask the Tax department!

March 2019 Newsletter

Welcome to the latest addition of our market updates and thoughts .

Life lessons March 19 - Lifes lessons

It doesn’t seem right to write anything today without some mention of the tragic events that unfolded in Christchurch. Personally, I feel in denial and am shell-shocked by the whole event and deliberately avoid hearing too much about it. I have avoided most of the TV news items and when I do hear one, I tend to change channels, when yet another reporter with the same somber expression and sad eyes is earnestly talking about some new angle or interviewing another expert or victim.  Its not the New Zealand I know.

The Chinese say Crisis and Change are twins. They are from the same womb.  Out of this crisis we are seeing the birth of a new level of tolerance and acceptance in New Zealand, at least for now. I personally find myself truthfully questioning those little everyday thoughts of intolerance and discrimination I have, along with a resolve to say something the next time I see it in others. It feels like the standard “It’s just a point of view, what harm can it do ?, no longer works.

If this event is the dawning of a new age of acceptance in all New Zealanders, then maybe, just maybe,  it had a purpose.

Market Prediction detective

We are seeing more and more evidence the market is hitting a slowdown period. Open homes numbers are way down and so is internet inquiry. The listings are coming on the market faster than they are selling so buyers have a choice of suitable properties for the first time in years. First home buyers are still there in numbers but the investor market has slowed down.

Houses still sell in this type of market but instead of there being 100-140 sales per month there will only be 70-80.

What does this means ?

  • 2-4% property growth for the next 2-3 years
  • Watch the Auckland market closely as the recovery will happen there first
  • The next property surge is most likely in 2022.
  • The 2021 Americas Cup racing may bring that forward a year BUT it didn’t have much effect last time it was here, so why would it this time?
  • If you want to sell a rental investment get in now. I have recently sold three out of four of my readers rental properties and it took a lot more time than both of us expected and in one case we sold at the bottom of the price expectation.
  • Investment property prices will tank and maybe even drop a little over the next 2-3 years
  • You need to get the asking price correct right from the start. You can’t put a higher price on and expect offers. If the property is too high in comparison to what other properties are listed at, you won’t get any offers at all.
  • Buyers are testing the market with low offers.
  • We wont see the pricing drops that are happening in Australia. Our market conditions and economy are very different. For a good explanation of the reasons get yourself onto Tony Alexander’ ( BNZ economist) newsletter.)

Put a medal on the private landlords chest Landlord Medal

What a sad day it would be, if the Government and the Reserve Bank ever succeeded in driving the private landlords out of the rental market. Some simple facts

  • 450,000 households rent ( Census figures 2013)
  • Housing NZ own 62,000 rental homes ( this figure is gathered by stealth as they seem to fudge their actual ownership by claiming properties they lease off private landlords)
  • That means 388,000 rental properties are owned by private landlords
  • That’s 6 out of every 7 rentals
  • If the private landlords all got out, you would presume it would be the governments job to provide the missing rental housing.
  • At an average cost of $500,000 each the Government ( ie you the taxpayer) would need to stump up with 194 billion dollars to replace them.
  • Or $53,000 extra tax for every one of the 3.64 million people who pay tax in NZ
  • To put that in perspective the Christchurch earthquake rebuild has cost around 40 billion so far.
  • The logical conclusion is …we need the private landlords so stop beating up on them.

Dinosaur discovery

Well not quite! its just that I have been guided by the very lovely and smart Julz Cooper  to provide a weekly Facebook video called “ Tuesday Chats with Barry ‘. These are my current and unscripted thoughts on mostly Real Estate matters condensed into a 2-3 minute video. dinosaur descovery

I’m sure there is an easy way to find these but if not follow the links;

1st video at town basin

2nd video at the bridge

3rd video at Tamatarau

4th video at Mair park

5th video at Laurel hall park

6th video at Densey Pass

Interest Rates

Interest ratesLikely to stay about the same levels for some time yet or they may even drop another .5% .  Turkey is going into recession, China’s growth is slowing dramatically,  Argentina if in financial free-fall, the USA is starting to lose a lot of the ground it had made up and Australia is feeling the pressure. The world economy is way too shaky to see any major hikes and we still have the delights of Brexit ahead.

Latest updates in the new Rental Regulations rental update

Just in case you don’t get the very valuable Rental Report from our Rental Business Development Manager he is a section of her document on the new rental standards. ( Courtesy of Renee Wilkinson 14/3/19)

“As you are aware the regulations that have been brought in over the past three years have been to do with insulation and smoke alarms. Every rental owner should have smoke alarms installed three meters from every bedroom and /or sleeping room, and on every level of house. With the insulation every investment property owner should ensure that the insulation on their property should meet the guidelines by 1 July 2019.’

On Sunday the 24th February 2019, the government released the new regulations that investment properties owners will need to comply with.

Heating   Rental homes must have a fixed heating device that can heat the living room to 18c

Insulation   Ceiling and underfloor insulation must either meet the 2008 Building code , or have a minimum thickness of 120mm ( nearly 5 inches)

Ventilation   Windows in the Living-room, dining room, kitchen and bedrooms , must be operable and extractor fans must be in rooms with a bath or shower, or indoor cook-top.

