-
@dogmeat said in Housing hornets' nest:
Unlike @reprobate I don't think old fucks are to blame for the housing crisis. Politicians have got us to the present point mainly through inaction. Plus Kiwi's seem very reluctant to look at alternatives to a mcmansion in the burbs.
I don't think that at all, my ranting is very much about policy by successive governments. The outcomes of those policies have favoured those who are older, because they purchased property when it was at a more reasonable income multiple. Now that multiple is fucked up, so the young have been screwed by comparison - to the point where it's verging on those with rich parents being the only ones buying houses they can get help - which is a terrible situation for social mobility or equality of opportunity or whatever you want to call it: it's messed up.
-
@snowy said in Housing hornets' nest:
Ever tried to buy bare land to build on? LVR will be about 50% which is why I have made distinctions between property and houses (I think that you meant shares but it still works). Properties without houses really aren't worth much as far as the banks are concerned. That might answer one of @Victor-Meldrew s questions earlier about a country with so much land having a supply problem.
Looking from afar, this makes sense to me as poss. a key reason for NZ's housing issues. LTV on land here in the UK is much lower (20-30% deposit). Interesting that many of same problems exist in both NZ and here, though I don't know how much housing prices drive and heavily influence the NZ economy as they do here.
@nzzp , @reprobate , @Snowy Many thanks for the input - really useful in giving an understanding of the issues.
-
@snowy said in Housing hornets' nest:
@victor-meldrew said in Housing hornets' nest:
Do you think a Capital Gains Tax in NZ will stop people investing in property for their retirement? (It hasn't in other countries). What is the return (after tax) on rental v stocks/bonds and what rate would a CGT stop people investing in rental?
It hasn't been successful in other countries as you say, and was discussed at length when it was raised by labour a few years ago. Stamp duties don't really work either. You are just adding a tax that the people who are struggling to buy can't afford either.
The other comment about about relative returns - historically houses (not just property) have doubled in value over a 7 to 10 year period (that will be a bit distorted at the moment). The NZX50 has returned:
"As of April 2020- the NZX 50 has returned 476% since the year 2002."
"Average 10 year period 7.09 %"
Extreme example of course - if you bought Apple shares 10 years ago at around USD12 they are now worth USD130, so property ain't all that.
NZ sharemarket is tiny - Nasdaq has gone from below 2000 to about 14000 in that period. Housing increasing far faster than wages is not a good thing, hence the criticism of the policy allowing it to happen.
I agree with some of what @reprobate says above. We will disagree on a few things but we have been through them already. Tax, etc.
Out of interest why do you keep bringing up interest only loans? They are available to anybody who has the income, or assets to borrow. The banks financial lending criteria are the same for everybody, not just people who own investment property or want to buy investment property. Owning your own home is a good start but most people could get an interest only loan. I don't know why you would though, other than bridging finance.
Investors use them, leveraging existing property equity on the back of housing inflation, the interest only repayments are much smaller, and write it off as a business expense - because they're after the capital gains. None of which first home buyers have access to, meaning the investors can afford to pay more, and so the kids get no house. I think it was 40% of new lending to investors was interest only loans recently (?), highest ever anyway. Not a good idea from a financial stability point of view.
The article about the government purchasing houses against first home buyers has data from 2017 because it wouldn't be much of a sample if they took the purchases from just yesterday. Most investors have seen this coming with this government for some time and have been bailing out, the consequence has been they are having to fill the gap in the rental market by purchasing property. Just socialism in the end I suppose. More state owned and controlled than private.
Anyway, as you said a shit solution.
But investors have not been bailing out, they've been piling in. Lots of people see the money that others have made - far more than from actually working - and assume it's going to stay that way. The housing shortage is due to lack of supply, which is a consequence of other things discussed, it's got bugger all to do with investors selling properties because they fear the government - until very, very recently perhaps.
@reprobate said in Housing hornets' nest:
Anyone who bought before house prices went ballistic is killing it on rental yields in terms of money spent and interest rates, not to mention capital gains.
That actually doesn't add up because yield is measured against the value of the asset, not the purchase price and you cannot put rents up fast enough (nor could tenants afford it) to keep up. I have mentioned the diminishing returns as property values go up earlier and why private investors are getting out, and the government stepping in before we end up with a really serious homeless situation.
That's why I specified 'in terms of money spent'. If your house goes up my 200K and you are complaining about your reduced yield you aren't likely to get much sympathy, but of course selling it ought to be considered, as there is an opportunity cost to holding it.
@reprobate said in Housing hornets' nest:
The NZ market is tiny and not very liquid. International shares have tax issues. Over the long term, the share market tends to do better, and you have the ability to diversify risk - NZ has basically no financial literacy unfortunately, and people are scared of it - but it is in my opinion a far better option. Low interest rates inflate shares too, as bank deposits are pointless.
