Property commentator Hugh Pavletich reckons yesterday's TV One Sunday programme on house prices is a “must view.”
The economist Shamubeel Eaqub … explained exceptionally well the massive risks of bubble housing markets and excessive mortgage debt…
In normal housing markets, housing does not exceed 3.0 times annual household income, requiring mortgage loads of about 2.5 times. (Lending multiples must mirror median multiples.)
As Shamubeel Eaqub explained (with Auckland and Christchurch currently on 7 Median Multiples), $100,000 household income families are loading themselves up with a grossly excessive $600,000 through $700,000 mortgages—therefore some $350,000 through $450,000 of that is “bubble” mortgage debt.
With interest as well over the life of the mortgage, it will likely cost them $700,000 through $900,000 of their incomes—some 7 to 9 years pre-tax, or roughly 9 to 11 years after tax.
That is a huge chunk out of peoples working lives, wreaking havoc with respect to net disposable incomes and vaporising retirement savings, as Shamubeel Eaqub makes clear.
This loss of wealth is really a Planners’ Poverty Creation Programme.
Little wonder that in Sydney ( 8.3 Median Multiple ) they consider themselves on the breadline with $A150,000 household incomes, and as the recent Gawker article “The next housing bubble is about to pop all over you” explained…
in San Francisco now, it would appear they are in struggle street on $US250,000 per annum household incomes.
Just check out this recent article from Forbes, which explains how household mortgage loads are just 14% of household income in affordable Dallas-Fort Worth, but a whopping 55% of household income in severely unaffordable and currently hyper-inflating San Francisco.
That is the reality of the difference between affordable and severely unaffordable mortgage markets.
It is well past time the New Zealand Authorities at both central and local levels stopped this totally unnecessary lunacy and dealt with land supply and infrastructure financing hard and fast … ensuring that over a reasonable time we start seeing affordable fringe new starter homes.
I say “fringe” because a city’s fringe is simply the “responsive inflation vent.” Once true market pricing is restored there, it will ripple through to restoring true market pricing for ALL forms of urban development.
Once our city’s houses become affordable again, the off-shore speculators in our housing will lose interest very fast—and spare us the political torment of giving Winston Peters political oxygen. Sadly, Prime Minister John Key is playing right in to Peters’s hands at the moment, by persisting in dithering. It is unbelievable…