Price and immigration, is the model a bit off?

[Chris W]

I'm thinking that when those early Economists (like Adam Smith) started talking about the Supply and Demand aspects of goods, they didn't account for speculation.

And with the greater mobility of people (jet aircraft and cars), and the grater mobility of money (Banking and electronic accounting), it's possible for things to get out of sync really quickly.

If you recall, 12 months ago , there was a very different market environment in the Auckland property market. There were stories of property auctions in Auckland having numerous bidders and there was frenzied bidding by potential buyers. There was a fear of missing out by owner occupier buyers as they believed that property prices would continue to achieve double digit gains and that many home buyers were afraid that they couldn't upgrade to the larger house, or house located in a higher socio-economic suburb. I recall a real estate agent offering vendors to go into a draw where the prize was a trip to Las Vegas for new properties being listed with them - that's how short the number of property listings were at the time in that suburb. That environment was what is commonly referred to as a "sellers" market as vendors had numerous bidders for their property and there was lots of buying competition. Some purchasers in Auckland within the last 12 months (or even longer) may ultimately come to experience what is known as the winners curse.

As you can see, we have gone from a "sellers" market to a "buyers" market within 12 months. Market demand by house buyers and market supply of houses for sale can be quite dynamic (however less dynamic than the stock market)

[McDuck]

Does population growth result in higher house buying demand?

.

That's a good question.
So say we got sixty thousand new immigrants this year.
Add to that people starting a family locally.

Where do they all live?

How many new houses are built each year?

[Chris W]

That's a good question.
So say we got sixty thousand new immigrants this year.
Add to that people starting a family locally.

Where do they all live?

How many new houses are built each year?

Here is the breakdown of net migration.

http://www.stats.govt.nz/browse_for_stats/population/Migration/IntTravelAndMigration_HOTPJun17.aspx

I have no idea which city or locality they choose to live in - some may choose to live in Auckland, others not.

About 18,000 are students from foreign countries - not sure where they study. Not sure how many have a 20% deposit to buy, or income to meet the bank lending criteria for a mortgage, so let's assume that they are house renters, not house buyers. These people are not adding to house buying demand, they are adding to house rental demand. So over 25% of net migrants are clearly not house buyers.

I know of several households which take on high school aged foreign students as boarders in their home. These boarders may not be adding to house rental demand as they don't need a whole apartment (and not in competing with renters looking for a whole house) - they're making do with just a room inside an existing household. These families who take on these boarders would not rent out the room to non high school boarders (say a 23 year old who wants to go flatting).

Also not sure if the UK migrants for 'work' purposes include backpacker travellers coming to NZ for a working holiday. Many work as fruit pickers, work in tourism, hospitality and retail industry perhaps. Note also, these backpacker travellers are not adding to house buying demand. Working holiday visas eligbility for passport holders of different countries - https://www.immigration.govt.nz/new-...g-holiday-visa

Even if you've got 60,000 immigrants, remember that some of these may be a whole family of say 2 adults and 2 children - so you only need one house, not 60,000 separate residential dwellings.

So let's say 60,000 net migrants less 18,000 foreign students leaves 42,000. If we assume 3 people per household for new migrants, that's about 14,000 new households potentially across the country, that need somewhere to live (either rent or buy). Just looking at the statistics - about 9,000 were coming under the residence visa (not sure why Australia detail is not shown). Some of these immigrants may already have existing relatives in the country and they may choose to live with them.

Some other comments and observations of people I know in Auckland and how they live, as well as some immigration stories.

A relative who is a developer in Auckland - he is building larger houses with more rooms. He says that sometimes several families may live in the same house - for example 3 adult siblings with their spouses, children, and parents.

Another relative in Auckland who cannot afford to buy. They rent a small closed off area in the groundfloor level from a bigger two story house where the family lives upstairs. In fact they have 2 of these units on the ground floor in addition to the family home.

Another friend of mine lives in the garage conversion with her partner, whilst her children and their families live in the main house. This is quite common in South Auckland now. A decade or two ago, this was unheard of. I believe she rents.

I have an elderly set of relatives - they just sold their house in Auckland, and moved into a newly constructed stand alone self contained unit in a retirement village in Auckland - not sure if houses in retirement villages are counted as new dwellings. The house they sold is a dwelling for a new family (or families).

Another friend's parents sold their house and moved into a retirement village in Auckland - the house they sold is a dwelling for another family to live in.

