Categories

Archives

Quit whining, Millennials, and save for a home!

The other week, BNZ chief economist Tony Alexander put out a statement chastising young people for not saving harder to buy a home. As I pointed out, his argument was based on a pile of untrue assertions and misleading data. Others also expressed similar views.

In a further statement reported by Jenée Tibshraeny, he clarified that crazy house price increases have actually made it harder for young people to afford a home. It’s nice that he’s aware of that, but the rest of his article suggests that he thinks the hole he’s in will turn into a tunnel if he keeps digging.

Alexander’s core advice remains:

Young buyers these days need to make deep sacrifices in spending on other things if they want to purchase a house and if such sacrifices cannot be made home ownership could well remain out of reach…

If purchasing a house is your goal then there is no shortage of things which those who already have purchased sacrificed as they built up their savings, worked at reducing the principal to improve their position, and adjusted when their interest rates and/or expenses went up. Things people have cut out have included…

· Cafe visits
· Going to restaurants and bars
· Smoking
· The latest telephones, games consoles, cars
· International travel
· Weekend and evening leisure time because they took an extra part-time job.
· Hired help like dog washers, landscape designers, etc.
· Subscription tv, gaming, music
· Privacy – by taking in flatmates, student boarders, or renting out space on Airbnb.

And he continues to make blatantly false statements about the saving behaviour of Boomers (who spent their 20s taking on debt) and Millennials (who are saving lots in their 20s):

Baby boomers will understand this need to build savings over many years before seeking a mortgage. But the younger generation used to businesses chasing them continually for their dollar will take some time to cotton on to the implications and figure out how to get to the head of the queue.

As I said last week, house prices have risen significantly relative to the price of just about everything else. In that context, Alexander’s advice to save money by cutting back discretionary expenses, most of which are relatively cheap, is bad advice for the average young person. That might have worked in the past, when housing was cheap compared with overseas travel or consumer electronics, but it doesn’t work now.

Since Alexander hasn’t done the maths on this, I will. How long would it take you to save for a deposit on an average or lower-quartile Auckland home by skimping on luxuries?

I’m going to start by making a few simplifying assumptions. First, I assume that people are saving money in bank accounts that offer returns that are roughly equal to inflation, and then I ignore inflation – all numbers are in real terms.

Second, I’m going to make some generous assumptions about future increases in the price of housing. Today, the price of a median Auckland home is just over $800,000, and the price of a lower-quartile home – ie a typical starter home – is around $680,000.

Those prices have risen at double-digit rates for the last five years. But I’m going to make a very optimistic assumption that we get real house price inflation down to a much lower level – say, a mere 3% per annum.

Third, I’m going to assume that first home buyers will still be required to come up with a 20% deposit due to loan-to-value restrictions. Lowering that ratio would probably cause house prices to rise faster anyway, offsetting the benefits for first home buyers.

Finally, I’m going to consider a hypothetical case of a very feckless Millennial who spends money on a whole bunch of unnecessary luxuries rather than prudently saving for a mortgage. Our made-up spendthrift is assumed to:

  • Go on one overseas holiday a year at a cost of $4000
  • Buy a coffee a day at $4 per coffee, or $1460 per year
  • Go out for a $40 brunch every Sunday, which costs $1040 per annum
  • Get acupuncture ($80) on a weekly basis, costing $4160 per year
  • Subscribe to Sky TV at $600 per year

In addition to all of this self-indulgence, they also hire a cat whisperer to visit their pet while they’re at work and prevent it from developing emotional problems. Cat whispering costs $23 per visit, adding up to an astonishing $5750 per year (based on 250 working days a year).

These savings add up to $17,010 per annum, or around 30% of the average pre-tax income for an 25-29 year old Aucklander with a full-time job (a bit over $50,000). Surely someone saving that hard would be able to afford the deposit on a home in no time?

Well, no. Here’s a chart comparing their accumulated savings with the required deposit. While their savings would eventually exceed the required deposit, it would take:

  • 11 years for them to afford a lower-quartile home
  • 14 years for them to afford a median home.

In other words, someone who started saving in earnest at 23 wouldn’t be able to afford the deposit on a home until they were 34. Furthermore, if real house price inflation was even slightly higher – say 5% rather than 3% – it would take 23 years to afford the deposit on even a lower-quartile home.

This analysis demonstrates two important things.

First, following Alexander’s advice and saving until it hurts won’t help young people. The only way things will get significantly better is for house prices to fall to a more realistic level.

In Alexander’s world-view, the only two paths forward are for young people to give up everything fun and work three jobs to save for a deposit and pay the mortgage, or for them to give up on home ownership. But that’s a false choice that only applies if house prices stay at current levels. If prices were lower, bank economists wouldn’t be making silly comments about how to save for a deposit by firing your cat whisperer.

Second, this shows that any further increases in house prices are unsustainable for first home buyers. Even if real house prices only increase by 3% per annum, that means that the value of a median home will increase by $24,000 a year, or almost half of the average wage for employed people in their late 20s. The required deposit will in turn increase by $4800, meaning that the average employed Millennial would have to save almost 10% of their pre-tax income just to keep up with inflation in the average deposit.

This in turn means that we have to take a hard look at our baseline assumptions about capital gains on residential property. Although rising prices have been beneficial to some, it’s becoming increasingly apparent that they have a range of negative social and economic consequences. Put it another way: I wouldn’t necessarily buy on the promise of everlasting capital gains.

104 comments to Quit whining, Millennials, and save for a home!

  • brendonharre

    I went to the public meeting in Christchurch’s Cardboard Cathedral on the state housing sell off in Christchurch which if the government gets re-elected means they will have a mandate to do through the whole country. This is particularly relevant in Auckland as there are tens of thousands of state homes which the Unitary plan has given the opportunity to be intensified to bring tens of thousands of more houses on stream. The question is who does this and who benefits? HNZ and future state house tenants? FHB looking for affordable housing? Private providers who hope to sell for top dollar to gentrification clients?

