In NZ we have created a culture that obsesses with house prices. It's been this way since at least 2000, if not earlier. Many peoples retirements plans hinge on them being landlords or holding large amounts of property.
The NZ share market is a joke. Pretty much any serious global company that started in NZ moves away from NZ without even entering our sharemarket. There are a few exceptions of course, but by and large it's a dull, depressing market and there are very few incentives to invest in businesses rather than property.
NZ's tax regime also actively discourages investment outside of NZ. Holding growth shares in US tech stocks will result in annual wealth taxes, even if you hold and never sell. No wonder property is easier and more profitable.
Last year a friend was gloating at how they purchased 5 rental properties in the South Island (with mortgages of course). Yes a degree of rental properties is required but what we're doing in NZ is way out of proportion.
> In NZ we have created a culture that obsesses with house prices. It's been this way since at least 2000, if not earlier. Many peoples retirements plans hinge on them being landlords or holding large amounts of property.
Canada and New Zealand are similar in that respect. There are a sizable number of people with "investment properties", but the majority of homeowners own a single home and are counting on the price to rise indefinitely to fund their retirement.
Economists and politicians regularly brag about how much 'wealth' the average Canadian has; in reality, being able to sell your house for 1.5MM isn't that much of a windfall when other houses are at least 1MM and rising rapidly, and renting is more expensive than having a mortgage.
> in reality, being able to sell your house for 1.5MM isn't that much of a windfall when other houses are at least 1MM and rising rapidly, and renting is more expensive than having a mortgage.
This is starting to hit a lot of my parent's social circle. They are retiring, mostly from the edge of a big city.
About half plan to or have retired in a small town. In that case they are able to get something with the $1.5M they sold for, but they are driving prices up in those towns in a way locals can't afford.
The other half wants something else in the city. Some remaining in the suburbs, others move more into the city, others "in the sticks" and are all surprised that that's going to use up all of their $1.5M. They expect to buy something for $200k and have the rest for retirement lol.
House prices are like car dependency in that when it becomes an issue it makes so many conversations so boring. Housing and traffic. Exciting! People become obsessed and then it's all downhill.
No I don’t believe you can get tax credits for paper loses. But you definitely do have to pay for paper gains.
Most financial firms in NZ wrap US/growth stocks in a special type of investment called a PIE, which essentially they handle the tax issues for you (Ie your net % gain includes after this wealth tax is taken into account).
I wonder about this as well. Let's say Amazon did really well for 5 years and you paid significant wealth tax from these shares. Then Amazon plummets and you lose 50% and then you sell shares. Would the NZ government reimburse a part of the wealth taxes you already paid?
There is a decent bootstrapping startup scene in NZ. Not too many active investors, and if they are they aren’t the same nature as you would find in the US. Less risk takers, more property buyers.
The problem is most NZ startups don’t have the hockey stick growth due to our isolated market. We have to spend a lot more on sales before network effects kick in. The Internet can only help soo much.
I'm currently living in Tokyo and have family visiting from NZ. I've already had a few uncomfortable conversations about when I'll be coming back. Realistically I won't be, not only would I lose more than half my salary, but I would then have to dedicate a large portion of what's left on an overpriced hovel that's probably rotting from the inside. It's no wonder that most of the people I graduated with left the country long ago. Those who stayed had well off parents who could get them onto the property ladder.
> I've already had a few uncomfortable conversations about when I'll be coming back
If they truly care for you, they'd understand that where you are right now is better than back home. If a place is expensive and unaffordable, the best option for you (and anyone really) is to leave.
How are the lending laws in New Zealand, if they're regulated?
Here in Norway, one can loan 5x of annual gross income (minus any debt you have), and at least a 15% down payment.
Average annual household income here is 610000 NOK (~64500 USD). Average home price here (end of April) is 4483328 NOK (~473914 USD), so the ratio here would be 7.34 - but that's assuming single income household. For double income, that ratio would obviously halved.
In any case, the average person buying an average home here would have to save up a down payment equivalent to 2.34 annual gross incomes, in order to get the maximum possible loan/mortgage (5x annual income)...and that's assuming this person is completely debt-free.
