Tuesday, 2 August 2016

Yellow peril update

 

So, are New Zealand houses being snapped up in their droves and taken away to China, as so many of the commentariat have been chattering about?

No, say the figures.

For the second month running, figures show that the numbers of Chinese buyers in the market are … trivial. Just 1.5% of all buyers. Put another way” %98.5 of buyers are not Chinese, and 97% are New Zealanders (defn.: “those who are tax-resident in NZ”).

Sorry if that bursts so many bubbles (but not yet this housing bubble), but there it is. NZ’s houses are not seriously unaffordable because of the yellow peril, too many (or too few) investors, immigration, land bankers, carpet sprawl or because we’re becoming a rich country. They are seriously unaffordable because we have too many buyers with too much newly-created mortage-money borrowing chasing too few houses on too little land that cost far too much to build.

All those problems are political, or caused by politics, which is why all the politicians who helped cause it all want to point all those fingers elsewhere, but the facts are that the furphies they point to are just not any of the primary causes. They did it. They just don’t want you to know that.

My prediction therefore: this latest news will do nothing whatsoever to stop the continuing claims from all the ignorati that the Chicoms are over here stealing our houses. Or the peddling of sundry other myths by all the assorted myth-makers. Facts and figures never bother them, do they.

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36 comments:

  1. facts and figures??

    again, as with your previous post, these are foreign buyers AFTER the imposition of the requirements which drove many foreign buyers from the auction rooms. The latter could only be disproved by comparing the purchases made by NZ'ers vis a vis foreign buyers BEFORE they all disappeared, silly :)

    Your analysis is not scientific.

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    Replies
    1. If you'd prefer anecdotal evidence, that from around here suggests there's been little noticeable change since in the composition of auction rooms, and certainly nothing like the magnitude of change implying the figures measured earlier would have been radically different.

      Delete
    2. There is a third option PC: comprehensive data that takes into account foreign trusts, companies etc. The comments below the Stuff article point out what a joke these figures are.

      National releases this kind of flawed data to get naïve gullible people (including the media) to shut up about foreign buyers. Of course you lap it up because according to libertarian dogma foreign buyers cannot be a problem, under any circumstances.

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    3. I love how you know my innermost thoughts, Ben. That's very cute.

      But in any case, can you tell me why it would be wrong for a non-NZer to give a NZer a million dollars? Because you talk about that as if it were some sort of problem.

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    4. Property bubbles are a problem. The bigger the bubble, the bigger the problem. Now what effect would all the capital from Chinese '1 percenters' have on Auckland's market? Really Peter use your brain.

      Trying to simplistically frame the issue as 'foreigners giving NZers a million dollars' is facetious, and implies that you know you're full of crap but don't care.

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    5. Ben,it really is as simple as that.

      The problem is not foreigners in whatever quantity giving NZers money to invest. It's that with ZIRP there are so few other higher-yielding investments as housing, and (as Mark points out below) with all the demand there's too little supply.

      This is not news. We've been pointing out for years the problem waiting to happen. As Mark says, "The sane answer to this, especially for a remote nation that relies on foreign trade; is not to build a wall and make NZ less desirable, but to remove the bureaucratic barriers to supply. To propose restrictions on who owners can sell their property to, or to cut back immigration is myopic and regressive, and displays a poverty in thinking that would only take NZ backwards."

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    6. Auckland's property market is not a 'high yielding investment' - it's a speculative bubble. There's a big difference.

      Likewise the demand from speculators (who leave houses empty because renting them out isn't worth the 2-3 percent yield) is not the kind of demand that building more houses will fix.

      Mark is failing to differentiate between general trade and speculation in houses that people need to live in.

      The reason NZ is so desirable is due largely to our low population density. You and Mark should book a holiday to Cairo or Calcutta if you want to see what libertarian immigration policy would do to NZ.

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    7. And on this we agree: "Auckland's property market is not a 'high yielding investment' - it's a speculative bubble." But when there are no readily available investments yielding reasonable returns, because central banks have removed most of them with ZIRP, then riding a bubble begins to look sane even to the most conservative of investors.
      And if you're looking at returns, then why would you turn up your nose at rental returns -- as figures suggest few actually do. But if they did, why blame them?

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    8. Ben - There is no need to "differentiate between general trade and speculation in houses that people need to live in". That's because you can only make money by buying houses and leaving them empty when there is fundamental shortage of housing for people to live to begin with (in this case also encouraged by price inflation caused by gov't incentives).