    Alan Johnson an economist from the Salvation Army gave a good economic history of state housing in the context of the NZ housing story. The pdf file of the presentation can be accessed here. https://drive.google.com/file/d/0B9rybwhCv5R7enVoZ0lwaUl2RXc/view

    Alan’s brief economic housing history is we had the state housing period in the 1930s and 40s with a large state house building programme. From the 1950s a democratic home ownership period -with a wealth of supports for increasing home ownership -infrastructure -especially motorways built by the MoW, State Advance Loans, capitalising the child benefit payments, state house tenants could buy the home they were renting…. This period ended in 1991 when those supports were withdrawn. Home ownership peaked and has declined every year since.

    • Regarding your first statement, I’m not sure it matters who builds the houses as long as they are built to a specification people actually want. Even if they are built for gentrification clients, then all the gentrification clients will free up houses somewhere else.

      • brendonharre

        I agree that who builds the housing is of lesser importance. The critical point is whether the new housing is affordable. This is less likely to occur if a few profit maximising providers more interested in property development than social housing get their hands on HNZs intensification building options. They will clearly price the new supply at a maximum. They will price for gentrification not for affordable housing for FHB or affordable rental for state housing tenants.

        • The problem with building affordable housing in an overheated market is that you end up having to build something smaller or lower quality than would be desirable, which may well become a millstone if the market was to correct. It doesn’t concern me if a HNZ area becomes gentrified because it is a desirable location as this will still likely result in higher intensification than what was there previously (I’m specifically thinking Glen Innes) and more importantly these houses would be what people want so would be more likely to stand the test of time.

          For houses to be affordable prices need to come down, building more supply no matter who it is for can only help this.

          • brendonharre

            I disagree Jezza. Building new housing has to be done affordably. Otherwise it is quite possible to have a building boom and a price bubble at the same time. Look at Spain and Ireland pre GFC. That did not end well…….

          • So are you arguing to keep prices stable to avoid an economic meltdown? I’m not sure anything that would be classified as affordable in the current Auckland market would really be fit for purpose – it would have to be so small and/or shoddily built to be affordable. While I agree that we don’t want a crash it may well happen anyway and in my mind prices of existing homes need to come down anyway. I don’t see any benefit from having affordable homes now that would be cheap crap after a correction.

          • brendonharre

            No Jezza what I am arguing is that for moral or equality reasons and for sound long term economic reasons we should address the systemic problems that are preventing large numbers of new affordable homes from supplying the market in our towns and cities. Including in Auckland.

            Victim blaming. Changing the topic. Focusing on tiny details not the big picture and other tricks to avoid facing this challenge in my opinion are not good enough.

          • I think we 90 % agree. In my mind the fundamental path to affordable housing is bringing overall prices down, which of course along with other components means increasing supply.

            My concern with current approaches to affordable housing is it appears to be designed to fit the current market, which means in Auckland is either building something so small and/or out of the way it is not fit for purpose in the long term or selling some lucky person a house below market value, which they can one day happily cash in the capital gain. To me this is the definition of focusing on specific details rather than the bigger picture.

            Maybe I have misunderstood affordable housing.

  • brendonharre

    A big part of the the loss of ‘political will’ housing story is a moral demonisation of state home tenants. A process dating back into the 1950s, but occurring right up to the current day with the false accusations of P contamination of state housing. This moral demonisation process also extends to those who are poor and on low wages -Bill English’s infamous attacks on NZ’s work-shy druggie young workers.

    I would put Tony Alexander’s false attacks on millennials saving habits in the moral demonisation category.

    An opposing moral outrage of people living in cars, sheds and garages has also developed countering this thinking. It will be interesting to see what comes out on top with the public -moral outrage or moral demonisation? One is essentially an inclusive -we are all in this together approach, while the other is a exclusive -victim blaming approach…..

    What we choose on this issue will define who we are as modern New Zealanders in my opinion…..

    • To your comments on demonisation: yes, it’s a classic Kiwi tendency to look at a bad situation and somehow put the blame on the most vulnerable people involved.

  • conan

    You left out having your presumedly rented property landscaped. That would tip the balance surely?

    And he does have a point about smoking, but I’m guessing he’s not thinking about the health benefits.

    As to boomers having to save their deposit, many, like my parents, were able to capitalise the child benefit as a deposit. No savings in sight. They would have struggled to buy most things on his list as they simply weren’t available to purchase.

  • I’d be reconsidering Tony if I were the BNZ. He is now inextricably linked to incorrect and dismissive views about home ownership and their brand along with it.

    • conan gorbey

      Can’t help but wonder if he’s looking for his next career step and this is an attempt to extract a golden parachute.

  • TimR

    Or – “quit whining and pay into my retirement fund, millenials.”

    One of the key fixes for our housing market is to fix our pension system. I fall just into the “wrong” side of Bill’s recent age-change announcement; but I support it anyway. Why? Because without pension reform finally happening, our housing market and our kids futures are really screwed in the long term.

    We also need lots of other financial reforms for similar reasons. It’s a shame Bill has spent the last 8 years sitting on his hands, or even unwinding good ideas (superfund).

  • Matthew

    A typical starter home in Auckland is around $680,000?

    Vote with your feet. That’d buy two houses in Palmy, or three in Levin.

    Decentralise.

    • brendonharre

      Maybe decentralising could work for a few. But Auckland is growing by a Whanganui every year. What would happen to Palmy or Levin if Whanganui turned up on there doorstep? Would housing be affordable?

      • Spread across Napier, Nelson, New Plymouth, Whakatane, Palmertson North, Dunedin and Whanganui itself it would be manageable and beneficial.

      • Peter Nunns

        Great point Brendon. Growth pressures would have a similar impact in small towns as they’re having in Auckland.

    • Alana

      Is my job also going to move to Palmerston North or Levin with me? Maybe it will become three jobs there?

      What a weird comment.

      • Matty Tee

        Geez. It’s not weird at all. Decentralise is a message to employers and policy holders.

        There is an overconcentration of jobs in one small part of the country when a wider distribution would be beneficial.

        There’s a world beyond the Bombay Hills.

        • If we all moved our households and jobs to a place where there are no jobs and a surplus of houses, the houses would no longer be cheap.

