Also, when it comes to spending power, I think mean income is actually better as a predictor of price. Median is a good measure of affordability, and I'm glad to see it quoted more often. But if in a group of 10 people, 9 of them earn 50k pa, and one earns 1000k pa, the median of 50k pa is not a true reflection of the money available. That one person could buy ALL the houses and rent them to the rest. You don't have to set your price at what the 50k people could afford. Futhermore, once the 1000k pa person gets all the houses, they could become a 2000k pa person without affecting the median at all. With double the buying power, double the ability to influence prices.
I guess my point to you is "don't confuse what should happen with what is happening". Housing prices probably should be driven by median incomes in the country the houses are in. But I don't think that IS what is happening. That doesn't make it a bubble. It makes it a boom, and one that could go on for decades. NZ's ability to soak up excess Chinese millions is really quite small. We could slow the boom by tightening up on foreign investment - I think we should*. But until we do, it's a boom and possibly a very wise investment, much as property has been since Europeans first landed in NZ. Great for whoever has the money to shovel into it, and terrible for the locals. The other story in these figures is how much that is the case - Euros are still doing OK, getting a reasonable chunk of the property here. But Maori and PIs? They're screwed, and getting more screwed every day.
Which is all racist observation. Individual Euros are still poor as, in exactly the same boat as the average Maori. And some Maori have stacks of cash, as do some PIs.
*When I say we should, I'm certainly open to some of the ideas that instead of just stopping it, we redirect it into "productive" housing development. Then we get a boom that flows beyond property ownership into the entire construction sector. That would actually do a great deal to help poor people. And I want a bigger city too. I want this place to grow massively. If it's got a lot more Chinese people in it when I'm old - great! It's got a lot more PIs in it than it did when I was a lad, and we're all the richer for it.
That doesn’t make it a bubble. It makes it a boom
You're right, it's only a bubble if it pops. And I think I earlier explained why I think it will pop. As you point out, the question is 'how soon'. And my response (were I a highly leveraged house owner in Auckland presently) would be to first assess the safety/certainty of my ongoing income/employment in Auckland in the event of a severe recession (global conditions impacting on local). Those in essential services are likely more 'safe' (provided the government can continue to pay its wages bill) - the private sector always contracts first.
If I determined the risk of job loss during a contraction was medium to high - I'd plan now for such an event. Additional investing in the market right now is silly - the price is to high based on intrinsic value (to locals, that is) And it isn't just on an affordability measure - residential rental yields are running at no more than 2% based on today's prices. Not worth risking capital at that yield - but this is the problem the world over, no matter what the asset class.
I think median income is a good measure of people covered by that median (locals) ability to buy houses. This makes it good as an affordability measure. It does not, however, have much to do with a predictor of what prices will be, just if the median people can afford them.
From this debate, which has been enthralling, I have taken the following lessons:
1) Our country (and the British social order which it follows) has always had a racial hierarchy, but some of us are not happy to face that reality. The statistics show this painfully clearly.
2) We have enormous and differing anxieties about what our country may be in a post-commonwealth world and have a leadership vacuum in this regard.
3) It is likely that China (the country, the civilisation) also has a racial hierarchy and no one has talked about this much, as we assume people like us as a country and darling of the former Brit Empire.
4) While we are in this public morass where genuine public conversation has been largely suppressed, avoided or differed, other more dynamic and powerful countries are already attempting to make decisions about our future.
5) The poor have been abandoned by politicians and have increasingly weak influence on our national conversation. It is not clear, though, that our society no longer feels a moral duty for greater equality or to guarantee a minimum existence to its weakest members.
6) If Labour wants to ever have a mandate to govern it will have some serious butt kissing to do.
7) This so far has been one of the rare successful attempts to change the political narrative and get media attention in New Zealand by Labour in 7 years.
8) This is a bad and polarising backdrop to consider how our multi-culturalism will continue to work.
9) Why hasn’t anyone asked Bic Runga what she thinks?
10) Will this be forgotten by next weekend?
