Polity: A week on from the housing controversy
185 Responses
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Sacha, in reply to
I don't think that one can blame the housing bubble on speculators
That's novel. Who else has been bidding prices eternally higher?
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steve black, in reply to
That’s novel. Who else has been bidding prices eternally higher?
Just to answer your question (and not defend the original comment nor it’s context) the others bidding up prices would be:
people buying a dwelling to live in
people buying a dwelling to give their kids somewhere to live
people buying a rental property
people buying a property betting that the price will riseYou would call the last set of people speculators. I haven’t seen any research which looks at the proportions of those different classes of people involved in recent house purchases. I have read a nice paper on assessing the bubble(s) in the Auckland market and NZ markets, but it's technical, and I'm struggling to get the link in properly. I might have to postpone it until a new post...
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So first an overview which mentions the research and gives some context
and the research paper (warning: mathematics + data rich)
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Katharine Moody, in reply to
Chinese company CNR Corporation has won a $29 million contract from KiwiRrail to build 300 new rail wagons.
Kiwirail says it turned to the overseas firm because New Zealand workshops were not competitve and could not complete the contract on time.
Yep, the ones with the asbestos problem;
http://www.kiwirail.co.nz/news/299/78/Locomotive-Testing-Results-Received/d,news.html
http://www.mbie.govt.nz/pdf-library/latest-news/summary-kiwirail-investigation.PDF
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BenWilson, in reply to
I’d pick a random sample of names from the list and start contacting people and explain the research being undertaken.
This list was obtained by a "leaker". So you start contacting people on it who dealt through Barfoot and Thompson. I can see a number of problems arising from that immediately - B&T will not be happy, if they get wind, which I think they probably would, pretty quickly.
But say you'd got their buy in, in the first place, then yes, this could be done. It might be a tiny bit redundant to do it, though, because B&T themselves probably have a pretty good idea of the answer anyway - if they actually agree to attempting to collect this information, it would be a trivial matter for them to do it themselves. They'd only have to ask their agents to provide the information if they had it, or ask for it if they didn't.
Presuming it is done without their buy in, though, it would be good to get a feel for just how much such a survey would cost. I don't know if the phone numbers were part of the leaked data. Getting them has to be factored in, if not. We're talking somewhere in the range of 30 to 100 hours? 30 under the ideal condition that you have a list of phone numbers and every single one of the 400 odd in the 10% sample answers and gives you 5 minutes for your survey, in a language you can understand. 100 hours as a number I pick out of thin air to account for the non-ideal conditions. Maybe it's 5 times more, I don't know.
Could be done. Why has no one done it? Not just Labour, but anyone? Winston Peters could afford that kind of survey, probably. Why has this data been so hard to get straight? It's almost impossible to believe that no one has cared enough in NZ to just spend the $20,000 that this sounds like it would cost. I'd be pretty surprised to hear that the major real estate agents haven't collected it themselves anyway, just as part of their own marketing analysis.
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BenWilson, in reply to
I mean, an obvious candidate to do this research would have been the Reserve Bank itself, this giant body tasked with understanding the drivers of house price inflation. It probably wouldn’t even cost them so much, since their own staff could do it. Even without a government mandate to compulsorily collect residency information, they could still collect it by sampling, as you say. It stretches credibility to think they wouldn’t have even thought to try to obtain such information.
ETA: Then again, we are talking about a body that thinks it already does understand all the drivers. Maybe they are that stupid.
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Katharine Moody, in reply to
Great research paper - thanks for the link, Steve.
Ben, this answers some of your questions on whether or not Auckland is a bubble - conclusion: it is. Discussion toward the end on whether it will correct - only conclusion is that such a correction is unlikely to come from rents catching up with prices (incomes don't allow it). So, more likely to be an external shock.
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BenWilson, in reply to
That’s novel. Who else has been bidding prices eternally higher?