Moisture and Drainage    If a rental property has an enclosed sub-floor, it must have a ground moisture barrier if it is possible to install one

Draughts   Landlords must stop any unnecessary gaps or holes in walls, ceilings, windows, floors, and doors that cause noticeable draughts. All unused chimneys and fireplaces must be blocked. “

Now here is something to love. If you are a landlord you have until July 2021 to comply with these new standards,  yet  Government housing doesn’t have to comply until July 2023, but then we have a new date of  July 2024 before all rental homes must comply. Figure that out if you can.

An interesting but thought-provoking study

Thought provokingIn Professor Lipton’s book “The Biology of Belief” , he quotes a study done by Barbara Starfield in 2000 in which she logs the deaths that are caused by side effects of medical treatment or prescription drugs,  rather than the illness itself. These are called  “ iatrogenic deaths”.

“According to conservative estimates published in the “Journal of the American Medical Association” Iatrogenic illness is the third -leading cause of death* in this country ( USA). More than 120,000 people die from adverse effects of prescribed medications each year . A more recent study, based on the results of a ten-year survey of government statistics, came up with even more dismal figures. ( Null et al, 2003)  That study concludes that iatrogenic illness is actually the leading cause of death in the United States and that adverse reactions to prescription drugs are responsible for more than 300,000 deaths a year. “

*( In 2017 165,500 people in the USA died of Heart disease and 152,500 people died of cancer)

Staying young

Stay youngAs I have the pleasure of growing older, I am appreciating some different things. Firstly, its grandchildren. To see the way, they deal with their world is magic. The energy and enthusiasm they bring to the table and the way they master so many new skills such as walking and talking. You can see their intelligent little minds working things out behind their intently staring and very clear eyes.

Secondly to the younger people in my life. The first-time parents who have blessed me with their friendships. These people are like the Yin to my Yang. They have a different way of seeing the world and bring a balance to my life and a fresh way of looking at things. Sometimes the way I used to look at things and sometimes the way I still do, but often from a perspective that I hadn’t thought of.  So, to the younger generations, thank you all for being in my life, you make it so much richer.

December 2018 Newsletter

Contents

  • 2019 Property Price Predictions
  • Time to sell you rental
  • You are about to get Probed ( AML)

 

thank you

Diana and I would like to take the opportunity to thank you for your support over the last year and to wish you and all your loved ones a happy and safe holiday season. The many comments and notes of support we get makes the effort worthwhile. We love to share our combined 60 years of Real Estate knowledge with you.

2019 the year of the Bi-polar Bear.  

Its time for our annual prediction about property prices in Whangarei. We started these in 2015 and they have been scarily accurate so far, coming within a few percentage points of the predictions. We thought 2018 would end with prices 10-12% above last year and in November they are 11.3% above.

2019 is going to be the hardest year to predict because the market is surging on, so all the sales evidence is saying its going up, but the reality is that it probably shouldn’t be. We are overdue a full stop and 2019 is likely to be it. The market seems to have fragmented into two markets. Those properties above $600,000 have been moving slowly but steadily ahead. Influenced by the Aucklander’s relocating.

The lower under $600,000 sector has been going gangbusters.

So what’s going to happen in 2019.

thinking

Prediction#1

We are going to see the slowdown, but the market will have two tiers. Properties above $600,000 will continue to move upwards at a slowing pace while properties below $600,000 will almost stop moving. Over the full year we will see growth at around 5% by December 2019.

The evidence says the market is surging ahead but my gut instinct after over 35 years in the industry is that its time for a re-evaluation.

Prediction #2

The rental market has peaked and it’s time to sell.

 If you are owning a rental for the long term, then hold onto it, but if you are owning a rental for the short term then its time to sell it. The bottom end of the market (rentals especially) has moved more and faster than the rest of the market for two years now. The gap between the dearer properties and rentals has closed and right now, in my humble opinion, rentals are at their peak and probably overpriced.

Rents are moving upwards slowly but are not keeping pace with the investment value. There is a chronic shortage of rental properties so there is no problem with supply.  But the gap between rental house prices and the average family homes has closed to an unusual level.  The bottom end of the market has pushed up while the level above that ($600,000 plus) has moved a lot slower. This means the gap between the different quality of homes and the different areas has compressed. A bit like two tectonic plates moving. Something it going to give!

Either the prices above $600,000 are about to get an upwards adjustment or the prices below are about to stall.  Which is more likely? Listing are coming on at a faster rate, so I personally believe that its going to be the latter.

Prediction #3

The sharp rise in rental value homes will stall for a number of years and in certain scenarios could actually drop a bit.

One of those scenarios is currently happening. The government of the day makes it difficult for private landlords to own homes. The current legislation means landlords have to provide: -, insulation, heating in every room, building warrant of fitness’s, and draft stopping to name a few.

Changes to the Tenancy act are all in the tenant’s favour with: – less ability to adjust rents, harder to get bad tenants out, and possible taxes on capital gain to come.

All this envy thinking makes the hassle of owning a rental home too much of a problem for many and we will see a mass exodus of landlords from the market. This is not new, we see it after every upward property correction, but this one will be particularly strong as the new legislation is 100 percent tenant friendly and 100 percent landlord unfriendly.

For example, in the 2nd reform bill currently before parliament, if your tenant damages your property their liability will only be as high as their bond or your insurance excess.  Imagine how your insurance company is going to react if your tenant can damage your property but has very limited liability for their actions.  Your premiums are going up and so are the excess levels.

In the previous two years we have predicted a rise in homelessness through existing Reserve Bank activity. We now have unfriendly Landlord legislation and the homelessness level is going to skyrocket.