It does not, however, have much to do with a predictor of what prices will be, just if the median people can afford them.
Correct. But purely from an investment/capital risk point-of-view - trying to time/pick/enter before the peak of any market bubble is only really a strategy for those participants who are purely 'in it' for speculative gain. And that's the problem for many locals and in particular, our first home buyers - they have to take on the same large risks that the speculators are prepared to take on - yet such risks are only appropriate for those that can afford to lose.
I have re-read Tze Ming Mok's original post and it is an angry one about the betrayal of Chinese New Zealanders by Labour. This was my initial and angry gut reaction too.
There is no consideration, though, of global politics- the enormous influence that even a small slice of one the great powers wealth could have on us. It's very late in the piece to be thinking about this granted, but this too is a valid thing to consider.
It is just as valid to be concerned about this as it is to be concerned about Pharmac and IP through the TPPA.
Van Gogh’s and the like are Veblen goods – their desirability is based on the price.
A better example of a market good would be secondhand cars, which rise and fall in price according to supply and demand. If there’s a shortage of cars, the price goes up, but only by a limited degree, as people settle for older and rattier cars and more vehicles are imported.
In the case of Auckland property, you need to consider whether anyone would buy a tumbledown shack in a semi-ghetto for a million dollars if there was no expectation of substantial future gains. Probably not. Some people would be forced to, but many would rent or move elsewhere – and nobody would buy properties to rent out unless the rent covered the mortgage and other costs.
(In most countries, most of the time, you can buy a property on a mortgage, rent it out and make a small profit. This hasn’t been the case in NZ for years. Same with farms, even at inflated dairy prices).
You’re right, it’s only a bubble if it pops.
Well, it's only clear that it was a bubble at that point. So the absence of popping (yet) doesn't make it not a bubble.
Also, a sudden sharp downturn isn't always indicative of a bubble. We could drive down the prices of Auckland property on purpose just by passing laws about the prices. In doing so we would be deliberately changing the fundamentals, rather than failing to hover close to them.
To accurately call it a bubble you have to have an accurate model of the fundamental value, and then show that prices are well in excess of that. But fundamental value itself is quite a difficult and nebulous field. Part of the risk in investing is that people evaluate it differently. To say Auckland is overpriced you have to have a model of what is the correct price for a property in Auckland, taking into account all the things that all the buyers will consider important in the value. And here's the problem - do we really know what those are for the pool of buyers outside of NZ, most of the world's population? People from other place might, quite simply, see it differently. Where we see overpriced, they see underpriced. This isn't just theory - I think this is exactly what is happening. We're sitting here thinking the prices are crazy high, but investors from places where it's harder to get property like what's in Auckland think the exact opposite, that it's a goldmine of valuable property that they want to have. Their perception of that makes it so. Their desire to own the property adds to the fundamental value, so long as it's not purely speculative. And I just don't think we have enough information to judge what the motives of the foreign buyers are. We don't even have information about how many or who they are, really, that's what all this kerfuffle is about.
If I determined the risk of job loss during a contraction was medium to high – I’d plan now for such an event. Additional investing in the market right now is silly
Sure, but you're talking about a local investor. The risk of job loss from a contraction in NZ is pretty minimal for someone whose job is in Hong Kong.
Not worth risking capital at that yield – but this is the problem the world over, no matter what the asset class.
You're modeling property like it's a stock. But other people don't necessarily see it that way. They might have very different ambitions for that property in the long run. They might want to live in it one day. Or to let their kids live in it while they study, then send their parents there, before coming themselves 10 years down the track. That's not something cold P/E ratios are going to pick up. Especially if moving to NZ becomes trendy for some particular set. Then it's got not just the Kiwi lifestyle that they can have later, but they could be bringing in a whole lot of their own cultural comforts - many friends, whole areas that are developing around their tastes, nice places for their friends from home to come and visit. Maybe even bringing branches of their businesses from where-ever they come from with them, maintaining a stronger connection back home and keeping a high income going. This is the immigration pattern of every group I've ever known. My own family did it this way. Hell, since my wife is Australian, I even did it. I didn't think of the spare rooms in my own house as wasted earnings, I thought of them as guest rooms for an endless stream of Ozzie visitors, and then as bedrooms for my future children. I chose the price with that in mind, and spent my Ozzie earnings accordingly.