Well, it is possible that people who are not speculating any more than anyone else who buys a property are buying them. As in, of course they want it to go up, but that's not the main reason they're buying it. They could just want it, and have more money to spend and few other places to spend it.
Put another way, it could be a pool of people with a fundamentally different idea about the value of Auckland property than NZ residents. They need not be just in it for a quick buck. In other words, this might not be a bubble, it might be a boom.
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BenWilson, in reply to
Yes, they take for granted that P/E ratios tell the whole story of bubbles. I don't really need a great deal of evidence that Auckland's P/E ratios are very different to the rest of the county. The question for me isn't whether this ratio has "bubbled", but whether this ratio still tells us the story that they think it does. If the fundamentals have actually changed then a time series analysis doesn't shed much light - we're in a situation where the future doesn't resemble the past.
How could the fundamentals change, you ask? Well, if conditions change, then it's not out of the question. It seems like it's pretty hard to model the main condition that might change and massively affect everything - what foreign buyers feel about it, how much money they might have to spend. Which is why they conclude:
Such corrections have occurred in many other countries that have experienced house price inflation in recent years. Yet the New Zealand real estate market has very largely been spared such major corrections over the last two decades. International factors may now be playing a role in the New Zealand market, providing some degree of insulation from downturns as new money drivers from foreigners, immigrants and ex patriates assist in sustaining demand side market pressure on prices and, in the process, bringing the prices of desirable real estate, particularly in Auckland, coastal and island locations, in line with prices of similar real estate overseas. As indicated above, such pressures have inevitable spillover effects on the rest of New Zealand real estate
They don't actually conclude that there will be a correction. They conclude that of the two ways that P/E ratios could return to "rationality", either by rents rising or by prices falling, that prices falling is the more likely option. But whether "rationality" will return is left as the great unknown that it is.
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chris, in reply to
In the context of this thread and the various sentiments clouding this issue I’m obviously very weary of saying much about that with so little exposition on your part. I’m hoping your implication isn’t that unsafe manufacturing/ workplaces and illegal/ questionable work practices are exclusive to Chinese companies, these things happen across the board. The transparency and access to the information you linked to including the remedies outlined are a credit to our democracy.
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chris, in reply to
this might not be a bubble, it might be a boom.
When you make the top ten we’ll bring the balloons
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The fact is that the Chinese government's appalling human rights record can only engender distrust among citizens of a free country. I don't blame those who want to leave but there is no way that anyone that backs regimes like this should be allowed to buy land here. If they buy enough of our land they will assert themselves politically, as the Chinese business leaders put pressure on Bill English on his visit this week. http://www.theguardian.com/world/2015/jul/21/human-rights-lawyers-china-missing-clampdown
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chris, in reply to
Political assertion isn't a one way street Andre; http://www.theguardian.com/us-news/2015/feb/24/chicago-police-detain-americans-black-site
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As per my previous post we have reason to distrust the motivations and actions of many foreign governments and their backers.
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chris, in reply to
Ah, I got you Andre, sorry, certainly. A tad over-sensitive on my part. Katharine’s post was most probably similarly innocuous.
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steve black, in reply to
Could be done. Why has no one done it? Not just Labour, but anyone?
Thanks for your reply Ben. And your question is spot on as far as I’m concerned. The only observation I’d add is: Having worked for a couple of decades in private practice (versus my time in Universities) I’d agree that the Real Estate Company records would already have data which would allow things to be done properly. Being able to enlist their support and get the data to a trusted independent source is the big task.
I avoided talking about where the list of sales might come from because the list at the core of this particular conflagration is part of the problem/moral questions/lack of clarity about data sources. So my list is just “if somebody showed up with a list” rather than the list. I was just trying to sketch out for people who might not know what doing it properly would look like. I didn’t mention phone numbers, although I though about it. I wanted to avoid mode of survey (face to face vs telephone vs web based) because that tends to complicate the discussion again when the methodological microscopes come out.
