KEY POINTS:
Interest rates up, housing prices up...how does all this affect you -especially if you are battling to buy a house?
This forum debate has now closed. Here is a selection of your views on the topic.
Karen B
First home buyers- read and learn. My husband and I have 3 children, two houses and a joint income of around $95 000. I am an early childhood teacher and my husband a mechanic. We bought our first home 4years ago through a rent-to-buy scheme - a real do-up in Sunnynook on the North Shore. Through hard slog and all our own work, we ended up with a fantastic house. We had it re-valued within three years and used the gains in paper value to buy a rental property in a small Waikato Town which we rent out. Contrary to many of your readers beliefs, the rent on our second house does not cover the mortgage, so we have to top it up. When we sold our Sunnynook house we had made enough on the house to buy something bigger closer to our eldest son's primary school. We have a large monthly mortgage but we are biting the bullet so that both houses will be paid up by the time we retire in 30yrs time. Then we will have income from one or both of the houses to live off of. We are on a very tight budget, but we cope fine. We are average, very hard working Kiwis, working a minimum of 40hours per week but with a clear view of the long term, big picture. Stop complaining and start paying - because the sooner you get into the market, the sooner you can move up in it. You will have a long term future too.
Jacqui
My partner and I lived in Auckland for 6 years until he finished his degree. Then we tried to buy a house in 1995 and couldn't - even with us earning 95K - the only options were tiny units that were horrible. So we made the big decision to move to Wellington. Last year we bought a lovely two bedroom house in Lower Hutt for US$185,000 with 1/4 acre right next to a regional park which means walking the dogs is glorious. The public transport is much better than Aucklands ever could be, the community is wonderful and welcomed us as soon as we arrived, the traffic is nothing and our quality of life has improved so much. Plus, we are still earning the same as we were in Auckland and we own a house! OK so we have no family here but we don't have to live here forever and it means that we are finally home owners and we have room in our back yard to build two more houses in the future if we want to. Auckland isn't everything people, if you have the flexibility and you really want a house, move to Wellington! You'll find a whole world of extra benefits you never expected as well.
Rob
See now I'm one of the lucky ones. I'm 27, my parents came through with US$100,000 desposit -- by releasing some equity from their own assets -- and my partner and I are on US$100,000 a year between us with no children and good career prospects. We've been trying to buy a house for the past six months but it appears, even with such a hefty deposit, that we can't afford even the most dingy of suburbs. We're happy to start cheap, in fact we were looking forward to weekends ripping down wallpaper, but We've been pipped by hysterical buyers, speculators and professional landlords. We found what we thought is the cheapest house in Auckland... and then someone came in and offered US$20,000 more just before we went unconditional and the vendor made it difficult for us to complete the sale. Again, I'm one of the lucky ones: what do you do without parental support? Capital Gains tax, anyone?
Marcus
We are all talking about mortgage payments and housing availability but what about rates. We have water rates, ARC rates and Land rates. My wife and I own our house but we are looking at selling up and renting. You take the above rates into account on what we are paying it would pay for 7-8 weeks worth of rent.... People seem to forget about these costs...
Harold Thomas
The catastrophic 1980s selling off of essential national services, power, telephone, railways etc has resulted in a huge loss of earnings to overseas investors. Talk of USUS$50 billion dollars. Providing an essential service by such investors is a long way back from making as much money as they possiby can. Expecting to solely toggle the interest rates to cure spending on housing is a stupidly bad joke. A multipronged attack is needed by the Labour Party or goodbye and good riddance to them at the next election together with their bungling financial management. Are we as NZrs refused the right to buy our own home? What happens, through no fault of yours, when the landlord terminates your tenancy? What about the dislocation of new schools for the kids, the trauma of repeatedly moving house ? Who on earth said renting is better? Some blabber mouth yuppie on a talkshow who is on a salary many times that of base workers in the real world. Are we as NZrs expected to save money? What a laugh, over 40 per cent of us workers have to have two jobs just to pay the rent! Where is Roger Douglas, his cohorts and his stupid, catastrophic idealogies? Lets hear from him about the real world in NZ as it is today.