It's not like this is the first time that NZ has been seen as a land of opportunity. From the perspective of the rest of the developed world, it's a pretty unexploited place.
Van Gogh’s and the like are Veblen goods – their desirability is based on the price.
Maybe. But however they get their value, it's intrinsic. It's not pure speculation that makes them valuable. Van Goghs are rare, culturally important, incredibly famous. Not to mention beautiful, ground breaking works of genius.
Which is all beside the point I was making, which is that their price doesn't have anything to do with median incomes. It may well have tracked mean incomes more closely, since that captures the earnings of the ridiculously rich. But really, incomes isn't the driver. No more Van Goghs will ever be made. These things are accruing value because they are rare and important. That won't change just on market sentiment. They will never become less rare (well, OK, if some of them are destroyed or lost, then maybe. But they're pretty well protected). They will never lose their place in the annals of Western Art. Their value is intrinsic.
That's all if you believe in intrinsic value at all. It's not a certainty. A whole school of thought says there is no such thing, that there is only price. But in that school of thought there is no such thing as a bubble. There's not even a correction. There's just people making decisions in their interests, which are in constant flux. It's a conundrum all right, and part of the reason I can't feel sure we're in a bubble. Maybe they're right. I don't think so, but it's a pretty difficult area of economic philosophy - possibly the hardest of all, the very heart of it. What is value?
In the case of Auckland property, you need to consider whether anyone would buy a tumbledown shack in a semi-ghetto for a million dollars if there was no expectation of substantial future gains. Probably not.
Hard to say. You can always build. A ghetto might not stay a ghetto. It's an ironic choice to bring up, really, because the land at the end of my street had very little more than a tumbledown shack on it, and at the time, the area is as close to ghetto as West Auckland gets. It sold for a shitload more than a million. Because the Chinese buyer then developed it massively. It's not clear whether they did it in the intention of renting it out, because for all the complaints that Auckland doesn't have enough rentals, there's a whole bunch of empty places at the end of my street.
At the end of the day - one person's tumbledown ghetto shack is another man's 20 million dollar opportunity. The previous bunch that failed to develop it were locals. They presumably did the numbers and came up short. Now it's a big collection of the newest houses in the district. I don't know the owner's plans - maybe they're just a whole lot longer term than what local people bother with. Maybe they have better information about a big pool of people they could sell them to, that local sellers are not privy to. Maybe it's just some really rich guy's vanity project, and he'll name the whole thing after himself and put a big statue up at the entry way.
I think it's quite hard to put a local price on what someone from abroad may put on the opportunity to do something entirely different with their life. Could an early contact Maori have really understood the motivations of some person from a city like London coming all the way to NZ just to confine themselves to an acre of dense forest? Only after they saw what that person did with it, and by then it's too late for the Maori guy to go "Oh shit! That was a good idea. Wish I'd asked for a whole lot more. No wonder the weird white dude looked so pleased with himself afterwards". Or even "Oh Shit!!! I never realized he was going to do THAT!! Fuck it!! I never signed up to let him do THAT!!" (thinking of something like clear-felling all the trees and selling them off as logs. Or starting up a saw mill, or an open cast mine, or a big hotel full of drunken white sailors).
We're not quite so unlucky as those Maori. We might, at least, see this coming. Or we can convince ourselves that our ideas of value are real, theirs are false, and wait for the bubble bursting that never comes. Or, it could be a bubble. I don't know. I just have my doubts.
Van Goghs are rare, culturally important, incredibly famous. Not to mention beautiful, ground breaking works of genius...They will never lose their place in the annals of Western Art.
Wouldn't surprise me if the Sunflowers eventually drop a notch or two in the canon. A few more decades of being employed in the decor of state service provider facilities as a means of inducing bovine compliance has to take its toll.