If this person managed to save up 25% of their annual income, it would still take almost 10 years to save up for that down payment - but the housing market will likely outpace the saving potential of a your average person. So now you have to save up 2-5 extra years to afford the down payment. All while you're paying rent that is much higher than the mortgage would be.
Lesson learned is that being an average single person trying to buy an average house sucks, at least over here.
(Caveat: obviously most people do not purchase "average" homes, but start on the lower end - and most will save up with partners, as well as enjoy appreciating value of their first "starter" home)
Public policies are now heavily favouring public transport and cycling, which both require higher population density than single family homes to be effective. As a consequence, a higher share of the population is expected to live in apartments rather than homes compared to the 70's and 80's.
Additionally, averages tend be impacted by outliers. Take the example of a rich heir buying a multi-million dollar mansion. His property will heavily influence the average house cost and his income is close to 0 since he lives off his capital, thereby reducing the average household income. This can twist the perception of what's actually happening for most people. The best way to fight that is to use medians instead of averages.
I am not able to find reputable sources for data in Norway, but what does your analysis look like when looking at median household income and median appartment prices. As this will more likely reflect the reality on the field.
Of course, people will want to own houses, but large - car optimized - and low density suburbs, are an anomaly of the last 50 years. They actually aren't sustainable, so their expansion has to stop, and the expectation is that the median worker will be steered towards appartment, while the richer elite will be able to afford houses - but that will gradually become a minority.
I had to look it up - median income here seems to be 45910 NOK (~4830 USD), but couldn't find any median price. But just from anecdotal evidence (i.e. sampling from different counties here), the it would be lower than the mean. Ratio wouldn't be too different, if I had to estimate.
> Average annual household income here is 610000 NOK (~64500 USD).
Norway's GDP per capita is about USD70.000. Surely you're using GDP per capita, or average individual income, not household income? I have a very hard time believing that Norwegian average household income is just over half that of New Zealand.
So, if the average person can save 10% of their income, it takes 8.8 years to save a 10% down payment? Factor in tax and the time it takes to save a down payment is starting to look close to the time it took my parents’ generation to own a house free and clear.
In USA this isn't true. We bought a house using an FHA loan and put down less than 5% and our interest rate was lower than 3% if I remember correctly. Maybe not as reasonable as you are imagining but it was really low in our mind.
> if the average person can save 10% of their income, it takes 8.8 years to save a 10% down payment
Not according to this article, where it mentions the average household income, not the average per-capita income. So you can expect it to take quite a bit longer than that to save for that down-payment, for the average person.
This is assuming the priced don’t increase. In many places, the prices increase so fast your downpayment grows faster than your savings.
Home value goes up 10%, from 1 million to 1.1 million, 20% downpayment goes up from $200k to $220k. If you’re saving under $1666 per mo, you’re actually further away than you were last year.
In Vancouver, the average price is $1.36 million and it went up 21% in a year. For detached, $2.12 million/25% yoy.
Waiting and saving money is no longer a feasible housing strategy, unless you can save at least a few thousand every month.
The greater Vancouver area though is not 1.3M and a detached house is something not even taken in consideration in Europe.
I lived in Rome and having a yard meant you were loaded
I can’t believe this hasn’t been mentioned, but NZ has no capital gains tax, making property an interest-free investment. People put their wealth into the housing market ever since the 80s and are putting their untaxed profits back in. Source: kiwi.
Can you explain what the cause of this sharp rise is? The linked article has nothing on that. It even feels a bit alarming without much depth. And is anything being done?
In the Netherlands, many investors, big and small, are buying up houses to rent out. Airbnb renting was a part of this as well. Many local governments are now creating rules, like, you have to live in the house when you buy it. Also, some taxes for investors have increased a lot. What is happening in the last few months is that less investors have bought houses and more have been bought by people buying their first home. The sharp rise in prices has been more normalized.
Still, there is a shortage of housing and the low interest caused over-bidding by people in a rushed market. The result was that only investors and people which had financial support from their parents could buy houses. Of course somewhat to their own detriment with paying too much and having too big loans.