Richard Thomas
Man, New Zealanders are a bunch of whiners. They whine if the government intervenes in the economy, accusing it of being too "hands on". They whine when the government leaves the economy alone, accusing it of being too "hands off". The government has little control over the NZ dollar against the US dollar as at present the US dollar is falling. Of course ours is going to rise against it. Maybe its time we considered pegging it against the Euro instead.
Daniel
Sounds to me like to many people out there not prepared to make some sacrifices. I mean that in regards to not getting the house you want in the area you want. I have no sympathy for people who complain that they cant afford a house in the area they want yet arent prepared to move to an area they could afford.
Jas
My husband and I moved down to Hamilton from Auckland at the beginning of 2005 ..we had talked about buying a house but looking at the price of houses (this was back in 2003/2004) there would have been no way we could afford to (and we didnt want to commute 1 hour each way to work )So we had a look at Hamilton and decided that we think we would like to live here. My husband applied for a job and got it ..4 weeks later we had moved down...We saved for a deposit while we lived in tiny 2 bedroom unit...We are now in our own home in Hamilton which cost us less than US$250k. The house doesnt have everything we want but around 95 per cent and we are no longer paying someone elses mortgage.
Phil
I am fortunate I have a 3 Bedroom home in the country q wife 2xkids {14&10]and have had this home and mortgage for 10years.So tell me what am I doing to increase spending? My wife and I earn a comfortable {just}income but we still struggle to make a living,pay bills and mortgage.3 Years ago my wife's income paid the mortgage and relative insurances,groceries and gas, plus a couple of hundred USUS$$ savings per month,now her income doesn't cover the savings and we are looking at moving the insurances to my account.This in just 3 years- talk about going backwards.All this time I thought the government was there to help people,not shackle and deprive them. The govt talks about inflated house prices;here's a possible reason.I work in retail in an area where many British and South African immigrants settle.They come over here and "cash" in on the exchange rate. Pay 150k more for a home,in cash of course, get a job for pocket money or to save enough for their next visit to the homeland and are basically retired.They have no mortgage (like me) so interest rates don't effect them (unlike me). All they have done is inflate the price of homes,and pay the inflated price. They haven't paid any taxes, they use our infrastructure,and critisize our Kiwi lifestyle.I am not against immigration, but if I can figure out what is happening on my small income, then why can't our overpaid politicians get the big picture? Why should we Kiwis pay the price?
G
Interest rates and capital gains taxes are not the only mechanism to 'cool the housing market'. Another way is much more direct, and in the hands of the people. Just stop buying houses. Stop enquiring with Real Estate Agents. If there was a concerted effort across the whole of Auckland there would be a 'correction' in the market. Imagine if all the phone lines at every real estate agents in Auckland was silent for a month.
Cjd
The I want it now attitude seems to be how people are when buying there first house, but they forget that for most people in the nice big houses/villa or bungalows (in the popular areas) it probably isnt their first house unless they have the money ,and that everyone has to start some where.like a job,you start at the bottom or near to it. So be realistic get something affordable and in a few years you'll find you can probably sell and get something closer to your favored area and/or style of house you would like, it may take 2 or 3 move before you get what you want and your styles and tastes may change,but at least you have a home.
Nigel Wade
For all the talk of "working on it" I havent seen any action whatsoever in more than 10 years. My partner and I have given up on trying to buy property in Auckland, we can afford to pay high rent and live very well, if we were to get a mortgage and a house in Auckland it wouldnt even be close to the same quality, and yet per year I'd pay alot less for a high caliber rental. Your a mug if you think Auckland housing is affordable.
Kris
Simple fact is that most families have to generally compromise something to get ahead. The family on US$95k could 100 per cent finance a property in the US$350-US$370k area and lets not forget that they chose to have four kids before getting their own home. It's likely that there would have been some stage that they could have saved money for a future deposit but have chosen to use the funds for something else. This was their choose but now they are facing the consequences. Them saying they can't find a suitable house is like a family on US$250k saying that they can't find a house when they are only looking on Takapuna beach or Paratai Dr.