Yep, and how I ended up in this discussion at all. Property isn't a good investment at the moment, whether you pay tax on any capital gain or not. It is a good time to sell though. What you do with the cash afterwards isn't so easy.
If I had property, I would be selling, no doubt. I would cash up and hope that the RMA review etc and building incentives come to pass to address supply, and consider getting back in on that front if I wanted to stay in property. Shares in general are overvalued. Plenty of buying opportunities when Covid hit, now is selling time for a lot of things, but the stimulus and infrastructure packages, and the banks with all that flood of lending may create some options.
-
There's a lot of focus on property investors, but there's a lot of government policy that really just allows landlords to collect more rent. Minimum wage and benefit increases are terrible for house ownership affordability as they make rent increases more affordable. So rents increase. Because rents are higher, house buyers are willing to pay more as the alternative would cost them more as well.
The accommodation supplement is probably one of the most obvious ones. If you say ,"we'll give you $x towards rent" how can you expect rents not to increase by the same amount?
The people getting more money aren't any worse off (maybe very slightly better off) but the ones who don't get as much (or nothing) from these and don't own their own house are pushed further from home ownership as now they're spending more on rent, and therefore able to save less, and the house prices increase as well.
The housing shortage is what enables this all to happen, but these do exacerbate the issue of housing affordability.
-
@reprobate said in Housing hornets' nest:
@snowy said in Housing hornets' nest:
Out of interest why do you keep bringing up interest only loans? They are available to anybody who has the income, or assets to borrow. The banks financial lending criteria are the same for everybody, not just people who own investment property or want to buy investment property. Owning your own home is a good start but most people could get an interest only loan. I don't know why you would though, other than bridging finance.
Investors use them, leveraging existing property equity on the back of housing inflation, the interest only repayments are much smaller, and write it off as a business expense - because they're after the capital gains. None of which first home buyers have access to, meaning the investors can afford to pay more, and so the kids get no house. I think it was 40% of new lending to investors was interest only loans recently (?), highest ever anyway. Not a good idea from a financial stability point of view.
Investors only account for 30-odd % of interest only lending. The majority is to owner occupiers.
-
I personally believe that the interest only loans were one of the worst things allowed. I also think that people shouldn’t be able to borrow against land without meeting stronger minimum income to loan ratios. The horse has probably bolted for that in NZ, but both of those haven't helped.
-
@jc said in Housing hornets' nest:
@reprobate said in Housing hornets' nest:
@snowy said in Housing hornets' nest:
Out of interest why do you keep bringing up interest only loans? They are available to anybody who has the income, or assets to borrow. The banks financial lending criteria are the same for everybody, not just people who own investment property or want to buy investment property. Owning your own home is a good start but most people could get an interest only loan. I don't know why you would though, other than bridging finance.
Investors use them, leveraging existing property equity on the back of housing inflation, the interest only repayments are much smaller, and write it off as a business expense - because they're after the capital gains. None of which first home buyers have access to, meaning the investors can afford to pay more, and so the kids get no house. I think it was 40% of new lending to investors was interest only loans recently (?), highest ever anyway. Not a good idea from a financial stability point of view.
Investors only account for 30-odd % of interest only lending. The majority is to owner occupiers.
Not according to this: https://www.interest.co.nz/news/109356/nearly-40-bank-lending-residential-property-investors-are-interest-only-arrangements
"As at December, 39% of bank lending to residential property investors, worth $32 billion, was interest-only."
"13% of owner-occupier lending, worth $28 billion, is interest-only. Yet the value of interest-only mortgages held by owner-occupiers is about 12% higher than it was a year ago."
So, if accurate, that's more than half to investors - despite a big recent spike to owner occupiers.I read somewhere recently that new loans to investors were over 50% interest-only. @snowy this is why it's a relevant topic, and while i agree with you to an extent on 'why would anyone do that', they clearly are doing it.
-
-
@reprobate said in Housing hornets' nest:
@snowy this is why it's a relevant topic, and while i agree with you to an extent on 'why would anyone do that', they clearly are doing it.
I would add an "at the moment" or "recently" to that. From that article - interesting that most of it is a Covid spike when looking at the graphs (and understandable). Things had been pretty stable for both investors and owner occupiers before that. Assume that is why RBNZ aren't doing anything, or making any knee jerk reactions as it is seen a blip not the norm.
Over leveraged investors (albeit their own fault) have tenants, so reducing the availability of interest only loans to them when they are still available to everybody else might not be a great idea, in Covid times anyway. Just more government buy in of stock that is currently held privately and nothing extra for new home buyers again.
From @JC 's data you can also see the covid effect, new interest only loans from both investors and occupiers was significantly down, for obvious reasons during lock down but does seem to be normalising again.
-
@jc Question (sorry plural now) for you. How do we end up with 6 to 8ish percent of all existing loans with greater than 80% LVR? Or have I read the last 3 columns incorrectly?