          Your plan can basically never work and a broad reaching solution for a large number of people. Either you can buy a cheap house which is cheap because there is no demand because opportunities are limited, or if you increase opportunities and demand the housing surplus gets used up and it is no longer cheap… and you are right back to square one of expensive housing due to insufficient supply.

          Or put it another what, what would happen if 5,000 Auckland households all moved down to Whanganui? Well there would be a shortage of something like 4,800 houses. So we bring in tradies to build houses and boost the economy, but of course they need somewhere to live, so start charging top dollar so they can rent at top dollar in a market with no capacity.

          Then we are left with building very expensive houses again, and we have 5,000 extra households looking for work in a tiny employment market. There are only so many people who can stock the shelves at the local four square.

        • “a wider distribution would be beneficial.” – citation needed.

    • Peter Nunns

      Two questions:

      1. Do you live in Auckland?

      2. If so, what’s keeping *you* from moving?

      • I currently work in financial services:
        Does each company in industry move to a different town?
        If I decide to change the company​ I work for does that mean I have to move my house too?
        What about my wife, what if her job isn’t in that town?
        If I was an employer why would I want to be limited to only staff that live in that particular town? And my business relied on staff with specific skill sets, how does my business survive if they don’t exist in that town.

        Perhaps some lower skilled manufacturing jobs could move to regions but then do we really want Auckland to only contain one group of people.
        And what then happens to my transport costs if my customers are all in Auckland?

        And given the cost pressures, why haven’t businesses moved already?

        Decentralising always suggested but unless you specifically incentiveise for it (by deliberately making Auckland less competitive) how do you plan to achieve it. And aren’t the land and house prices already a massive incentive not to be in Auckland unless you need to be.

      • Simon

        1. Yes, however I have a job offer in Napier and I could move tomorrow.
        2. Fear of the unknown. My sense is that provincial NZ is still largely homophobic, rugby-orientated and racist. I have two children and I don’t want them to grow up in an environment like this if I can avoid it. Of course, I might be totally wrong (although I don’t think I am), but I am afraid of making the move and having my fears confirmed.

        • AKLDUDE

          sounds like you are just as prejudiced towards rural New Zealand as you assume they are towards you Simon.

          • Simon

            Prejudice= preconceived opinion that is not based on reason or actual experience.

            My experience of provincial NZ:
            Getting called a fag (not that this is an insult, but it was intended as such) in the main street of Hamilton because I was wearing a purple shirt.
            Getting yelled at in the streets of Napier because a friend had a ‘man-bag’.
            Having my 2-year old daughter (yes two years old) threatened by a youth gang because she was wearing a red shirt (in Rotorua).
            Watching people in Taupo getting drunk on a Friday night and making loud racial slurs in the middle of a public street.
            Being called ‘homo’ from a passing ute because I was wearing pink glasses (Taupo again).

            I grew up in a small rural town: One of three things happened to people 1) They left for a city 2) they got pregnant 3) they developed a methamphetamine addiction.

  • luke

    seems obvious to me, quit your job and become a fulltime cat whisperer. Then saving for your first house will be easy.

  • Waspman

    What Tony wanted to do was to diffuse if not divert questioning the status quo and also to quell a growing resentment that in essence more than a generation have been locked out of home ownership. He may as well have pissed into the wind because he can’t stop the building anger. It clearly suited the BNZ’s interests to have their chief economist sing from the government hymn book of the establishment nevertheless, at least for now!

    They are shit scared that if Gen Y and millenials vote for change because the current arrangement has clearly failed them, then this could have some dire consequences on shareholders should our dodgy property bubble burst as a result. So best to keep up the misinformation! Cynical game.

  • Anabel

    @Matthew if you work in Auckland and need to live there you cannot move to Levin.

    Quit whining, go without and pay the banks 3x the value of the inflated home while the bank create multiple wealth for themselves.
    Now the govt let all the rich foreign investors( own half of NZ GDP now) and Chinese have paid for the NZ homes with cash .

    Bankster Bill is just the PM of the day for the banking cabal, the same cabal that has bubbled the housing market and contracted the economy.They have cut needed social services and inflated prices of food and energy.
    Profits get sent overseas and we are “debt slaves” for the odious debt for private corporate infrastructure, debt they have created in our names.

    • Matty Tee

      @Employers. Move those jobs out of Auckland. Consider the quality of life of your employees. You get to pay them a little less. They stay longer and office rents are less. They get shorter commutes and affordable homes.

      Give up on Auckland and its Ponzi scheme.

      • Why would an employer move their business from Auckland to Levin, when they would know they would likely loose the majority of their staff, so would have to effectively start again in a much smaller labour market?

        • They did it in reverse to me, moving us from Palmy to Ponsonby, and they lost all their staff, because no one wanted to take on a huge mortgage in Auckland when they had already paid off their houses, or were close to it.

          Now they’re having trouble to hire teachers in Auckland, so you don’t think there is a huge structural problem with the economy?

          • Was that a whole company that moved or part of a bigger company that already had a significant presence in Auckland? If it was the former that does seem unusual.

            I certainly do think there are structural issues with NZs economy, however I see the solution to the teacher problem being improving housing supply in Auckland through reducing restrictive zoning along with other things, not trying to piss into the wind trying to get families to move to other parts of NZ.

          • Nick R

            So did the Ponsonby office fail? Were they unable to staff it? Has productivity and turnover dropped?

    • Any evidence these rich foreign investors own half of NZs GDP? I’m not even sure it’s possible to ‘own’ GDP.

  • The house I live in would be worth around $600k in Auckland. But it’s value is $57k, because it’s not in Auckland.

    If you want to buy a house with relative ease, the solution should be obvious.

    Highlighting once again the massively high cost of the concept of city living will ensure this post is of course not approved.

    • James B

      The unit I just bought is worth just over half a million dollars in Auckland. In Berlin (a city four times bigger) it would be worth under three hundred thousand. It’s clear that city size has little to do with it.