2019 and 2020 is going to be the years we see a surge of mum and pop investors getting out of rentals as an income. Anyone considering selling needs to be in the front of this exodus. Not in the middle or the later stages. You need to sell while there are still plenty of buyers and that is now while the market still has upward momentum. If you leave it too late you will be competing into a market where there are a surplus of rentals and a shortage of buyers.  If that imbalance gets out of whack you will see prices come down. It’s happened before.

If you are long term (5 years or more) then just hang in there. There are plenty of tenants, so you are not going to sitting on an empty house, but you will have to spend some money on it to meet the new legislation and you will see some of your rights eroded. For example, you may not be able to stop tenants doing minor alterations to the property, nor stop them having pets.

If you have your money in rentals for the capital gain, then it’s time to move on.

Keep in mind the Brightline test. If you purchased before 1 October 2015 then you had to own it for 2 years or pay tax on the profit. As we are now over three years from this time it doesn’t apply.  If you purchased it after 28th March 2018 you have to hold it for 5 years to avoid tax so you should look at riding this cycle out unless you are willing to donate a third of you capital gain to the Government.

There is one factor that could alter this prediction. Current first home buyers get a grant from the government of $5,000 each if they buy under $400,000 in Whangarei. If your property is worth $400,000 or less and is in in a reasonable area the First home buyers are waiting in droves.

If the government lifts the ceiling to say $500,000 then this will positively impact on all properties under $500,000.

Disclosure. I have sold my only remaining rental property for a number of reasons but definitely influence by the above.

Anti money laudering

Anti-Money Laundering and Counter Terrorism Act!

What an absolute nightmare this has become!!!! I can not see how this legislation slipped quietly by the civil libertarians without so much as a whisper.

Most would say “I don’t money launder and am not a Terrorist so what’s it got to do with me?’.  How very wrong you are. This will be the most comprehensive invasion of your privacy you will ever experience beside smear tests and digital prostate checks.

As of the first of January, this year the final phase will be in place.

The very next time you go to sell a house this is what is going to happen BY LAW.

The agent will be required BY LAW to risk assess you: –

  • Establish your identity (Passport, birth certificate, drivers’ licence, or Gun licence) AND the agent has to hold a copy of these documents on file in their system
  • Establish how you purchased your house.
  • Establish you correct living address
  • If your house is in a Trust, then the agent must complete this procedure for every member of that trust including the beneficiaries. This will include date of birth, source of wealth, where they live.
  • Your Agent can not enter a listing contract with you until that information has been verified by an authorised compliance officer.
  • If your agent thinks you are a suspicious character, they are obliged to report you to someone we don’t know yet. Probably Donald Trump!
  • If the agent fails to comply with the above, then they are liable to up to 2 years imprisonment and up to a $300,000 fine
  • A very similar criteria applies to buyers

If the agents haven’t bend you over the barrel enough, wait till you see your lawyer. They get the job of completing the personal probe. They have been doing it since July this year.

They will have to: –

  • Independently confirm all the above plus a whole heap more before they can act for you, including
  • Check that you don’t have Russian or North Korean connections.
  • Check that you have a NZ IRD number. No IRD number and the sale cannot proceed even if you have a signed contract. (most contracts have a penalty interest rate if the purchaser can’t settle on time. This also applies to the seller is they can’t settle on time)
  • Check that you have a NZ Bank account. No NZ bank account = no NZ IRD number.
  • Read this lawyer Guideline. “in many cases reporting entities will be unaware what the underlying criminal activity is. However, by screening transactions and activities for known indicators and typologies, a reasonable suspicion that the transaction or activity is relevant to criminal offending may arise. In these cases, a Suspicious Activity Report must be submitted to the Police Finance Intelligence Unit. “

 Already we have heard that many lawyers are adjusting their standard fees by adding one hour of their time to complete the basic check. It certainly makes quick settlements a thing of the past and if it’s complicated, you are billing goes up by hundreds if not thousands of dollars.

And just like the infamous “Y2K virus” and the “Great Meth Myth” we already have a plethora of opportunist service companies offering the” Complete Service Package” for a fee. A whole new industry has sprung up out of the legislative leaf litter like a fungus on the forest floor. If you have any doubt, just try Googling ‘Anti-money laundering “

We all have heard the saying that “the job that todays child will do as an adult, hasn’t been invented yet “.   I can see why.  Who would have thought a complete and separate compliance industry could grow out of you simply selling or buying a house.  I think I may be getting too old, it just seems like stupidity to me.  Like when they stopped us buying the very effective Pseudoephedrine based cold relief pills to stop the rise in “P’ manufacture. That worked …didn’t it?

We have been told that NZ is simply falling into line with other western countries, but really!!!! Why should this burden be placed on Agents? It shouldn’t be our job and you rightly shouldn’t have to be interrogated by your agent to this level to sell a house.

This is a classic case of the whole of society paying the price for the actions of less than 1/100,000 individuals. (I’ve tried verifying this figure, but not surprisingly no one knows how much money laundering and terrorism financing actually happens)

When I started in Real Estate in 1983, our listing form was one page long. A few years later it went to two. As of today, its 8 pages long and this legislation along with the health and safety stuff we must do will probably double that.

Prediction #4 (not really a prediction…more advice)

If you are planning to sell your rental, or your own home next year, get it listed before the 31st of December this year.  It doesn’t matter when you market it or actually sell it, just get the listing signed before the years end.

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Best rental areas to buy in Whangarei.

