Half of all Kiwis may never buy own home

[muppet]

Half of all Kiwis may never buy own home
01 August 2006
By ANNA CHALMERS

The Kiwi dream of owning your own home may prove to be just that for more than half of all New Zealanders, new predictions warn.

More than three times as many people are forecast to enter the Wellington rental market – compared to buying their own home – in the next five years, a Centre for Housing Research report says.

Figures made public yesterday show home ownership nationwide fell by 12 per cent in the year to March, continuing a trend that saw home ownership fall from 74 per cent in 1999 to 68 per cent in 2001.

Massey University real estate figures also show that during the past 18 months it has become cheaper to rent than own.

Shareholders Association chairman Bruce Sheppard said home ownership could drop below 50 per cent in the next decade, meaning society would become more fractured, as property ownership anchored families.

Home ownership rates remained "firmly entrenched" in the 40-plus age group, but there was a considerable drop in younger demographics, said research group DTZ manager Ian Mitchell.

"Particularly (age( 30 and less. That's where we're seeing the greatest change."

The Centre for Housing Research's housing tenure aspirations and attainment report predicts the number of New Zealanders under 40 years owning property will fall from 230,750 this year to 203,260 in the next five years, and 191,520 by 2016.

Meanwhile, ownership rates for people aged between 40 and 64 will increase from 536,850 this year to 562,010 in 2016. The biggest increase will be for those over 65 years, from 253,510 properties this year to 326,540 in 2016.

David Skilling, chief executive of the business think-tank group the New Zealand Institute, said the changes had major implications.

New Zealand had enjoyed one of the world's highest home ownership rates, but now young people would find it harder to get ahead. "They will have to accumulate assets in another form."

Retirement savings would become more problematic if Kiwis did not swap property for other investments, he said.

There were also widespread social costs, with communities predicted to become more transient.

http://www.stuff.co.nz/stuff/0,2106,3750007a13,00.html

More than three times as many people are forecast to enter the Wellington rental market – compared to buying their own home – in the next five years, a Centre for Housing Research report says.

Great stuff for Wellington landlords.

[SuperDad]

Jeez,

The property "have nots" have it really hard, don't they? I'm being serious here. I was following this story yesterday, and it was pointed out that there are two barriers to those considering entering the property market now, both of which have been caused by the increase in property values over the last 2-3 years.

The first barrier is simply saving for a deposit. My thought on this "barrier" is that deposits these days can be smaller than they used to be. When my wife and I bought our first house 7 years ago, banks would lend to 90%. Now 95% is common. This negates the effect of the so-called "barrier" posed by saving for a deposit.

The second (and as I see it, genuine) barrier is the cost of servicing the large loans required for houses today. Coupled with the increased cost of living, this presents a real barrier to first-home ownership.

Compare this with how easy things are for the property "haves". Those with a property will usually have spare equity in it, and can leverage against this for a deposit on another property. No need to save a deposit - just wait for the market to create the equity for you. Or else, create the equity by spending $1 on renovations and getting $3 back. And as for servicing the loan on the second property - easy. The interest is deductible, as are other costs (including depreciation), and the tenant contributes to the servicing of the loan by paying rent. Once you're in, you're away.

So, unless (a) house prices drop, (b) interest rates drop radically, or (c) wages increase dramatically, I can only see the gap between the property "haves" and the "have nots" widening in coming years.

What are others' thoughts on this issue?

Paul.

[Perry]

Capital Gains Tax [CGM]

This whole trend is a concern. It also seems quite politically
fraught. And for the rest of us, too.

Greens/Bradford is calling for a capital gains tax, asserting
that NZ is becoming the holiday home of the world's
billionaires. Why not go back to the old rules when only NZ
citizens could own NZ property and all NZ business
ventures had to be 50.1% NZ owned?

Although both Labour & National say they don't want a CGT,
it always seems easier for governments to ignore the
consequences of their own decisions, then tax the resulting
symptoms, rather than fix the cause.