A lot of demand for housing (both to buy and rent), and in my experience (live in Wellington) a lot of the newer apartments being built seem very much architected with buy to let in mind, so I think renting is a large part of it, along with limited supply.
The government did tighten the rules a bit several years ago so that effectively (there are ways around it), you needed to be a resident to buy property, but I don't think that had that much impact (although maybe it would be even worse if that wasn't done?)
There are no significant taxes on housing investment in Australia and infact there are tax concessions to do so ("Negative Gearing") which no government has the guts to repeal because the largest cohort of voters (people 60+) benefit so much from it that to repeal it is political suicide.
I'm not a kiwi but I heard until recently, or still, New Zealand either has low or no tax on foreign property investments? If it's true, it's like an open invitation to regional millionaires from a certain country where people can't even legally own properties.
I'm Brisbane outskirts. Moved here to avoid the crazy Sydney prices about 5 years ago. We would expect a bit under double now, maybe 70% up.
It's crazy. Great to feel you have more equity on the surface, but it's meaningless really as you have to sell to buy if your moving and then things like rates and stamp duty are higher than ever.
I think the best solution is cap how many properties people can own. Homes are good for people or investors, not both. While interest rates are the main driver, a country like Australia has little ability to far steer outside global rates. From that I think the best solution is to place a limit of ~3 residential properties per person, or something like than with a grace period to ease the new rules. Get the big investors out of the market. Make homes for people again. Action should have been 15 years ago before it was todays problem, but was still obviously heading this way. It's going to be hard to unwind now without creating serious pain somewhere.
Unfortunately it's been the policy of successive Australian governments to put "real estate investment" into the engine room of the economy. They didn't do it 15 years ago vecahse they didn't want to. It's going to be an absolute ball-breaker trying to unwind the whole thing, too.
If you limit it to 3 houses per person you'll get people buying houses for their three year olds (which already happens). It's an improvement, for sure, but it'll be rorted.
NZs on its way to a crash. Debt to income ratios of recent mortgages are insane, and they don't do long-term fixes there. Either lots of defaults or massive drying up of disposable income. https://www.stuff.co.nz/business/128396590/world-watching-nz...
Similar or worse situation is here in Prague, Czechia, person working in Prague needs about ~16 yearly incomes to buy average home here, it's insane, see:
https://www.idnes.cz/ekonomika/domaci/praha-byt-cena-bydleni...
Also Czech National Bank just increased the base interest rate to 5.75% this week, you can imagine how expensive regular mortgage is currently.
it's household, not person income, which is consisting usually from 2+ people at least in Czechia
the problem with mortgages is that they should be heavily regulated long time ago requiring at least 20-30% first downpayment, cheap mortgages are just pushing prices for everyone including poor people, I'm glad for current regulation, but sadly it's way too late, my apartment in Prague also doubled value in last 5 years, which is insane.
I'm idiot, so I paid it in cash. I am also idiot, I could buy next apartment in cash again without being mortgage slave (I have savings roughly worth 40 m2 Prague flat currently), but nowadays mortgage slaves are preferred instead of people who can save their own money and stupid people happy with cheap mortgages don't realize these are just pushing prices up, instead with inaccessible mortgages prices would be much more stable and you would need to scrap money elsewhere but without greedy banks.
But there are good news, recently prices started to go down and need to be already cut, because they are even beyond of mortgage slaves already.
What does an average home in Prague look like? Is it an apartment or a detached house, how many bedrooms?
In Eastern European countries, the quality of housing varies greatly, from cramped apartments in gray concrete buildings to elegant mansions. I wonder, which of this is worth 16 times annual income.
65 m2 apartment is Czech average, obviously it will be apartment as well in Prague, since houses are reserved only for extremely wealthy or people with family here who inherited it, though I'd not guess what's average m2 in Prague, I'd assume less than Czech 65m2 average, which is btw. quite small 2BR+1LR apartment
and it will be mix of old brick buildings, commie concrete block buildings and new brick/concrete buildings, msot of the people live for sure in commie block ghettoes (8-13fl usually), I am lucky one bought apartment in concrete building but with only 5 floors which looks also from outside like brick building (only around 50 of these models built in Czechia) and right next to my building is older brick building owith almost same height, lot of green and quite close to city center unlike those commie block ghettos which are on the edges of city
Readit News
The NZ share market is a joke. Pretty much any serious global company that started in NZ moves away from NZ without even entering our sharemarket. There are a few exceptions of course, but by and large it's a dull, depressing market and there are very few incentives to invest in businesses rather than property.