A Fresh look into the Crystal Ball 

Of all the articles I have written over the last 4 years,  the one on this topic written in 2015,  is the most searched and commented on. I revised it in 2016 with some key points to look for in a rental but due to popular demand, this newsletter is dedicated to where the next hot rental areas are going to be.

 

A Few Key Principles 

  1. Rental areas change very slowly. Its pretty much a house by house transformation, so the change usually takes years. 10-20
  2. Any property is a good rental today as there is a chronic shortage of houses that will only get worse with current government anti-landlord thinking. This shortage should be with us for at least 10 years
  3. All areas have good rental opportunities, but some areas will test your faith in humanity more than others.
  4. Schooling is an important aspect to any rental. Chances are you will be renting to a young family.
  5. Housing New Zealand houses tend to reduce an areas value, particularly if there are a number of them, as HNZ tend to have less interest in the tenant’s behaviour, and the houses tend to be utilitarian with little in the way of planting or improvements. HNZ hold them for years so there is little chance of new people owning the houses and having them improve the property.  The best clue for spotting a HNZ house is the appearance . They are usually well-maintained houses (painted) but no planting around them.

Areas on the Rise 

  1. Northern Tikipunga and Kamo East. The city is expanding to the north with the rezoning to residential of a few hundred hectares. This means the next building boom is going to be on the land between State Highway1  at Springs flat , across the north of town to Vinegar Hill road. The areas nearest to this growth area are Kamo East and northern Tikipunga. We already have the new suburb of Totora Parklands  in the middle , with new houses selling for $600,000 to $680,000. This has to trickle down to the cheaper houses in the area. Don’t forget the supermarket and large shopping complex in Paramount Parade. Key streets for a bargain are: – Corks., Amber, Elm, Te Anau, Manapouri, Ascot, Escalona, El Viso, Eden, Gillingham and for the adventurous, the beginning of Charles  and all of  Lewis streets have to be worth a rethink. Both streets are improving house by house. Charles has a  few dreaded HNZ houses at the end .  ($340,000-$500,000)
  2. Riverside. This was my top pick in the 2015 article. It was above a dump and now its above a well-used and popular park that covers a dump. Many of the houses have upper harbour views. The area has risen in price already but its’ close location to town means it has more upside yet. ($400,000-$450,000).
  3. Morningside. Has been steadily rising in value for about 10 years now. Walking distance of town and some quaint older houses in the area. Faces north and is on a sunny slope. Has some ground water issues and most sections are steep, but still a popular rental area. Look for some good bargains on the fringes of Morningside moving into Otaika. ($350,000- $480,000).
  4. Raumanga Valley and Heights. You tend to get good value solid homes in this area as other parts of Raumanga can be rough. Select your streets and you will get a lot of house for your money. The schools are a bit rough but its right next to the polytechnic so plenty of renters. ($380,000-$480,000)

Consistently Stable and Good Areas .

  1. These are the most popular areas but are more expensive to buy. They have the greatest appeal to tenants. Good neighbourhoods, good shops, and good schools. Great buying but you will have to pay more and while you will get a slightly higher rent your percentage return on investment will be lower. Maunu, Kensington, Kamo West, Mairtown, Regent, Whau Valley, Parua Bay, ($550,000 – $700,000)

For the Mentally Strong and Risk Takers .

In an earlier newsletter/blog I wrote an article headed “Lessons from Colin”. In this article I discussed the merits of the real cheapie houses in terms of capital gain and income stream. These are the properties for the seasoned landlords who can handle the disappointment of being let down on a regular basis. You are looking at cheaper entry prices and good returns on investment, but you will get more tenant damage, arrears, and turnover.
These properties do very well now while there is a property shortage but will get harder to rent in 10 years or so when, and if, rental properties catch up with demand.

  1. Otangarei. Rough area but good solid ex state homes. Close to town. Will need to regularly monitor for Meth’s contamination but with the new standards coming soon, not as big a problem as it was. Great area to get a good return and as the “Lessons from Colin” article demonstrates rents and values go up just as anywhere else does. Warning! Don’t buy here thinking the area will eventually transform into Kensington North . Way too many state houses (200?) which will permanently hold the area back. It will always be the poorer part of town. ($200,000 – $300,000.)
  2. Raumanga South and Otaika. Close to both town and to Raukaka. Houses tend to be cheaply built so you will get more maintenance issues than Otangarei. Popular area for gangs so the combination of less structurally sound homes and more physical people means if I was going to buy in this price bracket I’d prefer Otangarei . However as the HNZ homes in the area are more spread out ,  it probably has a better chance of changing over time.

AREAS TO WATCH 

  1. Vinegar Hill. This will be an area to watch. Its right on the border of the new city limits in the north so should get the full impact of the building boom that is affecting Kamo East area, however  the houses were mass produced for the refinery expansion in the 1970’s and as a result they tend to be cheaply built and  on cross lease sections. But ! the new houses are going to be right across the road on the other side of Vinegar Hill and the fully sold out Palms Retirement Village is on the other boundary. Together they  put strong price pressure on this cluster of houses. On the counter are the poor overall quality of the homes combined with the specialist immersion school smack in the middle, both combining to anchor the area in the rough and ready category. Logic says that the upward pressures will overcome the downward pressures, but this will take some time to eventuate. If you are looking 10-20 years ahead then buy here but be ready to spend a bit more on maintenance. The prices are cheap. ($280,000-$350,000)
  2. Raukaka/ One Tree Point. This area has seen rapid growth over the last 10 years. The overall quality of the homes is good and the setting next to Bream Bay and the Harbour is spectacular. While there are many people looking for rentals, there are not as many as in Whangarei itself. Some properties in the area are taking a while to rent and rents compared to the value and quality of the homes are a bit low. This area is comparable to Papamoa about 20 years ago. Its growing fast and the population is growing equally fast. At some stage it will become more popular than it already is, and we will see a sudden rise in demand and rents. Buy here for the future. You will get a great home with a lower return for now, but it has to go bananas soon. ($550,000- $650,000)