I also wonder just how real capital gains actually are? Both
Napier & Auckland Airports seek to crank up their
monopolist landing fees, based on revaluations. They say
that this is to give a reasonable return on value. Huh?

That's just a paper figure. What's wrong with ROI, the
original costs plus capital improvements, in a case where
there is no competition and no likelihood of any sale of the
actual property??

I've often wondered if a CGT is an admission by a gov't
that their management of the economy is appallingly
bad, or even worse? Or maybe it's just opportunist
piracy?

[SuperDad]

Perry,

I can't see any govt. implementing a CGT, unless they are hell bent on committing political suicide. Don't forget that home ownership is still the number one way in which Kiwis "save" for retirement. Any govt. that tried to get their hands on this money would be out.

Also, the Treasury and reserve bank have recently looked at ways of curbing house price inflation. One of the restrictions on their investigation was that they were not allowed to consider a CGT. That tells me that the govt. is not considering a CGT.

Paul.

[Perry]

I can't see any govt. implementing a CGT, unless they are
hell bent on committing political suicide. Don't forget
that home ownership is still the number one way in
which Kiwis "save" for retirement. Any govt. that tried
to get their hands on this money would be out.

Isn't that something of a fallacy? Look at the folk in Auckland,
sitting in million-dollar houses and facing huge problems paying
the rates? Do they have to re-locate, in order to survive?

Also, the Treasury and reserve bank have recently looked
at ways of curbing house price inflation. One of the
restrictions on their investigation was that they were
not allowed to consider a CGT. That tells me that the
govt. is not considering a CGT.

Ahh, the "terms of reference" syndrome. Because there's
a CGT in Oz, Canada and lots of other OECD countries,
I don't see it as an impossibility. Many governments have
lied, in the past.

Of course, it's also them there statistics that are at fault.
Maybe. Depends which story one listens to.

Widow's fury at $111-a-week rate burden

http://www.nzherald.co.nz/search/story.cfm?storyid=0002F397-A5E7-14CC-947483027AF1010F

Monday July 31, 2006 by Claire Trevett

Catherine Curlett's rates have risen by 56 per cent over the
past year and she has just figured out that each week she is
handing over $111 in various council charges.

The 79-year-old paid $2929.47 in rates last year, but this
year faces a bill of $4567.44.

44pc rates rise will force me out, says Auckland man

http://www.nzherald.co.nz/section/story.cfm?c_id=1&objectid=10393938

Tuesday August 1, 2006 by Errol Kiong

Auckland City ratepayer John Evans reckons he's a
reasonable sort, but a $2000 increase in his annual rates has
left him fuming.

The rental property manager paid $4696.09 in city council
rates last year, but this year faces a bill of $6743.43 - a 44
per cent increase.

Bankers dispute home ownership figures

http://www.nzherald.co.nz/section/8/story.cfm?c_id=3&ObjectID=10393921

Tuesday August 1, 2006 by Anne Gibson

Economists are questioning data showing rapidly falling
levels of home ownership, saying the trend might be
accelerating but the latest figures were far too extreme.

[SuperDad]

Isn't that something of a fallacy? Look at the folk in Auckland,
sitting in million-dollar houses and facing huge problems paying
the rates? Do they have to re-locate, in order to survive?

Firstly, yes, they should relocate if they really can't afford the rates. But we're only talking an increase of $1500-$2000. Most people can find that somewhere in their budget. If they can't, then they will need to relocate.

Secondly, I don't think that my reasoning is fallacious. While it does not follow deductively from my reasoning that the govt. (present or future) won't implement a CGT, I think that it is the most reasonable conclusion to draw. Of course, governments have lied in the past. But it doesn't follow that they are lying about not considering a CGT.

This is just how things strike me - I really have very little idea what I'm talking about when it comes to issues like this. But why let that get in the way of a good discussion?

Paul.