    • Peter Nunns

      As a further note to this, the price of your house in Tamaranui is probably below the cost to build / replace it. It costs around $1800/m2 to build a single-level standalone house, meaning that if your house is around 150m2 the cost to build a new equivalent would be around $270,000. And that’s excluding land costs, subdivision consents, infrastructure connection charges, etc. Even if we assume the improvements on the lot have depreciated to half of their original value, it still indicates that your house is selling for half of what it would cost to replace it to a similar standard.

      As Ed Glaeser recently pointed out, house prices that are significantly below construction costs indicate local economies that have failed or gone into structural decline. Not to knock Tamaranui, which is a nice little town, but there’s probably a reason why more people don’t live there.

    • You got it for $57,000 because it is in Taumarunui, not because it is ‘not in Auckland’, otherwise I would be able to get $57k places in Wellington, Hamilton, Tauranga, Napier, New Plymouth etc. How are you finding the work situation down there, I take it you managed to find a job?

  • Jon

    Immigration is the first domino in the line of dominoes to be controlled. It affects everything; house prices, rental demand and pricing, infrastructural issues (transport, schooling, state health care availability). Ignoring mass immigration like we’ve not experienced before will see a continuation of the issues our city is facing.

    However, young people wanting to buy a house can still buy one or two bedroom houses in Mangere or Manurewa for $500,000. But I guess they all want their first home in Ponsonby, Parnell or Devonport. That is completely unrealistic.

    • Guy M

      Silly comment Jon. I don’t think there is a single young person in Auckland who thinks they will look for their first house in Ponsonby, Parnell or Devonport. They just don’t want to have to look in Mangere, Manurewa, Otara or Pukekohe.

      But you’re right about immigration being key. It was: Key.

      • Waspman

        Agree there Guy M, weren’t the gloating headlines telling us houses in Otara were going for 650.000 plus? Hardly affordable!

      • Alan J

        “They just don’t want to have to look in Mangere, Manurewa, Otara or Pukekohe.”

        Please explain why this is ?

    • Waspman

      The next domino I would like to see fall is speculators/investors, call them what you like but they are like a plague on housing!

      • I think you’ve got your dominoes in the wrong order. To the extent that immigration has anything to do with the housing problem, it’s because we’re internationally known as a playground for low-tax, low-risk property speculation. Dismantle that structural privilege and we’ll see a certain type of foreign investor gradually disappear – hopefully to be replaced by others who have the appetite to put money into more productive parts of our economy.

        However, the same Kiwis who whinge about immigrants buying all the houses are the same people who’ll scream blue murder if you threaten their equity or the value of their rental portfolio, so I don’t really have any hope of this problem being tackled by any of our current elected representatives (on either side of the house).

    • Peter Nunns

      FYI, most New Zealanders disagree with you: http://www.stuff.co.nz/business/money/90244287/the-nz-homeowners-who-hate-high-house-prices-are-revealed-in-labour-polling

      New Zealand’s existing policies create incentives for property speculation and disincentives for developing more housing. We refuse to tax capital gains and then impose various regulatory restrictions on development. Immigrants didn’t vote these policies in: New Zealanders did. So rather than shifting the blame, perhaps let’s look critically at the unintended consequences of what we’re doing.

      • Waspman

        The governments unofficial immigration policy is not so much geared at buying houses, although the foreign speculator is a welcome contribution to the bubble, rather it’s the cheap labour immigrant, the “Student visa” category who are taking up hard to find accommodation that is in turn feeding the many problems we have. Hence rents can go up if there is demand and if you as a landlord you turn a blind eye to far more people living in your “investment” than it was designed for so they can scrape together the rent, then so be it.

        NZ is bringing in tens of thousands in the least annually, as per our current immigration rort and they have to be housed somewhere. And in turn they are customers for investors. There is a whole ecosystem of debt based housing speculation being nurtured in NZ at the moment for the few that does not have any concern for a large part of the citizens of this country. No wonder the BNZ and their mouthpieces like Alexander think the way they do, its in their interest!

        • Peter Nunns

          Here’s a list of NZ’s visa categories and (if you click around a bit) eligibility criteria: https://www.immigration.govt.nz/new-zealand-visas

          I’d be interested in your view on how we should adjust these categories. For instance, which categories would you close up? How would you change the eligibility criteria for other categories? People often say “we should reduce immigration”, without providing specific suggestions about how to go about doing that. So how would you do it?

          • Waspman

            One for instance, the Student category should be for study only, strangely enough.

            I worked, as have people I know, in jobs where students under the current arrangement are god sent to be cheap labour to be exploited. The students who came to do “business studies” typically knew it was a scam. The hope was they could become “managers” and then gain residency and for many at one point to then move on to Australia. They weren’t coming here for our half arsed expensive “education”, they were coming here to live. The thing that got me was this unofficial immigration model was operating right under Kiwi’s noses but we were and or are oblivious to it and these students are more than willing to undersell themselves temporarily to become residents and live in some pretty substandard but expensive accommodation.

            If they are true students then provide them with quality education services but limit their entry to NZ to just that, learning, not cheap labour. I reckon once the incentive for residency goes, so will those immigrant numbers.

          • Peter Nunns

            So that’s one visa category that only accounts for 16% of long-term visitor arrivals to NZ over the 2004-2016 period. (The remaining 84% is split roughly evenly between various categories of residency and work visas.) Even if we wanted to eliminate this visa category altogether, which we probably don’t given that there are benefits to attracting students to NZ, it would leave the majority of immigration untouched.

            Also, the problem doesn’t seem to be the visa category, but the fact that some education providers are running dodgy operations. So if student visa abuse is an issue it makes more sense to regulate education providers properly.

          • Waspman

            I’m not saying your official percentage you’ve quoted is officially wrong but 16% seems an awfully small number.

            In an age where government stats are manipulated, it seems as part of normal daily business, to suit their narrative and are about as reliable as a 2 dollar shop Rolex, i.e. carve a large slice off official unemployment by eliminating the unemployed looking for work on the internet, remove domestic violence from violence stats, less than 3% of all house buyers are foreign based, etc etc, you’ve got wonder how many student visa stats have morphed into something else.