OTHER INTERESTING STUFF 

  1. House prices were stable in Whangarei with an average price of $531,418. This is a small drop on July,  but based on our current high level of activity, a  victim of the smaller number of higher priced sales and the large number of lower priced sales.
  2. The winter slow down I predicted at the beginning of the year didn’t happen and sales have been steady through out the winter months. Harcourts sales for August were exactly the same as August 2017 and that was during the boom.
  3. The only restriction to more sales per month is a lack of listings. If we had more listings we would have more sales.
  4. According to Realestate.co’s figures, Auckland has seen a sudden and significant rise in listings for August. Brace for it, that’s a new wave of Auckland buyers heading north in October.
  5. The pressure on rentals is building. Mostly due to not enough of them, and significantly affected by the number of first home buyers in the market. You hear the myth that First home buyers are neutral in the market, in that they leave a rental empty to buy a rental that was rented. Most of the rental buyer I have dealt with, are moving out of a parent’s home or out of a flat of other people. The rental problem is getting bigger by the day.

The Anti-money Laundering Legislation, that is now current for Lawyers, is  proving to be a massive invasion of your privacy and will be putting significant increases on your selling costs. You will see its impact the next time you go to buy or sell a house. We are told this is to bring NZ into line with the rest of the world, but it seems that its format has snuck in without consideration of peoples rights to privacy. You now have to prove how you got the money to buy a house and more importantly how you got the money to buy the house you are going to sell. This legislation is very Police State and seems a massive overkill on a problem that most of us have only ever heard about through newspapers

• June 2018 Newsletter

  • The Great Meth Myth and its Victims

heads roll

There is an old saying      ‘ When everyone is thinking  alike …. No one is thinking!  “  .

This is very true in real estate and we have just had a classic example of this with the current Meth’s test debacle.  This matter makes my blood boil. Its not like the latest finding by the Governments Chief Science Advisor, Sir Peter Gluckman, is new. This matter was first raised by Dr Nick Kim, Massey University’s Chief Chemist about three years ago. His comments were broadly dispersed through the media with several television programmes outlining his views.  He was adamant that the Ministry of Health had it all wrong.

To make matters worse this man was on the Government advisory board that set the standard measurements in the first place. Dr Kim was clear that: – “the way the test was being used to measure second hand Meth’s residue in houses was wrong.”  The tests were designed to measure a marker in Meth’s labs, where the chemicals used to create the product were a lot more harmful than the end product.

He said he would be happy to have his kids in a house with levels over 12 mgu and that it was no worse that cigarette smoke. I wrote and widely disseminated an article headed “The Great Meth’s Myth “, predicting that with this new information, things would change . And they did a tiny bit. The same people who had misunderstood how the test should be applied in the first place raised the level of measuring from 0.5 mgu to 1.5 mgu,  showing once again, that they had no understanding of what the test was about and continued to  apply the right to test to the wrong situation. The children’s story of “The Emperor Who had no Clothes “ has some alarming parallels with this story.

At that time Dr Kim was saying the residual fly spray on your walls was a lot more harmful to you than second hand Meth’s smoke and that if you open your windows the harmless residue smoke would clear itself.

This new research has totally validated Dr Kim’s own findings and shows just  how stupid some people can be. Especially the people who apply these types of rules to the public.

Unfortunately, there are numerous innocent victims of this stupidity. The insurance companies that have paid out fortunes to have houses de-contaminated that didn’t require it. The house owners who have paid cleaning companies thousands of dollars to clean houses that didn’t require it. Landlords who have had regular tests done when tenants have gone into or out of houses which wasn’t required.

And it doesn’t stop there. The cost to home buyers who have had lawyers and banks insist that a Meth’s test, costing around $400, be a standard clause in any sale and purchase agreement, or the home owners who have negotiated thousands of dollars off the value of their properties to buyers because of low level contamination. (Just 1 hour and 30 minutes before the new information hit the media we had negotiated and signed off $75,000 from the sale price because of a low level of contamination).  My heart goes out to the owners as victims of blind bureaucratic stupidity.

This whole scenario is just so wrong and undermines the publics confidence in the people who make these standards. Its not the scientist like Dr Kim, who created the measures, nor in this case the media who widely promoted Dr Kim’s findings,  but  the hidden nameless individuals and committees who hide in the bureaucratic halls of government departments, who didn’t understand what they were doing,  and continued to apply the right test to the wrong situation. How many other examples do we have where this is currently happening.  Ian Wishart’s book “Show me the Money  Honey “ suggests quite a few in the medical field alone.

Sadly, it again reminds me that there is a lot of money to be made from alligator skins so not everyone is thinking of draining the swamp.

I do hope some heads roll but I bet they don’t.

