Report on House Prices - March 2008 - DPMC

[artemis]

DPMC being Department of Prime Minister and Cabinet. Includes an interesting analysis of the impact of the tax system on the housing sector, including the suggestion that increasing the top marginal rate to 39% "may have encouraged some additional investment in rental housing".

Sounds like Labour's decsion to increase the tax on "rich pricks" has contributed to the increase in housing costs. Who'd have thunk it! (I know it partly influences my investment decisions.)

The report is here:

http://www.dpmc.govt.nz/dpmc/publications/hpr-report/hpr-6.html

[cube]

Interesting - this graph



illustrates nicely the effect of inflation in the 70s - there was a post recently with a graph from Barfoots showing the interminable rise of property prices.

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and a great quote for those who believe the the Property Investor enjoys tax advantages

the tax system tends to favour more investment in owner-occupied housing and less in other types of assets.

[McDuck]

Interesting - this graph



illustrates nicely the effect of inflation in the 70s - there was a post recently with a graph from Barfoots showing the interminable rise of property prices.

What?

this graph seems to say that the more people move around the more house prices go up, or visa versa..or there is another or several factors steering both.

all you can really say from that graph is that one reflects the other fairly well.

What has that to do with inflation?

[brettc]

McDuck, the point is the graph shows house prices with the effects of inflation removed. IE the "real" price movement. This is a markedly different picture from the graphs of property with inflation included, which are oft used to support the claim that "property never loses value"

The graph is highlighting the high correlation between immigration (or lack of) and house prices.

[cube]

Sorry, I didn't clarify what I was thinking.

Because the chart shows the movement in Real House Prices, we can see that, for an extended period in the 70s and 80s, prices were dropping by 20-30$ per year, as a result of high inflation and slow/stagnant nominal prices, so Barfoot's chart, which showed nominal price increases, looked better than this view.

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The graph is highlighting the high correlation between immigration (or lack of) and house prices.

.. and house price inflation, to be strictly accurate!

[Gerrard]

That makes for some pretty sobering reading. If that big down period lasted from roughly Mar-76 to Mar-82 then prices fell year on year approximately 25% per year for 6 years! So a house that started out at $100k would be worth approx $23k by the end of that time. Is this what really happened, or was this a period of massive inflation that disguised reality?

Also, does anyone have info about the great depression and how that compares to the graph above?

Gerrard

[Gatekeeper]

I bought my first IP (2 flats in Petone) in 81 (aged 19). My next one was in 87, another in 91, last two for this cycle in 98 and 00.
A lot of people say you can't time the market, but if you only buy at the end of the dips, the rest takes care of itself.

It's a good plan for a conservative PI investor like me, but you need to have patience and research. All this gungho(?) chicken dance stuff going on for the past 5 years is the antithesis of how I like to invest.

This cycle has been the most exuberant I have seen, the loose credit has been pretty amazing to see, and I expect a contrasting long-winded correction with a sharp reversal in credit availability.

[tricky]

Because the chart shows the movement in Real House Prices, we can see that, for an extended period in the 70s and 80s, prices were dropping by 20-30$ per year,

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Ummmm.
You're reading the wrong scale.
Try looking at the right hand side.
House prices dropped by 10% for a few years.
After scooting up by almost 30% previously.

Notice that the area above zero is larger than the area under zero.
This indicates the infamous 7% average capital gain is present.

[KevinR]

...including the suggestion that increasing the top marginal rate to 39% "may have encouraged some additional investment in rental housing"...

For the life of me, I can't see how anyone can construct a negative gearing scenario to reduce tax at this top rate. I've tried, but strangely enough whatever I do on the clever RevIQ software to try and get most properties negative to reduce my own 39%, the annual realterm outgoings always equal the tax refund, or graze it by a $k or so. My what-ifs includes such things as buying at up to a 30% discount on FMV, 20% deposit, renovating, taking all the deductibles that the law allows. And STILL the figures balance nicely to keep me in the poorhouse.

All I can assume from this is that I'm doomed to sit in a financial holding pattern until the Capital Gains bus comes round sometime in the distant future. And if Graeme Fowler's predicted 50 years of nil growth occurs then I'm no better off. In fact I'm worse off because I have squeezed my tenants to extract max rent from their shrinking purses and in so doing have joined the merciless landlords - like the Lease Options throng who prey on their fiscally innocent victims.

Someone enlighten me - how do I become rich quickly in property? Or has the boat left already!

[Gatekeeper]

Ummmm.
You're reading the wrong scale.
Try looking at the right hand side.
House prices dropped by 10% for a few years.
After scooting up by almost 30% previously.

Notice that the area above zero is larger than the area under zero.
This indicates the infamous 7% average capital gain is present.

Wrong, the 7-8% rise is using nominal prices. In real terms property has had around a 1-2% pa rise from the early 70's to now.

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You're reading the wrong scale.

Thanks for the correction

how do I become rich quickly in property

In general terms, you don't, and you definitely don't by relying on tax breaks.

A tax refund is only a way of saying 'spend $1 to get $0.39 back" - its just that some of the $1s are depreciation, so you don't have to actually spend them (until it comes time to paint, carpet, rewire, replace the roof ........)

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[McDuck]

McDuck, the point is the graph shows house prices with the effects of inflation removed. IE the "real" price movement. This is a markedly different picture from the graphs of property with inflation included, which are oft used to support the claim that "property never loses value"

The graph is highlighting the high correlation between immigration (or lack of) and house prices.

Sounds good to me.

Do we need th blue migration data to be on there at all?
That confused me.

Good work.

Duck out.

[SuperDad]

Sounds good to me.

Do we need th blue migration data to be on there at all?
That confused me.

Good work.

Duck out.

Of course the immigration data needs to be there - the graph is showing the correlation between immigration and real house values.

Paul.