          • Peter Nunns

            No, just no. Government statistics are *not* manipulated in NZ – they’re prepared by an apolitical department with a lot of operational independence. Statistics New Zealand is a highly credible source.

            It may be the case that *users* of official statistics misrepresent them, eg by offering interpretations that are not consistent with the way that the data was collected and aggregated. But that’s a separate issue.

            If you suspect that *I’m* misrepresenting or misreading the data, you’re welcome to check my work. Visa data is published on Stats NZ’s Infoshare portal under the Tourism -> International Travel and Migration category. Technical information about the data is available here.

            Lastly, it’s far, far more common for individuals (and groups of individuals) to have assumptions and opinions that are unsubstantiated by empirical reality than it is for Stats NZ to publish totally inaccurate data. So rather than questioning the statistics, you should question your own assumptions.

          • AKLDUDE

            Peter, as Waspman says the Student Visa category should be only for genuine students and should not be a back door method of gaining residency. A fairly large amount of “students” are doing sham courses that are quite literally a joke. If they want to do that ok but at the end of the course they must return to their country of origin.
            Now if a student is studying a PhD or some other high skilled degree that would benefit NZ inc then yes they should get some credit for this towards residency as high skilled immigrants are what we are after – not petrol station/dairy/fast food/supermarket/restaurant/retail workers which could just as easily be filled with New Zealander’s.

            The investor category visas should be on the basis that the investment is actually into something productive in NZ and should specifically exclude property investment.

            The parent/family repatriation visa’s should also be severely restricted and the bonus points for only child should be removed (since this heavily favours Chinese who due to China’s former one child policy means that they have a huge advantage in getting this visa – and quite frankly we do not need a bunch of elderly Chinese pensioners draining the taxpayer).

            The English speaking requirements should also be tightened (or rather tested and enforced better. I know people in recruitment who just shake their heads at the sheer volume of applicants that can’t string together a sentence of more than a few words!)

          • Waspman

            As I said before I’m not questioning you, I am questioning the way our stats come to be.

            As I said unemployment dropped because unemployed people looking for work on the internet were no longer considered unemployed which is complete nonsense. They are still unemployed but they were simply deleted like they never were, Winston Smith like. Right there and then official government stats cease to be reliable to me. Statistics NZ collate stats based on where the goal posts are set up. If the minister decides to move them, as Nick Smith is talking about doing with our polluted waterways to make a nasty little stat go away well then Statistics NZ simply change the stat to suit the new parameter but that does not make our statistics reliable.

            As I said violence measurements are supposed to be accurate because Stats NZ use the official measurement to do so but Domestic violence statistics (which I might add are a collection of very violent acts by one human upon another) were removed by the government setting the measurement. So how the hell can “Violence” stats be accurate when they are incomplete? And again the government is looking at redefining what violence is because they have not met their goal of violence reduction.

            You cannot rely on our official numbers anymore when those who set the standards are the likes of Nick Smith or more likely at arms length away, his minions.

          • Waspman – do you have a source for your claim regarding the unemployment rate not including people who are searching for work on the internet? Seems rather odd to me.

          • Peter Nunns

            Waspman, your comments are off-base, and I strongly disagree with your attempt to undermine facts and evidence rather than reexamine your own assumptions.

            With regards to Nick Smith’s waterway standards: he has set a weak *target* for clean freshwater but that does not affect the underlying data collection process. The agency charged with monitoring progress to the target is highly unlikely to fudge the underlying numbers to make things look better.

            With regards to the unemployment statistics, there were some minor changes to methodology last year. But that doesn’t reflect political meddling – rather, statistics agencies are constantly refining data collection and methodologies. Stats NZ continues to publish a ‘broader’ measure of unemployment that includes people who’d like to be working more, which gives people who are arguing that the headline statistic is too optimistic a basis for telling a different story.

            I’m unfamiliar with the domestic violence statistics but note that the Family Violence Clearinghouse continues to publish data on the matter, including data sourced from the NZ Police and the Ministry of Health. A quick read of their page does not indicate that these sources have become unreliable in recent years. However, it does warn that they are based administrative data that depends upon reporting rates, which may vary over time or between contexts.

            Finally, the migration statistics are based on data on visas issued and travellers processed by Customs. This is a very comprehensive source of administrative data that would only be in error if a number of people decided to *deliberately* misclassify people between visa categories. That’s a very serious allegation of corruption and malpractice that should not be taken lightly.

          • Waspman

            Jezza, this is a couple of many: http://www.stuff.co.nz/business/83185833/unemployment-drops-but-underutilisation-prevalent-data-shows. OR http://www.radionz.co.nz/news/business/307577/unemployment-rate-falls-after-stats-nz-revision

            Peter, what about this statistic? It just this seems to happen time and again, beyond coincidence and here for example they were counting the homeless as tourists: http://www.newshub.co.nz/home/politics/2017/02/government-counts-homeless-in-tourism-stats.html. The weak response from that revelation from the PM down was tantamount to “Golly gee whiz, how ever did that happen….” Now doesn’t the homeless statistic look so much better when they are counted as “Tourists”? Certainly takes the tarnish away from a government whose housing policy is so bad doesn’t it! Could they not do similar with Students?? The statistic is a number but its the parameters that come up with the number that concern me and I am of the belief that to cling to power National have created a system where we cannot take our statistics at face value anymore.

          • Peter Nunns

            Your confusion would be lessened if you went away and read Statistics NZ’s description of how this data is sourced and what it means. The whole “homeless counted as tourists” thing was based on people’s politically-motivated misintepretation of the statistics.

            Let me explain:
            * Statistics NZ’s data on international tourism (and international migration) is based on data collected at the border, by Customs. Unless homeless people are flying to Australia and back, they would *not* be counted as international tourists.
            * Statistics NZ’s data on demand for visitor accommodation is based on the Accommodation Survey, which asks commercial accommodation providers (eg hotels and motels) about occupancy. This obviously includes international visitors (unless they’re staying with friends or family), domestic travellers (including both tourists and business travellers), and people staying in rented accommodation for other reasons, including short-term emergency shelter. The Accommodation Survey doesn’t allow these types of users to be distinguished, as hotels don’t usually ask visitors exactly why they’re staying.