Link to earlier article  Earlier article

  • WDC Population Figures Widely out of Whack

population

Most countries have difficulty accurately measuring population growth. This is because it is based on the Census figures that come out every 5 years. It is estimated that about 8.7% of the population don’t fill in the census so the figures given are already 8.7% behind the actual figure. The  Whangarei District Council use the census figures, as you would expect, and have reached the following conclusions about our population growth:-

The WDC predictions for the future are:-

Over the next 30 years, the population of the Whangarei District is expected to increase at an average annual growth rate of around 0.9%. The population of the Whangarei District is estimated to reach 110,000 people by 2043, an increase of around 26,000 people from 2013 or approximately 870 people per year.”

However, individuals in the WDC who are monitoring historical growth figures are already noting that the population is growing quicker than planned.

Mrs Seutter said the recent statistics, estimate Whangarei District’s population to be 87,700 residents, a 2.1% increase on the previous year, and reveal that just over half of this growth is in the urban area.” (WDC planning June 2016)

One has to question why the population is growing at 2.1% yet still be assessed at 0.9%

Based on the 2016 estimate the population of the Whangarei District at 2018, is currently sitting at 87,700 +870 +870 for 2017 & 2018 = 89,440 people.

We know from the census returns that this figure will be underestimated, but let’s look at what we can currently measure using other sources. There is a Government body that accurately records people registered with doctors and the medical system.  As their funding is based on the actual population seeking services this proves a very accurate way of tracking population growth,  because to have access to the medical subsidies available in our health system, you have to be registered. What these figures show is a very rapid  growth rate since 2013 but more significantly since 2016. Keep in mind the WDC population growth estimate is for 870 people per year.

 2016                         1835 new registrations                                                                               2017                          2094 new registrations                                                                             2018                            on track for  2432 new registrations

This is over double and closing on treble the WDC estimate, but in line with the WDC statement of 2016 showing a 2.1% actual growth.

This means that in a 3 year timeline from 2106 to 2018, while the WDC is planning for a population growth of 2610  people,  the population is actually on track to  more than double that growth rate at 6,361. The last 5 years of medical figures show that the population growth rate is accelerating, so the WDC is not only underestimating the real population growth but falling further behind each year.

  • What Impact on Housing Demand.

boomThe below snippet is taken from my July 2015 Blog post and explains how many houses we need per 1000 people.

Statistics NZ say the average number of people in each occupied Whangarei household is 2.5 people per household. WDC has a higher figure of 2.77 as they have factored in the empty holiday homes. 84,500 divided by 2.77 people is 30,505 dwellings required and 84,500 divided by 2.5 people per household is 33,800 dwelling required. Based on these two calculations, we are either currently keeping up with demand or we could be around 2,500 dwellings short. If we support the WDC figures (and I do) then we are currently sitting about right. However, if we see the kind of growth rate that is being suggested by the Hospital research, then we are facing a looming housing shortage starting about now. We need 361 new houses per 1000 new people and residential resource consents for new homes are running at about 350 per year (WDC resource consent monitoring 2014)” 

The current WDC new house building consents (these are issued house permits, so some may not have been built yet) 

2016     612 new houses                                                                                                              2017      611 new Houses                                                                                                                      2018 to date 253 New houses

Based on the WDC figures of 361 new houses for 1,000 people, we are not keeping up with our current demand by about 80-100 houses a year.  The consents from 2016 are nearly double the consents of earlier years so kudos to the building industry. The surge in new houses built means the looming crisis has been partially averted and we have a shortage of houses in the hundreds rather than in the  thousands as is the case in Auckland. However, we are seeing new builds failing to keep up with population demand and the gap will grow and therefore we will continued to see pressure on the available housing stock.

As mentioned in earlier articles this will first be seen in the very bottom of the rental market. The people with poor tenant history will be the first to find they can’t get a rental. We are well into that phase now. Our rental department says they get well over 1,000 inquiries per month. Of these 80% will not fit the good tenant requirements for our landlords. This indicates there are 800 people inquiries each month who are starting to find the supply of houses is drying up for them.

The problem most builders are facing is the lack of sections available for sale. We have fallen way behind the numbers needed which is not helped by the draconian processes and costs one must undertake to create a section.

Enter the super heroes of the urban environment …. The developers!!   I have said before  that these people are not the enemies of the state they are so often portrayed as. These are the heroes of the people, the knights in shining armour who bravely put on their plastic safety helmets  and armed only with wads of money and a shield of reports combined with  the patience of a snake charmer, take on the legions of bureaucratic dragons within the system. Fighting super  slow motion battles , these modern heroes battle  against overwhelming hurdles and weird senseless conditions, to eventually triumph through to win a few sections> The builders then  create your next castle and future  haven and the dragons get the last laugh by taxing you every year to live in it.   Bless the developers, your heroic work does not go unnoticed!

  • House Prices Keep Rising with a Surprising Jump.

House Prices

Corelogic have the average Whangarei House price in May at $524,268. This is a huge jump on the previous month which was at $512,326. The rate of growth suddenly accelerated from what has been a gradual decline. This could be a one-off anomaly, but it may be the early signs of some new pressures in our marketplace such as the aforementioned population growth. We will monitor this jump carefully as this May saw increases back to the market peaks  increases with property growing in value at around $3,000 per week.

In the office we are seeing  pressure on any property priced under $650,000 with multiple offers on many, which appears to be driven by the first home buyers back in the market. The market still has a strong upward drive, so while the rate of growth is slowing, we don’t see house price rises stopping anytime soon.