[lissie]

Firstly, yes, they should relocate if they really can't afford the rates. But we're only talking an increase of $1500-$2000. Most people can find that somewhere in their budget. If they can't, then they will need to relocate.

Paul.

Dont councils allow capitalisation of rates until death of the occupier for older people ? The basic problem seems to be an income poor asset rich older peson - reverse annutiy ? LOC maybe guarantteed by a child who is going to get the benefit of the house in the long run ? Seems to be quite a few options really

[SuperDad]

I agree Lissie.

[Perry]

But why let that get in the way of a good discussion?

Spoken like a true agent provocateur.
(euphemism for "bloody stirrer")

Isn't that something of a fallacy? Look at the folk in
Auckland, sitting in million-dollar houses and facing
huge problems paying the rates? Do they have to re-
locate, in order to survive?

Firstly, yes, they should relocate if they really can't
afford the rates. . . . .

My point is that a house, a residential dwelling in which
the owner is the occupier, is not a retirement savings
scheme. I.e. it provides no income; only a capital item
inflation hedge, if the occupant is fortunate to be in the
'right' area. The rates hikes described (and the resident's
response) are my adduced evidence in support of my
assertion.

Secondly, I don't think that my reasoning is fallacious.
While it does not follow deductively from my reasoning
that the govt. (present or future) won't implement a CGT,
I think that it is the most reasonable conclusion to draw.

For the present, I agree with your point about CGT. My
comment about falseness related not to your reasoning
about governments, but to the notion that an owner-
occupier residence was a retirement scheme. It only
seems to be that way if someone moves from an area like
Auckland to Riverton, Otira or Twizel or the like. Cut off
from friends, possibly family and all that's familiar and
comforting. My retirement scheme, (and, I suggest, yours
too), is one that gives me some choices other than selling
up, moving, down-sizing, etc., in whatever mix that
circumstances and rate demands oblige.)

“Capitalisation of rates” is a euphemism for eroding the
owner-occupier residence retirement savings scheme,
combined with theft of inheritance.

Of course, governments have lied in the past. But it
doesn't follow that they are lying about not considering
a CGT.

Again, for the present, I agree, subject to the following
caveat: politicians rate at the bottom of the heap as far as
perceived trustworthiness goes. Numerous surveys over
many years confirm this. They call them "porkies" or
"converting the truth to their own use." We know
different. They lie. Governments are made up of
politicians. Governments have lied to their citizens in the
past, in varying degrees. Inductive logic tells me they'll
lie again, often, just as sure as the sun will rise tomorrow . . .

This is just how things strike me - I really have very little
idea what I'm talking about when it comes to issues like
this.

Well things "strike me," too, Paul, but I don't think our
perceptions are mutually exclusive or that one view is of
any lesser or greater value than the other. :

I trust governments and politicians as far as I can throw
the beehive! And that’s not very far, presuming that I can
pick it up!

[NESW]

I have another point of view...
Some 10 years ago, I opened my home to a Kiwi family who had fallen on hard times. Mum and Dad were having relationship difficulties, the kids were just coping. Although "kiwi" Mum was raised in Australia and wanted to return to be closer to her Mum. Fair enough.
I didn't know these people terribly well, but as they had been long term friends of my partner, I was willing to offer whatever I could to help them get back on their feet.
One morning, she said to me, you know what S.... I would never have a house here if you gave it to me, too far to "......." its on a main road, and it only has one toilet.
These people were not paying me board/lodgings, were only meant to be there for a limited time which outsaw my welcome mat, and failed to contribute anything towards the grocery and utility bills, whilst still bringing home a 6 pack every night after the pub.

I eventually discovered they were stockpiling food items under their bed for when they "had" to move out...

My little home was lovely, clean, newly painted and carpeted. My neighbours were fantastic, approachable, helpful, I didn't have a flat section, I didn't have town sewer or water, and I didn't have a lock up garage or ensuite, I bought plants for my garden when i could afford to. My repayments were ahead in a case of a rainy day. And I could afford it....