      In other words speculation in houses is an *effect* of rising prices, not a fundamental cause. The two may reinforce each other to some degree in the short term (aka a bubble), but speculation by itself can not drive any sustained price increases. If you have any doubt about that, I have a property on the West Coast of the South Island that I'm happy to sell you at about 50% of replacement value - so you too can make some "speculative gains" from buying property and leaving it empty.

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    9. You don't get it Mark. "speculation by itself can not drive any sustained price increases". Depends on how you define "sustained" - it's been going on for some time in Auckland. There is no clear rule on how long a speculative bubble can last.

      "You can only make money buying houses and leaving them empty when there is a fundamental shortage of housing for people to live in to begin with."

      Bullshit. Not long ago property investment consisted of buying houses for the rental yield. But since irrational herd behaviour took over rental yields dropped to 3 percent or below. No point renting out your new property when you can flip it months later for a huge profit.

      If you don't like govt incentives/policy then it makes little sense supporting a housing market status quo that leaves us at the mercy of the monetary policy of the Chinese Communist Party.

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    10. Ben, general rental yields haven't yet dropped to below 3%, not even in Auckland. So there's that.
      And empty houses? It's a furphy. The only numbers anyone has on that are from the 2013 census, which shows the proportion of empty houses is down since 2006.
      But even if t'were true, even if a landlord were willingly throwing away many thousands of dollars a year in rent as you insist without evident that they are, would they really change their ways because you're going to get your favourite central planners to fine them a few thousand? Think about it. And those fines, penalties and other confiscations you're no doubt excited about hurt others too, including bach owners, folks in hospital, deceased estates etc. Not to mention being wrong.

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    11. PC, that link is 9 months old. Here is a newer one:

      http://i.stuff.co.nz/dominion-post/business/residential-property/78763213/Auckland-rental-investors-head-to-Wellington-for-bigger-returns

      The reason there is a lack of solid data is because if the full extent of the problem is revealed, John Key will be under pressure to do something about it. Thankfully for him there are enough sheeple in the population who are placated by the half-assed data that comes out instead.

      I never said anything about fines - I said housing markets should there be to house the local population; speculative money on the run from the Chinese government can go somewhere else.

      Now if I was wrong about libertarian dogma dictating your stance on this, go ahead and mention a hypothetical scenario in which foreign speculative money is a problem. Shouldn't be too hard to think of one.

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    12. Ben - the inherent stupidity of what you're saying (that sustained price increases can occur by speculating on a product, regardless of the demand for practical uses of that product) is beyond belief. You're either taking the piss, or you're severely detached from reality - and either makes you unworthy of further engagement

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    13. It's called irrational behaviour Mark - an inherent feature of every economic bubble since Dutch Tulip Mania.

      You're arguing against well-documented history, and calling me severely detached from reality? Talk about face >> palm.

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    14. Irrational behaviour doesn't trump reality. Never has and never will.

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    15. That's true, Mark. I think that Ben is wrong though to say that it's irrational to try to turn a profit. How so, Ben?

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    16. Richard - You're right of course, there's nothing wrong with buying a product because you know there's a shortage, expecting prices to rise and make a profit. I think what Ben is saying is that over-speculation can become irrational (eg: the tulip mania). Yes it can (in the short term), and people can over-estimate the future demand for something, but reality eventually catches up. The more irrational the behaviour, the greater and quicker the correction will eventually be.

      That aside, rather than address the gov't interference that creates the supply shortages and encourages the speculation in the first place, he'd rather attack property rights instead.

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    17. Richard - It's certainly irrational if you're chasing a profit based on the 'greater fool theory'.

      Mark's comment "irrational behaviour doesn't trump reality" makes no sense whatsoever. In terms of the well-documented history of economic bubbles, irrational behaviour IS an aspect of reality. Excessive greed in the inflation phase, followed by fear when the bubble bursts. Every time. Absolutely gobsmacked I'm having to explain this.

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    18. Mark - Yep, it's pretty clear that it is government interference that sustains a bubble. Without unfettered credit expansion a bubble cannot grow and grow. It would come to an end pretty soon after it got started.

      Ben - I don't know why "irrational behaviour doesn't trump reality" makes no sense to you. It is really very simple. It means that when a brick hits you over the head, it hurts. A is A. Nature, to be commanded, must be obeyed. The point is that government interference is all about avoiding the reality, and in so doing it makes things colossally worse. Under economic freedom the housing bubble, or rather credit bubble, of which housing prices are a consequence, would have ended long ago. In fact, chances are there'd never be a housing bubble.