Our new year prediction of the average house price being in the $525,000-$550,000 by the end of the year looks like it may be conservative with us nibbling at the lower end of that figure 5 months into the year.

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Electric cars, Unions and Real Estate

Content;

Newsletter

  1. Electric Cars and batteries
  2. The impact on powering houses.
  3. The future rise of the Unions. CEO wages versus General wages. Lessons from the USA
  4. House prices now and tomorrow
  5. New Zealand Population Growth

 

Electric Cars are the Future Electric car

One of my sons works as an Operator at the Marsden Point refinery and he will considered this article blasphemy. Sorry lad, but I think the writing is on the wall.

I have recently read the Elon Musk book by Ashlee Vance. It’s a great read in itself but more importantly shows the age of electric cars is upon us now. All that’s holding it back is the amount of cars that can be produced.

In the news you often hear how his company “Tesla” is in trouble with slow production levels and two fatal car crashes. This is typical media hype.

The only trouble Tesla is in in, is that they haven’t streamlined their factory production levels to meet the 2500 cars per week targets. (they will then raise this to 5,000 cars per week and then 20,000). Around 450,000 of these cars are presold with deposits paid on them, so at 5,000 cars per week they have 7.5 years’ worth of orders already. Most of the cars are sold by word of mouth without any major advertising. This is not a company in trouble, far from it, it is a company that is leading the way in new electric car production. A lot of the old-style combustion motor car manufacturers are seeing the same writing on the wall. BMW and Toyota both have shareholdings in Teslas’ battery factories and these manufacturers are starting to get into electric car production in a big way.

Think of electric cars as more like computers with a few extra moving parts. The latest car upgrades get emailed to you and you simply download them into your vehicles computer to have all the improvements.  You don’t have most of the heavy stuff  that’s in a traditional  car such as a motor, differential, drive train, brakes, cooling fluid and radiator. You have more storage where the heavy stuff used to go.

Teslas’ winning advantage is that the cars are not hybrids with all the weight disadvantages of a traditional motor along with  the extra costs of an electric motor and batteries. They are dedicated electric cars and as such, building them will get cheaper, just like building your Television did. We are in a new era of transport. It’s no co-incidence Tesla is based in the Silicon Valley area with other electronic technological companies rather than in the traditional steel towns of old.

The secret to electric cars is batteries. Tesla has now branched out into massive battery production factories which they call Gigafactory’s. (Panasonic is their partner). These factories dwarf anything we know in New Zealand with one such factory in the process of expanding from 180,000 square meters to 1.2 million square meters. That’s about 120 hectares or over 120 rugby fields, and this is just one of the battery production centres.

The secret to batteries has been the development of Lithium-ion batteries. Any home handyman who changed from their nickel-cadmium electric drill to a Li-ion one knows the huge leap in performance this created. These batteries are restricted in size as if they get too big they can catch fire. Samsung knows all about that with their phone batteries catching fire. Tesla has pioneered building huge battery packs from these small 18.6 mm x 65 mm batteries. The individual batteries are the AA size you would put in your torch but by putting many hundreds of these small batteries together along  with a cooling system, Tesla have created big battery packs of around 540 kg. These packs are safe and can power a car for up to 550 kilometers on one charge.

But wait there’s more!!! The giga factories have just developed a slightly larger battery. Its 21 x 70 mm so that’s only slightly longer and fatter than its’ predecessor. Its about the size of a 12 Gauge shotgun shell. Although a commercial secret, Tesla says these batteries are 35% cheaper to produce and have about twice the power of the 186 x 65 batteries.

We all know that electronic technology goes ahead in leaps and bounds and that electronic products just keep getting cheaper. This will be the case with the electric car. Within 1-2 years there will be the next big break through in batteries that will see vehicles with 700- 1000 km ranges. There are strong rumours that the next battery technology has been found and uses a different and more common product than Lithium.

And the two fatalities! Both were people incorrectly using the self driving technology when they shouldn’t have.  Nothing to do with the cars safety but a lot to do with the self drive technology that still has some teething troubles.

Prediction. Electric vehicles will be the top selling car in NZ within 5 years and combustion vehicles will be all but obsolete with 15-20 years.

 

question mark So what will be the  impact on housing?

Travel will be cheaper and therefore people will be prepared to live further from their work. Combine this with the portability of work with the advances in internet and data speed.  Peace, privacy and quality of life will become more important than they are even today. Driver-less technology is a partial reality today and as this gets  developed to much higher safely standard the drive to work or school may become a time for a nap or to read your emails.

Good schools will still dominate the choices of young families, but the provinces and country districts will benefit from people moving out of the cities for lifestyle reasons.

The technology of these new batteries will transform power supply for domestic housing. At the moment solar powered homes are the rarity and only marginally economic, but with the new technology solar power capture will improve and the all-important storage of that power will be more efficient. It’s probably not worth rushing out and buying solar power now as the collection and systems will improve over the next 5 years and today’s systems will be obsolete and expensive by then. For example, Tesla’s Home Power-wall 1 storage battery held 6.4 KWh while the Tesla Power wall 2 which came out 18 months later has 13.5 KWh. Its still shy of the average NZ homes daily consumption of 46 Kw but with the speed of technology advances, standard new build homes will have the option of being entirely self-contained for power in 3-5 years. Its only going to take one more advance in battery power or one more advance in solar power recovery, for the dream of being self contained in power to be a common reality.