NZ's tax regime also actively discourages investment outside of NZ. Holding growth shares in US tech stocks will result in annual wealth taxes, even if you hold and never sell. No wonder property is easier and more profitable.
Last year a friend was gloating at how they purchased 5 rental properties in the South Island (with mortgages of course). Yes a degree of rental properties is required but what we're doing in NZ is way out of proportion.
Canada and New Zealand are similar in that respect. There are a sizable number of people with "investment properties", but the majority of homeowners own a single home and are counting on the price to rise indefinitely to fund their retirement.
Economists and politicians regularly brag about how much 'wealth' the average Canadian has; in reality, being able to sell your house for 1.5MM isn't that much of a windfall when other houses are at least 1MM and rising rapidly, and renting is more expensive than having a mortgage.
This is starting to hit a lot of my parent's social circle. They are retiring, mostly from the edge of a big city.
About half plan to or have retired in a small town. In that case they are able to get something with the $1.5M they sold for, but they are driving prices up in those towns in a way locals can't afford.
The other half wants something else in the city. Some remaining in the suburbs, others move more into the city, others "in the sticks" and are all surprised that that's going to use up all of their $1.5M. They expect to buy something for $200k and have the rest for retirement lol.
Can you explain this more?
See
https://www.ird.govt.nz/income-tax/income-tax-for-businesses...
https://taxsummaries.pwc.com/new-zealand/individual/income-d...
No I don’t believe you can get tax credits for paper loses. But you definitely do have to pay for paper gains.
Most financial firms in NZ wrap US/growth stocks in a special type of investment called a PIE, which essentially they handle the tax issues for you (Ie your net % gain includes after this wealth tax is taken into account).
I wonder if local investors could focus on that, even if they have to import talent. Perhaps there are regulations preventing this?
But, of course I am saying this realizing startups are not a "quick buck" like real estate.
The problem is most NZ startups don’t have the hockey stick growth due to our isolated market. We have to spend a lot more on sales before network effects kick in. The Internet can only help soo much.
If they truly care for you, they'd understand that where you are right now is better than back home. If a place is expensive and unaffordable, the best option for you (and anyone really) is to leave.
Here in Norway, one can loan 5x of annual gross income (minus any debt you have), and at least a 15% down payment.
Average annual household income here is 610000 NOK (~64500 USD). Average home price here (end of April) is 4483328 NOK (~473914 USD), so the ratio here would be 7.34 - but that's assuming single income household. For double income, that ratio would obviously halved.
In any case, the average person buying an average home here would have to save up a down payment equivalent to 2.34 annual gross incomes, in order to get the maximum possible loan/mortgage (5x annual income)...and that's assuming this person is completely debt-free.
If this person managed to save up 25% of their annual income, it would still take almost 10 years to save up for that down payment - but the housing market will likely outpace the saving potential of a your average person. So now you have to save up 2-5 extra years to afford the down payment. All while you're paying rent that is much higher than the mortgage would be.
Lesson learned is that being an average single person trying to buy an average house sucks, at least over here.
(Caveat: obviously most people do not purchase "average" homes, but start on the lower end - and most will save up with partners, as well as enjoy appreciating value of their first "starter" home)
Additionally, averages tend be impacted by outliers. Take the example of a rich heir buying a multi-million dollar mansion. His property will heavily influence the average house cost and his income is close to 0 since he lives off his capital, thereby reducing the average household income. This can twist the perception of what's actually happening for most people. The best way to fight that is to use medians instead of averages.
I am not able to find reputable sources for data in Norway, but what does your analysis look like when looking at median household income and median appartment prices. As this will more likely reflect the reality on the field.