            There is absolutely nothing dodgy going on with the underlying data. People may have misunderstood or inaccurately described the data, but as I’ve said from the start that’s a completely different matter to the credibility of the statistics themselves. Stats NZ’s numbers mean what they say they mean.

          • Waspman, thanks for the sources – those changes seem quite reasonable to me, if you are not applying for jobs then it is very debatable that you are actually looking for work. Otherwise it would pick up any student or house husband/wife who may keeping an eye out on the job market but with no great desire to get a job. To be honest from this the old stats sound more questionable to me.

  • nonsense

    Divide et impera. Same old tactics, put one against the other, old against the young. While the real problem is always the same since 300 years. Workers against asset holders and banks hold quite a bit

  • Andrewo

    What’s that whining noise? Oh it’s the Millenials again!

    In the 1970’s, when I was a young engineering graduate in the UK I could afford the deposit on a house and I was made redundant. So I left the UK and went on contract working on a mine in Central Africa. I returned to the UK two years later only to find house prices had doubled and I was even further behind. So I went back and did another 2 years. Then 3 years in a deep gold mine in South Africa (my section started at 5,600ft below the surface) and then 5 years on a uranium mine in West Africa. Then I bought a house. Ca$h.

    So my first recommendation is to harden the f*** up.

    My next recommendation is for you to look elsewhere. There is life outside of the main centres. There are wonderful towns all around NZ crying out for an infusion of youth and talent. Since you’re all so smart with the internet why not relocate there? It’s ironic that the internet generation finds itself so geographically constrained. OK the coffee isn’t as good, so invite one of your barista friends to go along with you. Sure you’d miss your friends, but you’d make new ones. I have friends all over the world now!

    Happy house hunting

    • Alana

      More of that stuff? For your information, much of modern work doesn’t EXIST in those small centres. This is because the internet means these days we often connect with clients 5 on internet times a day. AND meet them, and our co-workers from other businesses at least 1-2 a week. That is why companies locate in big cities, not in small ones. That is why “working from home” has been sold as the wave of the future for ages, and only a small number of freelancers actually does it. Modern life happens in cities, always has. Telling young people to “harden the f*** up” when they are working multiple jobs is ridiculous.

      And yes, many are leaving NZ. So you’ve already succeeded there, Andrewo.

      • Andrewo

        Alana, If there’s no “modern work” consider some old style work instead. For example those provincial centres are crying out for truck drivers. Combine that with a 200K house and you’re home free!

        • I didn’t spend five years at university to work 70 hours a week staring at the road in front of me. Incidentally I do have an HT licence and did drive trucks during the summer break at uni.

          • Andrewo

            Of course lowly roles such as truck driving are only appropriate for the ‘untermenschen’. 😉

            What qualification did it take you so long to get that you believe is worth so much and which leads to a career that can only be pursued in Auckland?

          • I could probably get work in Palmerston North, Wellington or Christchurch, but I’m quite happy in Auckland, just would like to see better public transport and improved housing supply. Christchurch would be tempting if they succeed in making it more cycling friendly.

            Many people enjoy truck driving, I work with a number of them and they were great guys, however I found it mundane and certainly wouldn’t do it for what the industry pays or the hours it expects people to work each week. The industry could of course pay more, but no doubt it would prefer to complain.

    • Did you also suggest to all the people of your generation who didn’t go and work in the mines to harden up when they were complaining they couldn’t afford a house? I’m willing to bet that the vast majority of your generation didn’t go and work in the mines.

      Secondly, don’t you think house prices would go up quite dramatically in small towns if large swathes of millennials moved there. Great for those who already own property there that’s for sure!

      • All those smaller cities do have developable land 5 or 15 minutes commute from their centres. That land is heaps cheaper.
        They’re not constrained like Auckland.

        • I’m not sure building over productive land around these provincial cities is the way to economic prosperity.

        • Sacha

          “All those smaller cities do have developable land 5 or 15 minutes commute from their centres. That land is heaps cheaper. They’re not constrained like Auckland.”

          Shows that land supply is not the main constraint on economic development of a town/city.

    • JimboJones

      My parents bought their first home on a single mechanics income. Dad had enough money left over to go to the pub twice a week. Life was so hard back then…

    • mfwic

      Right so your argument is that you had it tough in the UK so you went and stole the riches from some struggling African countries and worked as part of a privileged race in South Africa and things turned out great for you so young people should shut up? What exactly does any of that have to do with the problems of a housing shortage here?

      • Sailor Boy

        Never thought I’d see this comment from you but it is absolutely spot on.

      • Andrewo

        When I worked in Central Africa I worked for a nationalised mining company where all the revenues went to government. So nobody stole anything (apart from the government itself of course). As for working for the apartheid regime. Maybe so, but it is better in SA now and doesn’t NZ have an apartheid based electoral system too? 😉

        But the point I’m making is that sitting on your hands and complaining isn’t doing you any good. Broaden your horizons and your options. Also bear in mind that one of the drivers for higher Auckland house prices is NZers returning home from Aussie all cashed up: You’ve effectively been outbid by those of your own generation who got their act together!

        • Nick R

          No New Zealand does not have an apartheid electoral system. I assume you are referring to the Maori electorates? These are entirely voluntary and optional, everyone has the option of voting in the regular electorates if they prefer (which about half of Maori people do) and in practice, anyone can chose to vote in the Maori electorates if the wanted to as it only takes a tick on a form.

        • brendonharre

          Thanks for coming over here Andrewo and telling us how it is done -not. Quite frankly you speak a pile of tosh. For instance, if returning kiwis buying housing was the solution to the housing crisis -how does that explain homeownership rates falling since the 1990s. Clearly there are structural problems in the way NZ does housing. Websites such as this are gradually through conversation and debate attempting to address this issue -your know-it-all approach adds nothing to this process. You have no idea -your knowledge of NZ is superficial and your arrogant approach means that any positive input you could give, would probably be rejected anyway……

          • Andrewo

            It’s a pleasure Brendon! Anything to help. 😉

            Yes, there are indeed structural problems in NZ today, some of which are geographic and some of which are political.