With technology improvements daily power consumption will go down. Take for example your hot water heating  which typically accounts for 40% of your power bill. The latest technology, (which is being used in NZ homes today)  uses the latent heat in the atmosphere to  help heat your water. Its the same technology as your heat pump. It sits outside the house and can link into your existing hot water cylinder so you can take it with you if you want. The manufacturers claim it can reduce your hot water bill by up to 70%.

The rise of the union movement. CEO salaries and the revolutionUnion

The New Zealand Union movement has had some of its saddest years. The once powerful unions lost touch with the people they represented and over a number of years paid the price for a high level of arrogance. New Zealanders turned off the union in droves and are still doing so in huge numbers as the Union movement continues to stick stubbornly to the old-fashioned ways. However, this will start to change, and a new breed of union is on its way. The wages to boss’s gap is getting bigger and it is only a matter of time before the actual producers start to say we want a bigger slice of the cake.

New Zealand is developing one of the highest average wage to CEO salary disparities in the world. Basically, the bosses who are paid to return more money to the shareholders, are squeezing the workers who produce the products by one of the higher ratios in the world. According to the Herald the average CEO of the larger organisations receives $1,732,000 remuneration per year. Statistics NZ has the average wage in NZ as just under $60,000. That means the CEO’s get 29 times the workers income.

The USA demonstrates the growing trend to reward sections of the community disproportionately with the CEO ratio moving from 33 times in 1978 to 276 times in 2015. The average worker pay over this period moved around 10% while the average CEO’s salary moved around 950%.

These types of increases are not sustainable and are a bit like a pyramid scheme. They will reach a level that the general population find intolerable. We note that the NZ Reserve Bank has alluded to this issue on several occasions mentioning surprise at the lack of wage rises and the contribution to continued low inflation.

Research by Jonathon Tepper in the article “Why American Workers Aren’t Getting a Raise” suggests some key reasons that all seem to have parallels in NZ.

  • The weakening power of the Unions. The ratio of union members in the USA has dropped from 20% to 11%. In the past the unions drove up workers wages while checking CEO wages. Weak Unions mean there is no check on either. The few unions that are still strong have better average wages for their members. (In NZ Take the operators at the Refinery for example.)
  • Company owners are taking a bigger slice of the pie. Corporate profits as a percentage of GDP are at record highs while wages are at a record low as a percentage of GDP.
  • Too many industries have become monopolies either in the country or the locality
  • There is not enough divergent competition for workers. The trend towards monopolies means the company does not have to compete for workers. (some examples given in the article are:- Two companies control 90% of the beer Americans drink, 75% of Americans only have one internet provider, 5 Banks control half of the nations Banking assets, 4 companies control all the US beef market, 4 Airlines control almost all air travel.
  • Over half of all public firms have disappeared in the last 20 years.
  • Average mark-ups have increased from 18% in the early 1980’s to 70% in 2014.
  • There is a growing disparity between wages in the big cities and wages in the provinces.

It hasn’t happened yet, but this growing inequality suggests that rather than a French style revolution where all the boss’s get guillotined , we will see a surge back to unions. The wage earners are not going to continue to see themselves on a diet while the big boss continues to get fatter and fatter consuming a bigger and bigger slice of the cake. Unions will have to shift their thinking from the old school testosterone fuel behemoths of the past to something modern and sophisticated, but it is inevitable that something is going to change. The corporations and CEO’s will only have themselves to blame as we enter a new age of strikes and industrial action. Days lost to industrial action always rises during a labour Government and we are seeing the early signs of this with a looming nurses’ strike just around the corner.

House prices now and tomorrow  

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The just released Core logic figures for Whangarei show our city and region still rocking ahead with an average $510,409 price for the city and still rising, although slowing a bit. The fundamental shortage of properties remains the main driving force and until this is met prices will continue to head up. Our own figures show that it’s the bottom half of the market that’s gaining impetus. In a recent sales meeting we saw that 94% of our sales were under $600,000. In the last newsletter I predicted that we would see a price growth phase in the early part of the year with a slower period in the winter and then rising again in the spring. More like the traditional markets of the past.

The current level of sales is backing this up with offers and multiple offers on most under $500,000 properties and busy open homes. The small drop in the deposit ratio to 35% has seen a flood of first home buyers come on the market and this is further driving the bottom end. Investors are back, and the current price rises have a lot of buying pressure behind them.

New Zealand Population Growth Still Rising

The latest net migration figures are out, and we have hit our highest net gain ever of 72,300. This is the figure left after all the people leaving the country is deducted from all the people coming into the country. Hopefully this isn’t the result of the Aussie’s populationcontinuing to be bad sports and sending back all those good Kiwis that they turned bad and they now consider too rough for their country. Seems hard to believe that someone’s bad character can be a reason to send them home to New Zealand when usually bad character is a pre-requisite for a leadership role in an Aussie sports team or politics. Think of how many future leaders they are deporting.

For us this migration trend continues to put underlying pressure on the housing supply. This upward correction cycle has lasted longer than most and seems to be drifting on, pushed from behind by the migration figures back into our country. Most of these people are not in a position to buy so we are seeing increased pressure on the limited rental stock, with our company reporting record levels of inquiry for houses.

This underlying population pressure will continue to push property and rental pricing in New Zealand. We are at a time when we should be moving into a slow market growth position as prices have caught up with where they should . But with the current population growth continuing upwards we have a conundrum with cooling price pressure meeting rising population pressure.

Next issue we will look at the local population growth versus the housing supply.

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barry.joblin@harcourts.co.nz