      Delete
  2. Farrar over at kiwipropaganda blog, gives the latest LINZ figures as having .. “ caveats” .. The IRD say they can not ascertain the level of foreign buyers.
    While some problems with its data collection remained, deputy chief executive Russell Turner said Land Information now had more confidence in its estimates. [ ok, that’s OK then ]
    . ." While the data is not a register of foreign ownership, Overseas tax residents were more prevalent in Auckland where they were involved in 5 per cent of house purchases, up from 4 per cent the previous quarter.
    . .
    Anyway, the figure does not include incoming Immigrant purchases
    In round figures we had a net Immigration of 80,000 last year, many to Auckland. There were about 10,000 new homes built.
    So much for John Smith 35 years, average wage living in Auckland.
    Here is what Tony Alexander, Economist BNZ says :
    “”We need massive immigration of builders to build homes in Auckland”” presumably so as to support the increased Immigration overall.

    The unitary plan sounds like an argument fest. The situation can only get better when I am appointed King, abolish Urban boundaries in entirety,
    Soon to appoint Cresswell and Brash to sort the whole thing out. I suppose you people need some zoning for high rise. Another talk fest.

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  3. This comment has been removed by the author.

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  4. They counted foreign students and temporary foreign workers who don't intend to stay in the country or live in the home they've bought as New Zealanders.
    If we accept this group as being foreigners then the number of foreign buyers jump to around 13%.

    Nick Smith was hilarious in avoiding the question in this interview
    http://www.radiolive.co.nz/Why-wont-Nick-Smith-answer-this-one-simple-question/tabid/506/articleID/126297/Default.aspx

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  5. They counted foreign students and temporary foreign workers who don't intend to stay in the country or live in the home they've bought as New Zealanders.
    If we accept this group as being foreigners then the number of foreign buyers jump to around 30%.

    Foreign buyers are the main driver. foreign buyers includes temp visa workers and students + offshore

    Looking at the data in more detail from LINZ

    8751 work or student visa intend to occupy
    4707 work or student visa and don't intend to occupy

    13,458 were work or student visa of the total

    50,910 house sales
    1695 to non residents
    7521 to corporates and trusts

    That leaves 41694

    13,358 / 41694 = 32% of the sales to nz tax residents was to temp students and foreign workers

    Nick Smith was hilarious in avoiding the question in this interview
    http://www.radiolive.co.nz/Why-wont-Nick-Smith-answer-this-one-simple-question/tabid/506/articleID/126297/Default.aspx

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  6. Tim, Ben & Roelof - I don't really care what the stats are on foreign buyers. Assuming for a moment your assertion is correct (that foreign buyers are having an upwards effect on prices), that's a simple reflection of the desirability of this country to live/invest in, combined with the restrained ability of supply to meet demand. The sane answer to this, especially for a remote nation that relies on foreign trade; is not to build a wall and make NZ less desirable, but to remove the bureaucratic barriers to supply. To propose restrictions on who owners can sell their property to, or to cut back immigration is myopic and regressive, and displays a poverty in thinking that would only take NZ backwards.

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  7. You want anecdotal?

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11519706

    http://www.stuff.co.nz/business/money/72855966/Chinese-buyers-desert-Auckland-market-brokers-say

    Foreign buyers noticeably left the auction rooms around the time the new restrictions were imposed (October 2015). To use current figures (about purchases made AFTER the restrictions were imposed) to attempt to prove that the foreign buyers were not present before they were scared away by the new restrictions is nonsensical, and appears to be some kind of oxymoron :) (Or to use my daughter's neologism, an "hypoxymoron" - inspired by the celebration of Obama's election as proof that the USA had risen above racism).

    Mark T. I don't really have a firm opinion on foreign buyers and prices. I just know that foreign buyers were less plentiful at the auctions after the new restrictions came into force, and am therefore obliged to point out that PC is not being logical in his analysis. Then it gets worse, because when I point it out to him, he asks if I prefer anecdotes - which I can provide, but he cannot :)(Or perhaps PC can link us to newspaper articles AT THE TIME which can help prove his point that the new restrictions had no effect on the attendance of foreign buyers at the auctions.)