Yes, elevators have certainly done classical music no favours.
There is no consideration, though, of global politics- the enormous influence that even a small slice of one the great powers wealth could have on us. It’s very late in the piece to be thinking about this granted, but this too is a valid thing to consider.
True- –but is that foreign power aggressive with a history of imperialistic interventions all over the world?
No, in the case of China. Yes in the case of the US.
China simply offers NZ an option/s —–we do not have to take what is offered and can pick and choose.
There will not be Chinese gunboats in Wellington harbour to force John Key to sign ‘unequal treaties’ or legalise the importation of crystral meth – Chinese are not aggressive like the Anglo Saxons who forced a weak China to give up its silver in exchange for a flood of opium into the country – devestating the Chinese people
Chinese are not aggressive
Whenever anybody claims “[X group] are not aggressive”, the question comes to mind, “So how have they survived so long?” Most groups are aggressive when they feel they need to be. (Genghis Khan was of course a pacifist who made a point of ending all war.)
Or we can convince ourselves that our ideas of value are real, theirs are false, and wait for the bubble bursting that never comes.
Such a forever increasing value (intrinsic or otherwise) only doesn't 'pop' provided the QE/ZIRP music keeps playing. Or, there is a massive, world-wide consensus on debt forgiveness for everyone - and we start the music over without any casualties over clamoring for chairs.
.. there are now more problem areas in the world, rather than stable situations. No major nation in the West can repay its debts. The same is true for Japan and most of the emerging markets. Europe is a failed experiment for socialism and deficit spending. China is a massive bubble, in terms of its stock markets, property markets and shadow banking system. Japan is also a basket case and the U.S. is the most indebted country in the world and has lived above its means for over 50 years. So we will see twin $200 trillion debt and $1.5 quadrillion derivatives implosions. That will lead to the most historic wealth destruction ever in global stock, with bond and property markets declining at least 75 – 95 percent. World trade will also contract dramatically and we will see massive hardship across the globe.
The Pacific is an area of interest for China surely. New Zealand at the least is an attractive place for some of its wealthier and moderately wealthy citizens to send their children or purchase property or take a holiday.
Such a forever increasing value (intrinsic or otherwise) only doesn’t ‘pop’ provided the QE/ZIRP music keeps playing.
Any real reason to think it can't? Both seem like they could perpetuate the control of the world by the finance system all the way until everything belongs to the tiniest imaginable group, the last stand of merging banks until they are stormed by hordes of the impoverished. That could take a very long time to play out.
I don't think it's a good way for it to go. Better would be money supply intervention by any one of a million other ways that don't involve giving free money to banks so they can lend it at a profit to people to buy houses. But that would involve our understanding of economics NOT being dominated by the word of the finance industry itself. In this day and age that everyone trusts specialists to know what they're doing, because there are so many that do actually know what they're doing, it's going to be pretty hard to convince the world that this particular bunch, in control of basically the most important knowledge for ordering the species that there is, either doesn't know what they're doing, or doesn't want anyone else to know that they do know what they're doing and they're fucking it up on purpose.
Any real reason to think it can’t?
For a lot of reasons, I think algorithms are pretty much in charge - hence the unwind will be pretty much uncontrolled. Flash crash - all dominoes down in the blink of an eye.
But, that's a wild guess.
and things like attitudes to women, smoking and other forms of social change over the last 30 years which are influenced by immigrants from countries with different values.
How have Chinese attitudes to women been an issue in NZ????? Give me one example???
Whenever anybody claims “[X group] are not aggressive”, the question comes to mind, “So how have they survived so long?” Most groups are aggressive when they feel they need to be.
Some groups are less warlike than others. Of all the major civilizations China has been the most peaceful, the least aggressive.
How many colonies does the PRC have? How many troops stationed overseas, overseas military bases?
The aggression has been all one way, particularly over the past two centuries —-whites ganging up on and invading and plundering China, not the other way round. That was because China was weak.
But with the rise of the PRC, and the success of her revolution the tables have turned.