I don't borrow, so I don't quite get how we end up with those loans / debt figures. I get it for the 2015 figures because we were 70% LVR then I think, but how are people getting this extra cash that isn't secured / within the rules?
Massively increasing prices should mean that LVRs are falling, or are people just continuing to borrow based on the perceived value of their property and banks are over doing it? Total existing lending is going up so maybe that is it?
Interest only loans falling again, so has to be people getting back to normal after Covid scare and going back to P + I which is back up.
-
All my loans were IO until recently. Not because I was super leveraged, just because there was no point committing to higher repayment obligations. I preferred to keep the excess cash in my offset account.
Made sense until the recent divergence in interest rates that penalised IO, so now I'm all P+I
-
@snowy Just off out, but the short answer is likely to be non-banks such as building societies and credit unions, who aren’t bound by the LVR rules. They are probably the lifeline for a lot of lending the banks won’t support, like first time borrowers, gig economy workers etc. RBNZ and government actions seem determined to marginalise that sector though, so who knows how long that will last. That’s another story though
-
@voodoo Makes sense. Cheap money is cheap money. IO certainly isn't all investor driven. Which begs the question on how the RBNZ gather their data. Nobody wants to declare as an investor due to tax implications. I don't recall anything on S and P agreements, so it must come from the banks, but if I don't borrow to buy, how does anybody know that it was an investment statistically? Probably a small margin but it is there.
Debt data is easy from the banks. Corelogic do it all with properties and that is pretty simple from sales, but where do the "investor" numbers come from to be accurate...I must be missing something obvious there.
-
@jc said in Housing hornets' nest:
@snowy Just off out, but the short answer is likely to be non-banks such as building societies and credit unions, who aren’t bound by the LVR rules. They are probably the lifeline for a lot of lending the banks won’t support, like first time borrowers, gig economy workers etc. RBNZ and government actions seem determined to marginalise that sector though, so who knows how long that will last. That’s another story though
Thanks. Makes sense. Didn't even know that those sorts of lenders existed anymore and, yes I think that they must be getting pushed out. I remember Countrywide Building Society but think that they became a bank.
Makes me wonder about some of the peer to peer stuff that I have been lending to. How long will that last. Harmoney already sold out to banks for small loan stuff.
The others are large loans, seriously low LVR though, shorter term loans, secured against first mortgages with good returns, so quite a bit different. Usually builders who are doing spec stuff and need a bit more cash to finish a project, or investors doing renovations, bridging, that sort of thing.Very interesting times economically with some of these new options and some more traditional ones very unattractive.
-
Regarding the effect of tax laws and how they influence peoples decisions (see cars 1,2,4 & 10 for example) I have wondered how much of an impact the individual income tax rates during the 2000's influenced the housing situation we're seeing now.
I worked in an accounting firm during the 2000's and it was interesting watching the change in clientele during this time. The accounting firm wasn't one of the big 4 so we did a lot of work with SMEs and Joe public. During this time we had a large increase of people asking about Loss Attributing Qualifying Company's (LAQCs). The main reason why most of Joe public were asking about LAQCs was that they allowed the losses from the company to flow through to the shareholders. The shareholders would then offset these losses against their income and receive decent tax refunds each year.
This all worked really well. People earning over $60K were paying 39% on each $ over $60K and they didn't think it was fair. Now this wasn't the top 5% getting pissed off at paying too much tax, it was police, teachers, nurses, government workers etc. This was a clientele that hadn't previously been that interested in owning a rental property. Higher interest rates had meant a lot of people had been happy to keep their savings in a bank and not risk it elsewhere. This was also a time where rents were low, mortgage rates were moderately high and these LAQCs passed between $5K-$15K of losses back to the shareholders to claim back their tax they had paid. The cherry on top here was the tax free capital gain at the end but the main reason for these people to get into the rental business was the high tax rate that kicked in at such a low rate.
The current situation was always on the cards and you only have to look at the rest of the western world to see that. But I do wonder how much those individual tax rates kicking in at such low bands helped accelerate the situation we find ourselves in now.
-
@toddy LAQCs are a really good point. Being able to write off a loss from a company, against personal income doesn't make much sense to me (and yes I still have LAQCs but they make money). That entity must stand on it's own legs or you go backwards. Having loss making businesses to avoid tax still means that you are losing money, but I know that wasn't what you were getting at.
The change of demographic is interesting. A lot more people trying to find somewhere to put money, in a low interest rate environment, with a low top tax bracket. Foreseeable results.
@toddy said in Housing hornets' nest:
The cherry on top here was the tax free capital gain at the end but the main reason for these people to get into the rental business was the high tax rate that kicked in at such a low rate.
Agreed on the tax rate. Got to be a motivating factor to change investment strategies with a LAQC. This has been one of the bones of contention throughout - the capital gain isn't necessarily tax free and markets have out performed property so not much of a net gain for investors anyway, just that some of it may have gone to the government.
Housing hornets' nest