            Since there are lots of new and newish houses outside of Auckland at reasonable prices, one can logically conclude two things: a) It’s not a national problem but a regional one and b) There’s not a lot wrong with cost of construction. Sure building materials might be say 10% too high but that’s not a deal-breaker.

            So what we have is a land availability & consenting problem in Auckland. The factors that have driven this are: a) Auckland being on an isthmus b) an inept council which is driving up the cost and difficulty of resource consents and building compliance. As I see it, the Council has basically sat on its hands for the 8 years of Len Brown and isn’t doing much more now. I don’t see Goff fixing much either. You get what you vote for!

            If I was in my 30’s I would be looking to get out of town even if it involved doing something that got my hands dirty. There is life outside of Auckland.

          • brendonharre

            AndrewO. Actually rapidly rising house prices is spreading out from Auckland. So it is not just an Auckland problem. The only big metro area in NZ which has stable house prices and falling rents is Christchurch -my home town. The lesson there is we stopped having housing demand shocks -earthquakes affecting Christchurch eventually stopped. Then as a province we upped our building rate to 12 houses per 1000 people.

            Auckland’s problems do include the supply constraints you mentioned -which have negatively impacted on the land component of house building. This issue does need to be sorted out -but that involves cooperation between central and local government because there are big infrastructure issues to be dealt with. The build rate in Auckland has not got over 6 houses per 1000 people -so the supply response has been sluggish. Even worse demand shocks are ongoing. Every month immigration into NZ and primarily Auckland is hitting new peaks.

            So Andrew perhaps instead of telling existing Aucklanders to bugger off elsewhere we should stop some new New Zealanders/Aucklanders from arriving?

    • Peter Nunns

      Okay. The analysis in this post shows that an average young person who saves 30% of their pre-tax income by cutting out a variety of luxuries will still be unable to afford a home deposit for over a decade, and your reaction is “harden up”.

      My recommendation is to shut up and choke on your condescension and sense of entitlement.

  • Bryan

    Something the boomer bashers seem to fail to understand, is that the main debt boomers accumulated in their twenties was their mortgage. There were no credit cards, hire purchase on cars required 50% deposit. One of the generational changes is that millennials stay in education longer, start earning later, marry later, start families later, buy houses later. All this is shown quite clearly in the census data from Stats NZ. Boomers generally went from school into paid employment or an apprenticeship, so were able to start saving earlier, but accumulated mortgage debt earlier.

  • Sanctuary

    State housing was a reaction to depression, the failure of capitalism, and the state of slums in NZ, combined with the lack of security for the poor in a world of slum lords. The government would own the house, and the tennant would have the security of tenure of a freeholder. Landlordism was to be banished forever. The long, calm lee of prosperity of the mid 1940s-70s has airbrused out the class conflicts of 20th century NZ. But the people who created state housing remembered who the exploiters were, and made sure they never had power over people again. It is important to remember the class war aspect of this, because the the same factors are at play today in the refusal to take effective state action on housing in favour of championing the rights of rentiers by the National goverment. My parents cashed in the child allowance for the deposit on their first home. They got a guaranteed mortgage with the state advances corporation at 3% fixed over 30 years. They got a 1200sq. ft three bedroom, bungalow. It was a home, not an investment. From Tony Alexander’s POV my parents journey to the middle class was pure, evil communism incarnate. The banks and landlords were excluded by the state from the (profitable) business of mortgages and high rents in the provision of slums. A scenario that would apprximate to the 1930s today would see the government build tens of thousands of 130-150sq. metre three bedroom apartments in Auckland and sell them to low and middle income earners who could raise the deposit in innovative ways that cut the foreign owned banks, private developers and landlords completely out of the picture. It is in the best interests of the retail banks to oppose that, for the same reasons as in the 1930s. Hence, they’ll oppose any real attempts to fix the housing crisis in NZ.

    • I agree with a lot of your sentiment. However, I wouldn’t support a return to the loans you describe. 3 % fixed for 30 years is effectively a taxpayer subsidy towards someone owning their own home that they can then sell on the open market for whatever someone will pay for it. There is no way the government would have been able to sell bonds at 3 % for 30 years so the taxpayer would likely have been picking up the difference.

      I’m all for state house building, if for no other reason it appears in the past to have been the most effective way of getting the housing supply up, which can only be beneficial towards lower prices.

    • brendonharre

      Good points Sanctuary. There is much to learn from history.

  • Nigel

    Has Tony Alexander done any realistic calculations on what level of savings most people would be able to afford after paying for the basics such as rent, electricity, food, transport etc.? (or is he going to start calling some of these items luxuries?). If you are in a financial position where you have a spare 17,000 a year to spend on the items listed in this post then you are probably better of than 90-95% of the people living in this country. That level of saving might still take a long time to afford a house deposit, but if the money was wisely invested in shares and other income earning assets then over a lifetime you could build up quite a large nest egg and retire relatively comfortably.

    • Guy M

      Tony Alexander also writes a column for the local “Tommys Real Estate” magazine where each month (or is it weekly?) he writes a column, on housing, giving his opinion. I think that in his mind he is probably already more than just an Economist for the BNZ, but he is obviously keen to be seen in a similar way to Mike Hoskins etc (i.e. an opinionist, and hence not a journalist). Similar, I guess, to Shamubeel Eaquab, who is similarly an economist but also an opinionist.

      Another opinionist, Gareth Morgan, gave a talk about 4-5 years ago, where he noted that house prices were way too high, and that there were realistically only two ways to correct this: either swiftly (i.e. crash) or gradually (i.e. stagnation for about 10 years, i.e. normal CPI price rises for food etc, but no price rises for houses for a decade). He noted that actually, in the end, the swift house price demise was better for more people, rather than stagflation.

      Then again, rampant inflation is also a means for house price correction – as long as you have locked in your mortgage before the rates hit 18-20% per annum. No sign of that happening in the near future, so its back to the first two.