With the anticipated demise of the US, likely to split up into a whole lot of countries, and rise of the BRICS, the anglo saxon heyday is well in the past.
White people --just get use to just being like everyone else, no more, no less privileged than a Chinese, Indian, or African.
And thats the way it should be. And it will be good for the world, good for peace and prosperity for all—not just a handful of whites who think the world owes them a living
“To force the Chinese government to open China’s doors for so-called “free trade”, other Western countries resorted to non-trade means, generally force, to achieve their goals. Consequently, China quickly fell from being a wealthy power to a semi-colonized country, and soon thereafter the economy almost totally collapsed while its market was flooded with goods and capital from the West. According to some historical data, in 1820, 20 years before the first Opium War, China’s gross domestic product was 32.4 percent of the word figure, the richest country at that time.”
Payback is a bitch….enjoy it you racist white crackers
I think you may have misjudged your audience here.
I think you may have misjudged your audience here.
Russell, cleanup on aisle 2.
Payback is a bitch….enjoy it you racist white crackers
Not the first time that one's been rolled out.
We need to have a conversation about racism here.
What it looks like now, in a world where "no one is racist", because they're all so careful about what they say in public. How because "no one is racist" all the bad things that happen to minority groups are obviously all their own fault, as say the "no one is racist"s.
Where the Labour party of New Zealand says we need to talk about house prices because "Chinese people", like it's fucking well 1890 again, rather that a gigantic pyramid scheme built on decades of failed state policy from both major parties, who coincidentally are made up of people with nearly all their money in the housing and land markets.
How judges hand out longer sentences to Māori for the same crimes, because they need to get the message out, to Māori, about them being over-represented in prison. That sort of "no one is racist". How the police take more cases against Māori because it's an easier conviction, because they're obviously just more guilty, or so say the "no one is racist"s.
The bit where both major parties just a few years ago argued over the correct way to steal trillions of dollars of land from Māori, when it was discovered that no one had ever bought much of it, so legally it was still theirs, and what if they charged rent when the government could sell it and let a white guy charge rent instead. How this National government is still shuffling crown-held Māori land into different departments so they can legally sell it despite it not legally being theirs to sell.
How white religious people who go nuts and shoot a bunch of folk are strange and crazy and not like all us and brown religious people who go nuts and shoot a bunch of folk are terrorists and just like all them. But not in a racist way.
How we're in the middle of a fucking war in the middle east, still, with our SAS on the front lines, targeting cities for big-ass bombs, because obviously levelling Fallujah again is ... not racist or anything.
And really, those people we're bombing, they're terrible, it's all their fault, we're really trying to save them, with our giant bombs, because they keep shooting at us, just because we're in their country dropping bombs on them, like crazy people. And not because we're racist.
Except Māori don't get the same jobs, don't get into the same schools, do get arrested where a Pakeha would get diversion, do get longer sentences, do get paid less in the same jobs, do get hired last and fired first (which isn't racism, you see, it's fair, and that's not racist either).
And the forgivers who buy all our houses are Australians, just like forever. Most of whom are also New Zealanders to a good degree, the same as the immigrants from other countries who come here and buy a house. There's an Irishman owns a whole town down here, bought the lot well over market rates. Owns all the shops, businesses, houses, and if you live there you work for him and rent from him, and certainly nothing ill to say of the man, or you might find yourself not living there after all. Literal lord of his domain. Did labour care? No, fine example of foreign investment. And not because they're racist. Big German bloke, no problem. But a Chinese company (actually owned by a kiwi, married to an MP of all things) bought a farm? HOLY SHITBALLS! And not because racism.
We just suddenly need to talk about Asians buying a house. Because if this keeps up they'll own the place.
And it's not racist saying that, because "no one is racist". It's just real.
our base method was to estimate people’s ethnicity
Remembering, of course, that "no one is racist"s do things like that. Estimate people's ethnicity and start making sweeping generalisations on what are basically anecdotes and then complain about all the [minority group] and their [legal activity] and how it's associated with [unpopular thing].