Another friend who was an expat New Zealander who returned to Auckland and lives on a farm - she lives on the same property with her husband and children, her sister with her children and husband and her parents.

Another friend who was an expat New Zealander who returned to Auckland. They couldn't afford to buy so they rented for a period of time until they got a sufficient amount for the deposit to buy.

The mother of a friend sold her place in Auckland and moved to Tauranga - that's an extra dwelling for a new family in Auckland.

A friend was an NZ expat in Sydney. They moved back to NZ to live in Cambridge.

A friend's elderly father lived alone in a 3 bedroom family home in Auckland where my friend grew up. He died and they sold the house in an estate sale. That is another house for a family. One of the siblings who wasa beneficiary of the estate moved out of their rented property in East Auckland and bought down in Pukekohe - so the unit in East Auckland is now available for another family.

A property owner in Auckland used to rent his one bedroom unit in Auckland to a single person about a decade or more ago. More recently, it has only been rented out by couples - higher household size.

Another property owner added another bedroom and now there are about 4 single men who live in the two bedroom unit - higher household size.

There are people who work in Auckland but commute daily from Hamilton, Pokeno, etc. I'm sure you know some people like this.

No idea about new household formation from the existing population

No idea about the number of new residential dwellings built each year.

[Nick G]

Retirement villages aren't counted as far as I know

[Chris W]

Also not sure if the UK migrants for 'work' purposes include backpacker travellers coming to NZ for a working holiday. Many work as fruit pickers, work in tourism, hospitality and retail industry perhaps. Note also, these backpacker travellers are not adding to house buying demand. Working holiday visas eligbility for passport holders of different countries - https://www.immigration.govt.nz/new-...g-holiday-visa

FYI, found a link which provides New Zealand working holiday visa statistics.

In the 2015/2016 year - approximately 69,051 working holiday visas were issued (refer figure 2).

Take a look at figure 3 - it shows
- 14,978 working holiday visas issued for German passport holders
- 13,161 working holiday visas issued for UK passport holders
- 9,543 working holiday visas issued for French passport holders
- 4,160 working holiday visas issued for US passport holders
- 15,782 working holiday visas for "other" passport holders

Given that these are details of the working holiday visas issued, some may not land in NZ, however the ratio of those landing in NZ could be quite high.

Now if all these are included in the net migrant statistics - how many of these 'working holiday' migrants are realistically able to buy real estate in New Zealand? I've met a few working in NZ, and it seems highly unlikely and if any, the ratio would be very very small - firstly, they're here for a travel experience, and not buy a property, secondly, they haven't got the 20% deposit necessary, and thirdly their temporary income would be unlikely to meet bank lending criteria to qualify for a mortgage.

In arriving at the net migration for those on working holiday visas, remember to net off arrivals against departures of those whose working holiday visa expire or choose to just end their trip to NZ.

https://tia.org.nz/assets/Uploads/Making-Sense-of-the-Numbers-Unravelling-Working-Holiday-Visas-April-2017.pdf

[McDuck]

Even if you've got 60,000 immigrants,... not 60,000 separate residential dwellings.... some immigration stories.

.. several families may live in the same house.
... rent a small closed off area..
... lives in the garage ..

.. retirement village
.. on a farm ..
...rented for a period of time.
.. moved to Tauranga...

.. He died

.

Thank you Chris for that thorough consideration of the question.
I've distilled your answer down to it's raw elements, using dots to indicate missing detail.

It's a good start.
What about new births to balance out your "died" idea?
There's further reduction to be made for clarity.
Several examples could be condensed into " moved".

I see this question as basically a logistics one.
No different to storing boxes on shelves.
You have more boxes, you either need to make more space, or get rid of some boxes.
You could squash them, but that destroys them. (same could be said for quality of life and health of overcrowded people containers. (houses), Ha.)

There are some pretty simple laws of reality that bankers and politicians need to reflect on.
All matter is conserved, although it may change form.
All energy is conserved, although it may change form.
Every system in the real world follows these two rules, and if your idea disrespects these two...it's definitely wrong.
* Landauer limit

My limited observation of Immigration is the Indian family living next to my aunt.
Five families were living in a three bedroom ex state house.
Now several years later, they each have a house and a few children.
The condensation of people into a smaller space was but a temporary fix, causing greater consumption within five years.
the effect on the health, schooling and road systems (etc,etc) relative to the benefit to New Zealand, is in the negative, I would say.