  • Matthew W

    While Tonys comments might be grating and in some cases misinformed with regard to how it was 30 years ago, I think people are missing the context of his comments. His weekly overview is about providing economic commentary and advice to help individuals and businesses make desicions. What he is saying, and has been consistently saying for a long time, is high house prices are a reality that people wanting to buy houses will have to deal with. His advice is – if you want to buy a house save hard and recognise it is going to be very difficult (or maybe not possible), and that banks may be less willing to lend than they have in the past. His advice was also to think hard about if you really want to buy a house because it comes with downsides. He isnt saying all you need to do is cut out luxuries and youll be fine, stop complaining.

    Before critiquing that, think about what alternative advice there might be for an individual. The only real alternative is advising people to wait for the market to drop and have a good time in the meantime. Well Tony doesnt believe it is likely the matket will drop so doesnt give this advice.

    It is worth noting his advice over the last 5-10 years. Back around 2010-2013 he was advising people who wanted to buy to get into the market as underlying factors meant prices were likely to rise. At the time there were other commentators giving the opposite view – that huge price drops were just around the corner. It turns out his advice was good advice. And one could argue he got it right in part because he was interested in “the facts on the ground” rather than mood affiliating about how much nicer lower house prices would be.

    • I think his, or at least his employers interest is that people keep thinking it is worth getting on the housing ladder. Their worst fear is people decide to hold off and see what happens.

    • Peter Nunns

      Don’t get me wrong, I think that there are fundamentals (limited supply colliding with rising demand) that will continue to push house prices up, at least in the short to medium term. So it’s not entirely irrational to say “buy now, it’s not going to be easier later”.

      My problem with Tony Alexander’s take is that it’s not just aimed at potential homebuyers – it also reaches a policy audience and a political audience. And the message they’re getting is, basically, “there’s no problem, young people just need to pull their socks up”. That is a misleading message that ignores the fact that taking action to reduce house prices (or at least prevent them rising further) may be desirable. When facing a systemic problem with long-term negative consequences, it’s essential to consider all options.

      • Matthew W

        I dont think I have ever seen his column comment on what government policy *should* be. So I struggle to see how anyone could take his comments as an endorsement of any particular government policy.

  • MFD

    “His weekly overview is about providing economic commentary and advice to help individuals and businesses make desicions.”

    How delightfully naive. He is employed by a bank. The rational person assumes that he is acting in the interests of his employer. Let’s ask him what interest rate his bank is offering on the savings that he is recommending, and let’s ask him how that (taxed) rate compares to the rate of price inflation of the housing that the savings are to be put towards, shall we?

  • Ari

    Good post. Clearly showing that Tony’s suggestions as nonsense.

  • I know this doesn’t apply to all, but if you’re 30 and still on $50k – maybe buying a house in Auckland isn’t the best place to be buying.

    I also hope that if you’re prepared to work in the competitive job market in Auckland and have the hopes of owning a house in your early-mid 30s when you’re starting your family – that you and your partner’s combined salary would’ve increased enough over time (climbing the ladder) that saving for a deposit became easier?

    Yeah this is ideal world, and as f’d up as Auckland’s property values are. There are a few realities to this situation aren’t there?

    • Peter Nunns

      As of 2016, the median weekly income for employed Aucklanders aged 25-29 was $930, or $48,360 per annum. Median weekly income for employed Aucklanders aged 30-34 was $54,860.

      Unless I’ve misinterpreted you, you’re saying that more than half of Aucklanders aged under 35 should pack up and go, unless their parents are willing to spot them a house. At risk of stating the obvious, this is not a tenable solution.

    • 01anthony

      Yes there are a few realities to the situation, but poking at people earning the median income isn’t really an ideal solution.

      • I agree that poking at people who earn the median income isn’t fair and I don’t mean to do it – but I still stand by my point of reassessing the idea of owning a house by the time you’re 30 and earning a certain income. It’s not a foreign concept that living in a big city (which is expensive) and earning a low income isn’t the best way to “get ahead”.

        I know people my age (27) who don’t live in Auckland that own houses and have kids. My mates are focused on their careers, happily renting and not even near the position of needing to own a house to settle down (they are saving though).

        Also have family which are needing to get a bigger house (they’ve owned a 2 bedroom unit for a few years now, more kids on the way) and the upgrade to a 3 bedroom is too expensive and commuting in Auckland is tough. They’re looking to move to Tauranga where their incomes and what they can get makes things easier.

        • You are quite right from an individual point of view, you have to make the best decisions based on current circumstances, and if that means finding work in another city where you can afford a house. However, it is simply not tenable for half of Auckland’s young population to move somewhere else, as there are not the jobs, and it doesn’t take much imagination to see a big problem if Auckland lost half it’s young people.

  • Buying a house today has changed from being able to buy a simple house and then do your own work to make it better, is it that the government and councils with the insurance companies going along with it, assume all New Zealanders are completely useless and completely unable to do their own installations of basic equipment, in the past you could do your own plumbing apart for connecting to sewage which was fair enough, but try and install a fire today and you have to have a registered installer, who then has to get the building inspector to check his work. We recently bought a new fire and I said I would install it……oh no you can’t was the reply……but I’m an engineer with 50+ years of experience…..it doesn’t matter you haven’t passed the test….I have put in fires for the last 50 years…….but you are not registered……it’s my bloody fire……makes no difference…..so something that would have cost $240 for a building inspector cost me an extra $800 for something I could have done myself. No wonder houses cost what they do today, plus the time people spend on cell phones instead of working.

    • Fair enough if you have the experience but I’ve experienced living in two houses before renovation (properly) that had been originally put together by hobbyists. Cold, poorly done, unsafe and unhealthy. I am happier to see NZ have a stronger level of red tape.

      • But that was how we got into housing 50 to 60 years ago by being more do it your self, we did more for our selves to keep costs down something that is getting increasingly difficult to do. I have no problems with building inspectors or electrical inspectors but if they have to inspect the builders and installers, why shouldn’t any one do their own and the inspectors earn their keep, instead of getting a fee for signing a piece of paper. no wonder housing costs so much today.