Bring forward the calendar and I have upgraded from that home a few times, and branched out in investment properties.
I now have all of those things that my first little home lacked, but they are mine and have been paid for in time, not a landlord's as is the case of the family who stayed with me those years ago.
They are still renting, yet both are on reasonable money, with one of their children now at work too.

To sum it up, people are looking beyond their means for home ownership. There are lovely properties out there that might be basic and not the best of the best of areas, but they would do for a first home and investment.

[artemis]

I wonder if the home ownership figures are skewed by property investors renting out properties to their family members, instead of the family buying their own place. This is so in several cases in my extended family. Makes sense tax-wise.

[Perry]

There's also the increasingly common dimension of Ma &
Pa using the Family Trust to buy a place which the
newly-wed son/daughter "rents;" said offspring being
a beneficiary of the Trust.

[mals69]

Raise wages Helen and they may have a chance.

[Monid]

Jeez,

The property "have nots" have it really hard, don't they? I'm being serious here. I was following this story yesterday, and it was pointed out that there are two barriers to those considering entering the property market now, both of which have been caused by the increase in property values over the last 2-3 years.

The first barrier is simply saving for a deposit. My thought on this "barrier" is that deposits these days can be smaller than they used to be. When my wife and I bought our first house 7 years ago, banks would lend to 90%. Now 95% is common. This negates the effect of the so-called "barrier" posed by saving for a deposit.

The second (and as I see it, genuine) barrier is the cost of servicing the large loans required for houses today. Coupled with the increased cost of living, this presents a real barrier to first-home ownership.

Compare this with how easy things are for the property "haves". Those with a property will usually have spare equity in it, and can leverage against this for a deposit on another property. No need to save a deposit - just wait for the market to create the equity for you. Or else, create the equity by spending $1 on renovations and getting $3 back. And as for servicing the loan on the second property - easy. The interest is deductible, as are other costs (including depreciation), and the tenant contributes to the servicing of the loan by paying rent. Once you're in, you're away.

So, unless (a) house prices drop, (b) interest rates drop radically, or (c) wages increase dramatically, I can only see the gap between the property "haves" and the "have nots" widening in coming years.

What are others' thoughts on this issue?

Paul.

Hi Paul

I agree with most of what you say, although I think even a 5% deposit is hard to achieve when in Auckland for example you are looking in most areas at a starting price of $240000. We have several friends who are struggling at the moment to get into their own home and finding it hard enough to get the deposit, let alone being able to service the loan...

It certainly was our experience that when we tried to buy a property as a have-not, ie our own home it was very hard to convince the bank to lend us the money, even the fact that I was presently paying in rent twice the cost of the mortgage a week didn't sway them into believing we could afford it a first. In contrast once we had our house the bank basically opened its door to further lending by us.

Another factor in this I think is that people are becoming coupled and married later on, and to service these sorts of loans you usually need at least two incomes...

Just one final thing, this whole topic is why Karl (You know who I mean philosopher/ex-supergroove frontman) doesn't own any IP's he feels doing so drives up the price for others and holds potential home owners out of the market.

I'm not entirely convinced that that is neccesarily bad, but it is worth thinking about.

On our front we have been trying to think about how we could help our friends get into their own properties, we have been contemplating maybe using some of our equity, and we have been very actively giving advice.

David

[roseneath_rat]

Greens/Bradford is calling for a capital gains tax, asserting that NZ is becoming the holiday home of the world's billionaires.

Perry did you hear the interview on National Radio this morning on this topic around 7:45am? Sue Bradford & a senior tax partner of Ernst & Young were discussing the topic.

My recollection of the argument from Sue Bradford was that foreign owners were speculating on the increase in prices for high value coastal properties and high country estates.

The tax partner pointed out that if they were speculating they were probably already paying CGT in NZ. And even if they weren't, they were probably paying either income tax or CGT in their country of residence.