[Nick G]

Except for the increase in tax take from rates, GST, income tax, businesses they work in and possible people they employ.

[McDuck]

Except for the increase in tax take from rates, GST, income tax, businesses they work in and possible people they employ.

Ha. true.
But I'm not going to say that "more money floating around the money system of New Zealand is a good thing at any social cost".
(Otherwise I would be promoting things like the Meth trade for example).

I do know that this particular case study do not employ any other locals in their business. At the moment every cent is turned inward to securing their position.(some is going offshore to supporting family and to the Chinese landlords of the shop block...). no actual productive work is done. the tax take would be very low.
The main point here is how no house sharing has been achieved in the mid term (5 years).

[Chris W]

Also note that buyer confidence also plays a factor, even if they have the deposit down payment and can meet the bank loan criteria. If potential buyers lack confidence then they may choose not to buy, and to take a wait and see approach - some reasons for reduced confidence are uncertainty with elections, uncertainty about property prices (think GFC 2008 ), expectations that future property prices will fall (so they wait until prices are lower before buying), and uncertainty about future job security.

The other key variable that goes into house buying demand and impacts house prices are property traders, long term investors and speculators - recall that investors and non owner occupier buyers were 40-50% of buyers in property transactions in Auckland in 2016 - that has to have had a significant influence on property transaction volumes and house prices.

How falling prices impact house buying demand in the market. This shows you the dynamic nature of house buying demand and how it can change despite population growth and high net migration. Comment from readers on an article on interest.co.nz

1) Why tie up equity now? Better to wait. Many investors like me have equity but we'd rather sit on it when the market isn't creating more in a hurry.

2) The property market here is clearly falling and there's no point in putting yourself at risk of negative equity that could mean that you would loose your home if the banks aren't able to lend to you if prices dropped significantly over the next year which is looking highly likely.

[Bobsyouruncle]

In talking to builders I think a huge variable that has hammered profitability is the global economy. So many materials are cheaper now even though they may be rubbish, and the pricing is so transparent that all that margin that used to be there is gone. I have met with several builder friends this year, not one of them is smiling. They just can't compete price wise with Ravi Construction and Hunglow builders so they either work on an unsustainable margin or miss out on every job.

[Chris W]

FYI, immigration slowing ...


Statistics NZ figures show the lowest net migration gain for a September month since 2014

The tide is slowing turning on migration, with a net gain of 6818 people in September, down from 7904 in September last year and 7069 in September 2015.
However on an annual basis population growth from migration is still running at record highs, with a net gain of 70,986 in the 12 months to September compared to 69,954 in the previous 12 months.
The decline in the gain apparent in September was caused by fewer people arriving on a permanent or long term basis, (11,121 in September this year compared to 11,676 in September last year), and an increase in the numbers leaving New Zealand permanently or long-term (4303 in September this year compared to 3772 in September last year).
The biggest decline in new arrivals has been from India, with 499 arriving long-term from that country in September, compared to 554 in September last year, and 1269 in September 2015.
There were also declines in arrivals from Australia, China, Hong Kong, South Korea and the UK compared to a year ago, while arrivals from the Philippines and South Africa were up.
The outflow of New Zealand citizens is also continuing, with 1637 more New Zealand citizens leaving the country long-term than arrived back in the 12 months to September.

https://www.interest.co.nz/property/90443/statistics-nz-figures-show-lowest-net-migration-gain-september-month-2014

[eri]

if labour strangles the nz worker

they'll be back over to oz

where the economy is about to get back into high gear

[Nick G]

But... but... we're going to build them 100,000 houses!

[Davo36]

But... but... we're going to build them 100,000 houses!

I think we should build a wall! The greatest wall ever, bar none! Between NZ and Australia. And we'll make the Aussies pay for it.

Why? Because they invade our country with their marsupials (possums) and the crocodiles swim over - and they're killers! And you can take my word for it, they're just the beginning, soon they'll be sending us those wombats! They tunnel under everywhere so that when they send over the rest of their critters, they can all hide underneath us and spring up all at once injecting their poisonous fangs - I've seen it!

And it will provide millions of jobs! For underemployed kiwis!

Make NZ great again!

[Wayne]

if labour strangles the nz worker

they'll be back over to oz

where the economy is about to get back into high gear

Once the Aussie economy gears up again, and Kiwis start to go back to Australia (as they have done for a long, long time) it will be Labours fault - no matter what they do.