What I proposed is simple in concept, but in no way easy to undertake.
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David Hood, in reply to
Rates of Home Ownership
Chris, what country is that graph for (and why does it stop almost a decade ago)?
The New Zealand data, from http://www.stats.govt.nz/browse_for_stats/population/estimates_and_projections/DwellingHouseholdEstimates_HOTPJun15qtr.aspx looks like this
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David Hood, in reply to
I mean, an obvious candidate to do this research would have been the Reserve Bank itself, this giant body tasked with understanding the drivers of house price inflation
Are they charged with that? I thought they were charged with the security of the banking system, and housing only affects that if two many people get out too many mortgages creating a risk. The reasons for house price rises doesn't seem something within that mandate (so wouldn't be funded).
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@ David Hood
I don’t know the exact wording of their official mandate, but it seems to me that house prices and the possible collapse thereof are pretty fundamental aspects of the security of the banking system. At the very least, I’d expect them to be attempting to predict the chances, to the limit of their abilities.
But then that’s just me expecting people to think outside of the tiny box that they might have been put inside, both by others, and by themselves and the dominant economic ideology that probably forms the basis of even getting a job there. I had an impression that outside-of-official-mandate thinking was at least allowed when they began looking at the low equity ratios. It seemed to me that the GFC was a self-teachable moment. But as moar-austerity seems to have dominated at least the European orthodoxy, perhaps that moment has passed, and we can expect our bureaucrats to be completely blindsided by changing conditions, leaving it to people whose job it isn’t to try to make sense of the whole mess on their behalf. People like you, for instance.
Perhaps a better way of putting this: If it’s not the Reserve Bank’s official duty, then whose official duty is it to know what is happening with by far the biggest asset class in this country? Is it really no one at all? Are we really happy to just walk this path in total official blindness to the changing nature of our economic situation?
I hardly think it’s something we can expect the main private gatekeeper to the knowledge to be forthcoming with. It’s not in the interests of real estate agencies at all to allow any of this information to be freely available. Quite the opposite, it seems to me that it’s information that they quite deliberately would not want the general public knowing, even if they do know it themselves. Because if it is true that this is a boom or a bubble, they will want to make as much as possible out of it. They have strong interests that no measures be taken to slow the boom or prick the bubble because that’s all easy profit taken straight out of their bottom line.
ETA: And quite aside from any sinister motives, it's "their data" and private organisations seldom give that sort of thing away, just on principle. It's part of their competitve edge to have more information than their competitors.
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Katharine Moody, in reply to
Not my implication at all - it's a point about the emphasis you place on price, as if it were the only (or the principle) consideration in the production process that makes a good "competitive". In this case, Kiwirail explain in your link that the supplier was chosen because;
Kiwirail says it turned to the overseas firm because New Zealand workshops were not competitve and could not complete the contract on time.
"Not competitive" means, I assume, the NZ workshops price was higher than the successful tenderer. And "on time" meant the successful tendered could deliver the goods earlier than the NZ workshops bid.
In the end, the actual price for the goods might have been lower (for the purchaser), but the cost of production was higher for the seller than anticipated - and the actual in-service delivery date was likely delayed beyond the in-service date that the unsuccessful NZ tenderer might have delivered them.
So neither of the two criteria on which the "success" of the tender was determined were delivered. Both buyer and seller's profit/business objectives were not realised.
I think it's useful to view/analyse commerce/commercial transactions from a labour theory of value (as opposed to an orthodox) economic lens.
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BenWilson, in reply to
What I proposed is simple in concept, but in no way easy to undertake.
Therein lies the rub, I think. When high quality information is difficult/costly to get, people make do with low quality. That's not something we have a choice about, really. The alternative is analysis paralysis in most cases, and it's simply false to consider this the default position for humans. Not acting is still a choice, and it is very often the wrong choice. Of course a very sensible course of action is to work out what data is needed to make better choices.
