Will the sky fall again?

[Learning]

Sitting around the BBQ and discussing the real issues over a beer yesterday got me thinking. Are we still puffing up the over inflated bubble? I'm not talking official government facts and figures on inflation, market rates and income trends. I'm thinking more average Joe on the street stuff.

Around here, Wellington North, rents have recently gone through the roof at a ridiculous rate. A year ago a 3 bed for $400/wk would have 5 applicants. Now the same is $550/wk with 20 applications. Sounds great for LL's right but can it survive.

So many people through social media, word of mouth, etc, are asking for help to find a home because their LL's have suddenly up their rent or given 42 day notice because the LL is selling or "moving in". You use to see these posts around twice a year now they're on there every week.

I look at my tenants situation. My rents are currently around 15-20% below what others are asking. My tenants are a single male working full time, has his kids every other week and an older couple, she works full time and he's retired. Both are pretty much on the limit of their budgets. So if I wanted to raise my rent they would be hard pressed to keep up.

Day to day living, as it always does, has also been creeping up too. 3ltr milk is now $5! fruit and veg is an expensive luxury and petrol is more valuable than gold!

Incomes don't seem to have kept up with things. I go a 3% rise last year and by the stories from my friends I was lucky.

If what everyone says about interest rates is true well be looking at 7% in the next couple of years on our mortgages. LL's will pass that on to their tenants. How many more straws can we add to the camels back?

But I'm just an average Joe so what do I know.

[McDuck]

Sitting around the BBQ and discussing the real issues over a beer yesterday got me thinking. Are we still puffing up the over inflated bubble? I'm not talking official government facts and figures on inflation, market rates and income trends. I'm thinking more average Joe on the street stuff.

Around here, Wellington North, rents have recently gone through the roof at a ridiculous rate. A year ago a 3 bed for $400/wk would have 5 applicants. Now the same is $550/wk with 20 applications. Sounds great for LL's right but can it survive.

So many people through social media, word of mouth, etc, are asking for help to find a home because their LL's have suddenly up their rent or given 42 day notice because the LL is selling or "moving in". You use to see these posts around twice a year now they're on there every week.

I look at my tenants situation. My rents are currently around 15-20% below what others are asking. My tenants are a single male working full time, has his kids every other week and an older couple, she works full time and he's retired. Both are pretty much on the limit of their budgets. So if I wanted to raise my rent they would be hard pressed to keep up.

Day to day living, as it always does, has also been creeping up too. 3ltr milk is now $5! fruit and veg is an expensive luxury and petrol is more valuable than gold!

Incomes don't seem to have kept up with things. I go a 3% rise last year and by the stories from my friends I was lucky.

If what everyone says about interest rates is true well be looking at 7% in the next couple of years on our mortgages. LL's will pass that on to their tenants. How many more straws can we add to the camels back?

But I'm just an average Joe so what do I know.

Yes. That's about right.
You're really lucky to get that 3% income rise, since reported inflation is less than half a percent.
And employers use that as a guide.
The reported inflaton rate is tagged to an imaginary basket of goods and I dont think think it captures the inflation in housing etc.

It's my humble opinion that you can basically throw out the previous economic models now that a huge communist global engine like China has entered the game.
Also computers have enabled India, another huge engine, to export services via the Internet.

It's like a team trying to play football by the old rules, when a wild Elephant and a TRex are on the pitch and also after the ball

Population China. 1.3 billion.
Population India. 1.3 billion.
Population USA. 300 million.
Population Europe 700 million.
Population NZ 5 million circ.

[Anthonyacat]

Yes. The sky will fall again. Absolutely 100% certain of that. Some time in the next 30 years. Probably in the next 10. Maybe this year? Who knows.

But as for the immediate issues of higher rents - rents will only go up as long as people can afford to pay them. The fact that there are 20 people applying for a place at $550pw shows there is space to move upwards yet.

Once rents reach a certain level, they're genuinely unaffordable and can't increase further without increase in incomes. Then, if interest rates go up and rents can't to compensate some landlords will have to sell. If that happens en masse, there will be property price drops.

[Nick G]

Rents were flat in Wellington for a long time (which means you were getting less and less each year relative to inflation) and are having a big jump, they're following the value trend because there are 50% less rentals on the market than last year and 30% fewer than the year before. I leased one place in Brooklym (52 weeks) in mid Jan, if I'd waited two weeks longer the rent would have gone up 5-10%

Anyway, be wary of statements like "LL's will pass those costs on to tenants" - LL's rent their properties for what the market offers. If interest rates go up, more properties are on the market and more investors buy them, the economy weakens and there's more supply then I can't then increase my rents just because my own costs have gone up, I won't get a tenant. I have to eat it and meet the market. I've done it before and I'm sure at some point I'll do it again. In the meantime it's nice to have an increase in rents because when there is next a dip nobody is going to volunteer to pay extra to cover annual increases in rates, insurance and maintenance costs.

That doesn't make it any easier on folks who are struggling of course. Overall wages should start to trend up if unemployment stays low because of the same supply and demand dynamic.

