I’m a mortgage adviser – I sell mortgages like a hot dog vendor cruising central park in summer, but this election, like a prolonged summer, has made my wieners go off in a bad way. Even the crack whore property investors who’ve helped fund my children’s shoes for the last few years, have gone into hiding. Sure I’m not your typical pusher, running property investment seminars and promising colossal gains over miniscule timeframes – I’m better than that, but I’ve still partied with the best of them. Now the music’s over, and it’s not entirely clear why. I wonder if it’s the election?
The election’s made the housing market soft, or could it be the following?
Capital gains tax. Yip, most homes in Auckland, make more than you do after tax. Isn’t that crazy? It’s no surprise then that even the faint whiff of the passing thought of something disguised as capital gains tax could put the handbrake on the housing market. Capital gains is likely what’s changed your retirement plans of your parents from something rather average to something rather acceptable – I pity the fool who attempts to tackle that golden goose. – that there’s the reason why things have gone soft they say.
Maybe it’s overseas-based Chinese speculators? It’s starting to come out that most pacific rim countries are the welcoming recipient of overseas capital, that finds its way into our local housing market. Whether we go left or right this election, there’s a strong chance that political forces could put the kibosh on foreign ownership altogether – if Winston Peters get’s his way surely this is the first thing to happen.
Lending rules. Banks are the sleazy librarian that show’s up with cocaine to party at just the right time – when the excitement’s gone people start to notice they’re no longer around. Last one’s left have to clean up the mess. This time though it appears as though banks have been a bit more well behaved – I wonder if, given the change, they would have self-regulated this time around and pulled back on the coke of their own volition. Increased formal regulation ( ‘capital reserve requirements’ and LVR restrictions) over the last few years has given the banks that wee nudge that perhaps they indeed needed. Restrictions on how much you can borrow, directly influence demand – and demand side regulation is the only available tool that policy makers seem to gravitate towards. Are we in for a wee rough patch, or will things return to normal once our new government is bedded in?
My favorite theory of why the market has cooled though is the ‘cycle of 10’s’ – right now we’re in a year with 7 at the end of it and since 1967 things haven’t gone down so well in NZ in the proceeding 1-3 years. Property values in Auckland have nearly doubled every 10 years for the last 60 years. I started talking about this just after the last ‘correction’ in 2008 and back then it was so hard to imagine that prices would double in the decade following – In the last 4 years property values in Auckland have increased by almost 50%! In the last 12 months they may have shrunk by about 10% but a net gain of almost 40% in 4 yrs. Just like clockwork, Auckland’s right on track, and there’s a lot of people smarter than me drawing conclusions as to why this is, but I’d suggest ‘cycle of 10’s’ is the ultimate factor.
‘We were going to sell and buy somewhere bigger this spring, but with the election and all…’. I’ve heard that more than a few times recently. There’s often something going on which stops normal, everyday people from making normal, everyday decisions like buying and selling property. People often grossly over-estimate external events but completely ignore their micro-economic environment. Worrying about the election results more than the needs of your growing family is a common trend with those paralysed by over analysing the outside world. If you need another bedroom and it’s too expensive to renovate, why should a hydrogen bomb in the pacific stop you? If the timing’s right for you, then do it, as timing will never be perfect.
Housing has been used as a bit of football this election and so much more than normal, voters can be justified to an extent, in waiting to see how things will pan out. There were forces already at play but perhaps a bit of political uncertainty was all we were needing to dip us into a bit of a funk. Each party has a slightly different take on how to tackle the housing ‘problem’. I can’t but help thinking that we’re being played here just a little bit. Firstly, is it really the role of the government to step in and sort out all our problems like an overbearing helicopter parent? Secondly, who decided we have a housing ‘problem’? This used to be called ‘rising prices due to excess demand and limited supply’. When this happens in an unregulated environment, incentives increase for players to create more supply, and demand falls because prices become too high. This doesn’t happen fast enough for voters however and I guess that’s the issue. Property prices have grown way beyond wage growth, and yes, it’s atrocious, but capitalism is ugly, and it’s unfair. When the parents step in and try to solve problems though does it really fix things? Or does it simply distort and confuse normal, schoolyard, market signals.
So are my normal, hard-working clients justified in waiting for the election to be over before they make a move? I’m not entirely sure why waiting for things to change is wise. I’ve seen more than a few left behind with this strategy, but there’s some truth to their fear. Rightly or wrongly the party’s over and the election may be to blame. Maybe it was time for the party to end. The market forces may have brought us to the same place but in the end, it could be the regulation introduced in the last few years that has hastened it’s coming – either way it’s clear, the housing market has changed for good.