Housing Affordability

[tricky]

Tony Alexander made this point in this weeks BNZ overview:

Another person asked if we could update a graph they had saved from a WO of 2004 looking at a ratio of the
QVNZ House Price Index to the CPI. We do so below. But an important point to note is this. Measures of fair
valuation – whatever dodgy construct one uses – are worthless when it comes to picking where asset prices
will go. If valuation measures were any use at all then as soon as one moved above a trend line the
implication would be the next moves should be down. But if an asset price moves 10% above trend that
might only be because it is on its way to 20% over or 40% over.
In the same vein affordability measures applied to the housing market are of little use to anyone. If a
measure shows affordability of housing is poor, for whom will this cause an alteration in behaviour? The
buyers who were willing to pay the high prices which helped produce low affordability in the first place?

Think about it.

I'm still grappling with this.
Is he saying that there is no force to make housing more affordable?
If it's unaffordable now, then that's the way it is?
There's no reason to believe housing will become more affordable in the future?

[CycleTrader]

This is a really interesting issue and at the heart of what is likely to transpire in NZ over the next few years. On the one hand we have materials, labour rates and compliance costs which are all still high and on the way up, and the only variable which is going the other way being land. It seems to me that there is a minimum price to which 'new' housing can go. In the short term, existing housing gets hammered by sentiment but that only increases the gap between existing houses and new houses.

Overall, the supply/demand equation has to be met, so with an increasing population surely somehow the new houses must get built.

I just can't see by who - in the short term.

Longer term though, supply constraints have to have an upward pressure on prices - which I guess marks the start of the next upward cycle.

However it doesn't resolve the affordability question rasied above!!!

I kind of see where Tony is going - what he seems to say is that 'we, the collective people' decide on the definition of affordabilty by our actions to pay those prices. By definition they are not unaffordable. Of course that is for the average population and as always there are people on both sides of the average.

Interesting topic though!

CT

[Green Fish]

"Tony" is a paid patsy. If he wasn't employed by the BNZ, he would say that the property market is toast.

[tricky]

So he was demolishing your favourite point of view then?

[Monid]

Isn't he basically saying:

"Past performance is no guarantee of future performance"

And given this expecting something to revert to trend simply because that is the trend is foolish, because we might be setting a new trend.

Cheers
David

[mortgage broker]

Trends and ratios are symptoms of reality. But reality is where we have to live.

[Green Fish]

The point I'm trying to make here is that the banks' interest in the state of the property market is at least on a par with that of the real estate agents.

So why doesn't this "Tony" character get panned like Murrey Cleland?

Tony is a rent boy - in my opinion.

[Bob Kane]

The point I'm trying to make here is that the banks' interest in the state of the property market is at least on a par with that of the real estate agents.

So why doesn't this "Tony" character get panned like Murrey Cleland?

Tony is a rent boy - in my opinion.

"Tony" simple reports the economic situation as he sees it from his research and chatting to people in the field.
Absolutely invaluable data presented in a simple fashion. He even invites you to draw your own conclusions.

There seems to be about three PT readers who have this bizarre phobia/obsession about economists and/or Tony.
They seem to detest Tony but avidly read his weekly overview looking for mistakes.
Too much time on your hands, Mr Fish?