[McDuck]

That doesn't make it any easier on folks who are struggling of course. Overall wages should start to trend up if unemployment stays low because of the same supply and demand dynamic.

That's old school closed loop thinking.
You need to adjust your model to an open loop model.
With India and China etc almost asigned to the value of infinity because our set is 5 million and their set is about 3 billion etc.

[Don't believe the Hype]

That's old school closed loop thinking.
You need to adjust your model to an open loop model.
With India and China etc almost asigned to the value of infinity because our set is 5 million and their set is about 3 billion etc.

this is true to the extent that these countries can produce things (or provide services) to be sent to NZ at a lower cost of labour creating a cap or even downward pressure on wages in industries that compete to make these things.

Is it also true for jobs that require being in NZ to complete the work? I.e it is hard for any one of the 2.3ish billion combined population of China/india fix my leaky tap at a lower labour cost than my local plumbing company who have to pay higher wages given full employment of qualified plumbers

[McDuck]

this is true to the extent that these countries can produce things (or provide services) to be sent to NZ at a lower cost of labour creating a cap or even downward pressure on wages in industries that compete to make these things.

Is it also true for jobs that require being in NZ to complete the work? I.e it is hard for any one of the 2.3ish billion combined population of China/india fix my leaky tap at a lower labour cost than my local plumbing company who have to pay higher wages given full employment of qualified plumbers

That's true for some jobs. For the moment at least.
But many, many fields are totally gutted wage wise by people not born in New Zealand.
Next time you see fiber phone systems being laid, go see who's doing it and ask what they get paid.
Next time you see a property being painted, etc etc..just spare 10 mins and go talk to them.
Unless you are blind, you will see the wage suppression mechanism in full play.

[ivanp]

Not just fibre. Electricians, gib fixing, gib stopping, paint...

[flyernzl]

it is hard for any one of the 2.3ish billion combined population of China/india fix my leaky tap at a lower labour cost than my local plumbing company who have to pay higher wages given full employment of qualified plumbers

Which is exactly why so many things that used to be repaired (toasters, kettles, TV sets, and yes even taps) that used to be repaired are now simply replaced.

I went through the AirNZ engineering workshops at Auckland Airport last year.
Last time I did that, the place was full of guys in overalls working at lathes, milling machines and engineering jigs.
Now, the place is pretty empty apart from a few unbolting stuff from the airframes and another fellow with a forklift putting the bits on to pallets to be sent overseas while the first lot are fitting the replacement modules.

[Nick G]

Yes but we don't object to the low cost of travel

[Bluecoat]

That's true for some jobs. For the moment at least.
But many, many fields are totally gutted wage wise by people not born in New Zealand.
Next time you see fiber phone systems being laid, go see who's doing it and ask what they get paid.
Next time you see a property being painted, etc etc..just spare 10 mins and go talk to them.
Unless you are blind, you will see the wage suppression mechanism in full play.

More and more jobs (60% I read somewhere) will go this way until fully fledged Artificial intelligence and robots take over.


Social revolution until then ?

[Learning]

Supermarkets; thirty years ago there'd be 12 open checkouts each with an operator and a bagger. 24 staff plus a couple supervisors. Then barcodes took off, speeding up the process so not as many open checkouts needed. 15 odd years ago they done away with the baggers. Now there's two open checkouts, one express lane, six DIY checkouts with one person watching over the lot plus a supervisor. 6 people employed where there use to be 26.

[sidinz]

15 odd years ago they done away with the baggers.

Longer than that. I started work in a supermarket in 1990 and there were no baggers. We checkout chicks bagged and scanned (unless it was quiet and some of the back checkout people came forward and bagged for us.)

[McDuck]

Yes but we don't object to the low cost of travel

A wise king would not trade basics for luxury to this extent.
A totally different balance is required.

But, yes I did object when all this started many years ago.
I knew when I saw the first warehouse open, aND the plastic window blinds were twenty dollars .
I connected the dots and saw all the out of work or low paid people it would result in.

[Don't believe the Hype]

A wise king would not trade basics for luxury to this extent.
A totally different balance is required.

But, yes I did object when all this started many years ago.
I knew when I saw the first warehouse open, aND the plastic window blinds were twenty dollars .
I connected the dots and saw all the out of work or low paid people it would result in.

problem is you're not dealing with a wise king. You're dealing with the general public who's primary focus is looking after no. 1. Given the choice people will generally take the cheaper option based on this basic insight to achieve this retailers have driven costs out of the system - the biggest cost in most items is labour. Starting with jobs that are repetitious as they're easy to automate - checkouts being one example given above.

Automation of work drives wealth concentration, yet those who are most affected, the low skilled labour choose the low price (labour removed) option when they go shopping creating a vicious circle.

Unskilled labour finds it had to compete when production can be moved to the lowest cost location, China a decade or two ago, more recently Cambodia and Bangladesh or via automation.

Countries can of course drive protectionistic measures and impose a tax on imports effective increasing the cost of production in the low cost market driving cost up for goods - driving inflation and making things less affordable. Effectively lowering the standard of living for all - impacting low skilled workers the most.