Of course, people will want to own houses, but large - car optimized - and low density suburbs, are an anomaly of the last 50 years. They actually aren't sustainable, so their expansion has to stop, and the expectation is that the median worker will be steered towards appartment, while the richer elite will be able to afford houses - but that will gradually become a minority.
Norway's GDP per capita is about USD70.000. Surely you're using GDP per capita, or average individual income, not household income? I have a very hard time believing that Norwegian average household income is just over half that of New Zealand.
Not according to this article, where it mentions the average household income, not the average per-capita income. So you can expect it to take quite a bit longer than that to save for that down-payment, for the average person.
Home value goes up 10%, from 1 million to 1.1 million, 20% downpayment goes up from $200k to $220k. If you’re saving under $1666 per mo, you’re actually further away than you were last year.
In Vancouver, the average price is $1.36 million and it went up 21% in a year. For detached, $2.12 million/25% yoy.
Waiting and saving money is no longer a feasible housing strategy, unless you can save at least a few thousand every month.
You "save" by investing that savings in stocks (and may be some mix of bonds too if person is more fiscally conservative).
Deleted Comment
In the Netherlands, many investors, big and small, are buying up houses to rent out. Airbnb renting was a part of this as well. Many local governments are now creating rules, like, you have to live in the house when you buy it. Also, some taxes for investors have increased a lot. What is happening in the last few months is that less investors have bought houses and more have been bought by people buying their first home. The sharp rise in prices has been more normalized.
Still, there is a shortage of housing and the low interest caused over-bidding by people in a rushed market. The result was that only investors and people which had financial support from their parents could buy houses. Of course somewhat to their own detriment with paying too much and having too big loans.
For some inexplicable reason they decided to remove the LVR requirements for lending in response to covid.
This suddenly caused a huge surge in ability for people to buy houses that were previously not able to.
Another 20% growth and PM wouldn’t be able to afford her house on $470k a year salary
The government did tighten the rules a bit several years ago so that effectively (there are ways around it), you needed to be a resident to buy property, but I don't think that had that much impact (although maybe it would be even worse if that wasn't done?)
It's crazy. Great to feel you have more equity on the surface, but it's meaningless really as you have to sell to buy if your moving and then things like rates and stamp duty are higher than ever.
I think the best solution is cap how many properties people can own. Homes are good for people or investors, not both. While interest rates are the main driver, a country like Australia has little ability to far steer outside global rates. From that I think the best solution is to place a limit of ~3 residential properties per person, or something like than with a grace period to ease the new rules. Get the big investors out of the market. Make homes for people again. Action should have been 15 years ago before it was todays problem, but was still obviously heading this way. It's going to be hard to unwind now without creating serious pain somewhere.
If you limit it to 3 houses per person you'll get people buying houses for their three year olds (which already happens). It's an improvement, for sure, but it'll be rorted.
What we really need is 1960s Chinese Land Reforms
the problem with mortgages is that they should be heavily regulated long time ago requiring at least 20-30% first downpayment, cheap mortgages are just pushing prices for everyone including poor people, I'm glad for current regulation, but sadly it's way too late, my apartment in Prague also doubled value in last 5 years, which is insane.
I'm idiot, so I paid it in cash. I am also idiot, I could buy next apartment in cash again without being mortgage slave (I have savings roughly worth 40 m2 Prague flat currently), but nowadays mortgage slaves are preferred instead of people who can save their own money and stupid people happy with cheap mortgages don't realize these are just pushing prices up, instead with inaccessible mortgages prices would be much more stable and you would need to scrap money elsewhere but without greedy banks.
But there are good news, recently prices started to go down and need to be already cut, because they are even beyond of mortgage slaves already.
In Eastern European countries, the quality of housing varies greatly, from cramped apartments in gray concrete buildings to elegant mansions. I wonder, which of this is worth 16 times annual income.
and it will be mix of old brick buildings, commie concrete block buildings and new brick/concrete buildings, msot of the people live for sure in commie block ghettoes (8-13fl usually), I am lucky one bought apartment in concrete building but with only 5 floors which looks also from outside like brick building (only around 50 of these models built in Czechia) and right next to my building is older brick building owith almost same height, lot of green and quite close to city center unlike those commie block ghettos which are on the edges of city