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  8. Peter

    A simple unrefuted observation that foreign buyer attendance at Auckland property auctions dropped off around the time of the new restrictions does not mean that the observer is somehow your anti-libertarian enemy. ("I love how you know my innermost thoughts", Peter. "That's very cute".) Correlation is not causation, and so on.

    "Chattering ignorati, Chicoms stealing land, myth-peddling, not bothered by facts and figures.... " the epithets in your post would suggest that if anyone is allowing their political persuasion to influence their objectivity, it is you :)

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    1. But that's the problem with relying only on anecdata: everyone has their own. But if it's true that foreign buyers are retreating while house prices are still rocketing, then it suggests this alleged cause can be taken off the table, no?

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    2. Sorry, I'm not following your logic:

      Statement a: Foreign buyers are the cause of rising house prices
      Statement b: Foreign buyers left the market in Oct 2015
      Statement c: Since Oct 2015 house prices have risen

      Those statements are mutually exclusive. At least one of them has to be false. Since "C" is indepentedntly verifyible, that leaves A or B.

      Care to pick one tim?

      Delete
  9. Peter, yes, anecdata can be fabricated. But I have linked you to newspaper articles, with photos of empty auction rooms, to support mine. Your anecdata that there was no noticeable decline in foreign buyers is to be taken on your word alone? Nope, not so fast :)

    And again, your analysis is flawed. The "alleged cause" could, if substantiated (see Roelof Kampen's comments above), be taken off the table for explanations of the CURRENT rocketing, but not necessarily for the PREVIOUS pre-restrictions' rocketing.

    There may be other reasons now for still-rocketing (faster now than in 2015)prices across most property categories in NZ. For example, the morbid realisation that interest rates are heading lower, and that ZIRP and NIRP and QE and helicopter money are around for the duration, a realisation that was not fully formed by October last year. Therefore, your analysis lacks scientific control.

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    1. Tim:

      Firstly you and Roelof are fundamentally at odds. Roelof is stating that foreigners have not dissapeared but are merely misclassified as locals (being students and temporary visa holders). However they still account for 32% of sales.

      Your statement is that foreigners have visibly dissapeared and are literally not in the room.

      Once again these statements are mutually exclusive. The only way to reconcile them is that 32% of homebuyers are not only foreigners on visas, but also invisible to the naked eye. There's probably a mildly racist joke about ninjas going into property investment in there somewhere.

      Which is more likely:

      a. That there were 2 causes that did not compound each other, had no overlap, and interlinked perfectly on the day the legislation passed, providing a smooth effect with no discernable dip or spike.
      b. That there is a single cause that remains unnafected by the legislation passed?

      Occams razor suggests we use b. And it is also quite logical.

      A fundamental supply shortage compounded by artificially low interest rates and a tax incentive to invest in property would be negligibly affected by any demand side legislation regarding minimum deposits or foreign ownership.

      It's the simplest solution, it describes the data points we have, and provides a predictive capability that is repeatable and reliable.

      As theories go, it's a good one.

      Delete
  10. Roedolf

    Peter has been saying for some time that foreign buyers have not been driving the Auckland property market, including during the period preceding the imposition of the restrictions in October last year. To support this view, (which I have heard from him both personally, and from previous posts) he has quoted the government figures compiled since October 2015. And now, above, anecdotal evidence that "there's been little noticeable change since [October 2015] in the composition of auction rooms" i.e that the composition of the auction rooms pre-October 2015 must have been similar to now, and that foreign buying has never (at least then and now) been a significant driver.

    As for your questions (I presume addressed to me)

    Statement a: Foreign buyers are the cause of rising house prices. I DON'T KNOW. I DO KNOW THAT IT IS A FLUID SIUATION, MANY VARIABLES WITH NEW FACTORS CONSTANTLY BEING INTRODUCED

    Statement b: Foreign buyers left the market in Oct 2015 YES, MANY DID.

    Statement c: Since Oct 2015 house prices have risen YES, THEY HAVE.

    I am simply pointing out that Peter has not proved that foreign buyers were not driving the pre-October 2015 market.

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  11. Roedolf

    Something strange here about the sequence in which comments are appearing, so I just saw your comment which included "Firstly you and Roelof are fundamentally at odds..."

    No, Roelof and I are not at odds. Roelof's stats suggest that some foreign buying is hidden behind trusts, students etc. I have never said this is not the case. All I have said is that Peter's touting of the current figures (whether rigged or otherwise) as proof that foreigners have never been driving the property market is flawed. For such proof, Peter would need to produce buyer figures from before October 2015. I would have thought this would be easy enough to understand.