This becomes even more complicated when there are parties that have a definite interest in the public not getting such data. It's quite scary to think that the most powerful people this country could have a policy of deliberate ignorance about such an important issue as where the money going into the largest asset class comes from. How are you going to fight that? Spend your own money and time on extremely expensive analysis, just to prove something that is almost bleeding obvious, but not officially provable?
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steve black, in reply to
Perhaps a better way of putting this: If it’s not the Reserve Bank’s official duty, then whose official duty is it to know what is happening with by far the biggest asset class in this country? Is it really no one at all? Are we really happy to just walk this path in total official blindness to the changing nature of our economic situation?
I think maybe the answer to this is: yes nobody official is watching. But it could be they are watching and withholding. We can’t tell from the outside.
Lack of watching might be because of the belief that “the market will magically take care of everything”. “The market will magically…” is not a belief I subscribe to (just in case anybody thought I might).
Watching and withholding might be because the consequences of issuing warnings about it is deemed to be likely to create a greater mess than the officials are comfortable with. Which takes us back to the crux of the matter about Labour’s decision to release (vs withhold) the results of their study. It’s a fine balance which has to be carefully thought out.
And let’s remember that thanks to the very same Rob Salmond it seems like the Government doesn’t always describe official advice accurately, nor follow it:
I have great sympathy for those who might be sitting quietly on the proper data because the potential problems with releasing it are too great.
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steve black, in reply to
It’s quite scary to think that the most powerful people this country could have a policy of deliberate ignorance about such an important issue as where the money going into the largest asset class comes from. How are you going to fight that? Spend your own money and time on extremely expensive analysis, just to prove something that is almost bleeding obvious, but not officially provable?
I do not have sympathy in the same way for this sort of thing you describe. But no, I don't put (much) of my own money into research to do something about it. I've retreated into research interests which really aren't of much concern to 99.9% of the population (vaguely estimated but probably conservative if you knew I'm busy researching how to date vintage cymbals and vintage cymbal prices). And old cymbals certainly aren't about saving the planet or the economy. But I was interested in the price bubble estimation paper because I've been wanting a methodology for assessing the existence of bubbles. No direct analogue of P/E yet for old cymbals, but then in that paper they did look at alternatives and assumptions of using P/E in the appendix from what I remember.
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Katharine Moody, in reply to
And let’s remember that thanks to the very same Rob Salmond it seems like the Government doesn’t always describe official advice accurately, nor follow it:
And then sometimes they ignore it altogether and do what they want to - but the why that they want to do stupid things (when there are simple, esay, clean and good for NZ things to do) really puzzles me (this from discussion on another site);
The new rules the government is proposing to bring into effect on 1 October 2015 will create a Frankenstein monster of the government's own making
The best and simplest solution was to require all incoming migrants, on purchasing property in new Zealand to produce a Tax-Clearance Certificate from the country in which they are tax-resident. No Tax-Clearance, no-purchase - simple - it would be up to the Tax Authorities in the source country to confirm or deny - thus no requirement for the NZ government to get into a battle with that other country
As it now stands, if a criminal from China pops up in NZ (with fraudulent funds) and that crime is punishable by death in China, NZ will resist extradition and allow the person to stay with the naughty money - and it cant seize the funds because no crime has been committed in NZ - quite a dilemma
Full discussion for context here;
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BenWilson, in reply to
Yes, we don’t know which one it is. I personally think it is more likely to be the latter, watching and withholding. I can’t prove it, though – it’s a conspiracy theory. The other way requires me to believe that incredibly smart people are incredibly stupid. I find a conspiracy of silence easier to believe. That could manifest in a deliberate policy to discourage research*, should any bright sparks notice the elephant braying loudly in the corner of the room, but that’s all part of the conspiracy, really.
*ETA which means there's a bit of "not watching" in there. But it's deliberately not watching, which makes it more like watching and withholding than not-watching. Watching and withholding anyone from looking.
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