    As for Roelof's hidden buyers, they might likely have been there before October 2015 ... I don't know. It doesn't make any difference to the point I am making.

    Occam's razor doesn't always lead to the correct conclusion. Other factors such as increasingly lower interest rates might have taken up any potential slack in the market caused by the auction room deserters around October 2015. I also would have thought this would be easy enough to understand.

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  12. It makes me laugh that the people who whinge the most that foreign buyers push up the price of housing tend to be people who protest the most at the idea of a moratorium on Islamic immigration. They don't want foreigners to buy houses, but you better support importing muslims by the truckload or you're a racist bigot.

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  13. Hi Tim

    About the order of posts: It's what happens when you don't refresh the page before typing your comment. The conversation moves on. Or in this case, it really doesn't.

    Look, I'm going to be honest. I have absolutely no clue what you are on about at the moment. You seem to be arguing with everyone at once. While at the same time blaming others for being "unscientific", without producing any:
    * hypothesis,
    * argument (not disagreement, a rational argument),
    * evidence,
    * proposed conclusion based on the evidence.

    giving you the benefit of the doubt, I'll assume you know that that the basis of the scientific method.

    Now I can't pretend to speak for Peter, and he has a whole blog to speak for himself, but this is my position, which does not seem to be at odds with his:

    Foreign house buyers are now, and have always been an effect of the housing bubble, not the cause.

    ie. House prices are not rising because of foreign buyers, but rather foreigners are buying houses because prices are rising. Both before and after any arbitrary date.

    Now given that position, it is up to me to propose some other cause for rising house prices. As I have clearly stated above, we have a very good candidate that matches the data points we have and provides a predictive capability that has been proven repeatable and reliable for centuries.

    To repeat myself:
    A fundamental supply shortage, compounded by artificially low interest rates and a tax incentive to invest in [...insert asset here...]

    That is where I stand. It's clear, internally consistent, and well supported by historic and recent evidence.

    Where do you stand?

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  14. Dolf

    I have never made any claim, or stated any opinion, about what is driving the property market. I just know that foreign buyers deserted the auction rooms around October 2015. You can claim that that the empty auctions had no effect on prices. You may be right, I don’t know. Peter, however, thinks he has proved that foreigners have never been influencing the market. He cites figures compiled since October 2015 showing only a tiny percentage of foreign buyers and refers to anecdotal evidence that the foreign buyers were not noticeably absent from the auction rooms after October 2015. Perhaps you can use your Occam’s Razor to conclude, like I have, that Peter is implying that foreigners were never influencing the market because they were never present in the first place. It is this reasoning which I have been questioning.

    Further, a still-rocketing market, together with figures compiled only since October 2015, does not prove there was not a greater number of foreign buyers influencing the market before October 2015.

    Your comment is too simplistic. ("a. That there were 2 causes that did not compound each other, had no overlap, and interlinked perfectly on the day the legislation passed, providing a smooth effect with no discernable dip or spike.") There are many factors in a fluid market. Coincidences are possible. Your conclusion may be right, but then again it may not be right. The mistake you are making is assuming that because I am questioning Peter’s reasoning, then I must hold a view opposing his.

    BTW, I am arguing with Peter and you. To say that I am arguing with everyone is false. And I am not at odds with Roelof. That is also a false statement. Unscientific :)

    And I am happy to know that clever you would not have any problems with my silly mind-of-its-own smartphone :)

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  15. Dolf: "and interlinked perfectly on the day the legislation passed, providing a smooth effect with no discernable dip or spike." Mmmnnn, well not really indiscernable :)

    For your and Peter's edification:

    http://www.stuff.co.nz/business/73922324/Debate-on-whether-Auckland-house-market-has-peaked
    "But an economist says Tuesday's data from the Real Estate Institute showing a sharp fall in Auckland house sales could be the first firm sign that the market is on the turn.

    "Auckland house sales in October dropped more than 19 per cent on the previous month and median prices fell 3 per cent."

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11542883
    "The Auckland housing market slowed last month following the introduction of new restrictions, according to the latest industry figures.

    "The city's median price slipped 3 percent to $748,250 in October from September, and the volume of sales dropped 19 percent to 2,546, the Real Estate Institute of New Zealand said in a statement."


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