Julian
As a wannabe home owner having a saved my deposit having ditched my 3rd flat white of the day (but not the Friday nights). I am 7 months into looking for a house that is only a Vespa ride from work. That I worked very hard to be successful I wish to reward myself with the 'burb I desire. Those overseas experiences have been worth the high cost and sacrifice. It strikes me however, that supply of housing in the areas I like are low and this is pushing prices up. Low supply is due to the lack of builders (thanks low wage economy, I hope Australia has treated them better), expensive materials (thanks new building code) and long lead time (thanks RMA) meaning developers only build houses at the top end or erect cardboard apartments. We will still need landlords in the future and I personally don't want to be shelling out for boomer retirements with my future taxes so I hope they are self sufficient from tax free investments. And one day I'll wish to take advantage of those property tax breaks too. But we desperately need more housing. If the govt is to do something maybe building houses solid long term answer. It won't stop the pain of an imminent recession, it's too late for that anyway.
Grant
I'm fortunate. I don't live in Auckland. I don't have quite the same concerns with housing and transport that many do. However, I have followed this thread with interest. I have seen a number of people say that they are saving up to buy in a "good area". If I was in their position I might be tempted to try something that might be a bit risky. Get together with a group of people in a similar situation and all buy in a less desirable neighbourhood. Do up the modest houses you buy and start some 'urban renewal'. Doing this would raise the standard of the neighbourhood. There would be some 'desirable' people living there. As other people catch on to this you can then sell out and move to the more desirable area. Someone at some time in the past has done this. Someone bought in Ponsonby when it wasn't fashionable to do so. Parts of New York have gone through a transformation because some people were realistic enough to move to the less desirable area and transform it.
Worried
As a student about to enter graduate school, and having studied abroad in the states, the future of living in Auckland looks bleak. Unfortunately, it is also the only area in NZ where jobs in my specialty aren't hard to come by. I am in a bind - if I buy a 2 bedroom house for $350,000 (a decent one hard to come by these days), earn $50,000 per annum, pay 41 per cent tax (including paying off my loan and putting 4 per cent into kiwisaver), according to sorted.org, I will not even be able to cover the interest on my home. This leaves me with the option of renting. But what happens when I retire? I will still be paying rent, struggling to survive on retirement savings and super, and wishing I had moved to Australia. Unfortunately that prospect means leaving behind my two very young siblings, and the rest of my family, accruing interest on my $55,000 student loan, having to pay back my $12,000 government scholarship... so is this option really better?? I feel like the housing market has put myself and many other young New Zealanders in a lose-lose situation. What will happen when our generation retires with such a large percentage without housing investments? I do not think that government policy will turn the tide - it is those that already have their foot in the housing market and business owners that are creating the demand, and prices will continue to rise as they continue on like this. It's the classic 'the rich get richer while the poor get poorer' scenario.
Tim
It strikes me that the only practical solution to the housing affordability crisis is for the government to massively increase the building of new state houses, and make them available to families on a wider range of incomes. People want stability in their housing. If they can't afford to buy a house, at least with a state house they can feel more confident that they won't have to move every few years, change the kids schools etc. It is hard to find long term private rental accommodation (even though landlords claim they want long term tenants), because landlords invariably change their plans for their rental properties every few years (sell, move in themselves etc.)
ARH
Hmmmm. Can I start by saying that I'm a young NZer frantically trying to save a decent deposit to buy a house, concerned about insanely high house prices (going up by the day), just like so many others. But I do have a question - what exactly would you like the government to spend less on? We all want better hospitals, schools, police, roads, and other services and infrastructure that are payed for by the government (with our taxes). But the thing is, these services can only be improved with more money.. Cutting public servant salaries is also not the answer, otherwise you'll find that there really are no doctors, teachers and others willing to work for you - it's certainly not the 'gliding on' world it might have been in the 1970s - in fact I (yep, I'm a public servant) work considerably longer hours for less pay than friends in the private sector..
Miss W
I am a teacher. I have no car. I do not drink coffee or smoke or buy newspapers. I drink about 3 bottles of wine per year. I walk to work and back from the supermarket, groceries in my backpack. I rent somewhere that has bamboo patterned wallpaper, threadbare carpet and mould. I bought my ipod cheap when they were just about to bring in the fancy models. I don't go out, not even to movies. I don't have Sky, only TV1, 2 and 3. I have takeaways once a month. I have no student loan because my parents helped out, just like the g'ment said they should. I haven't impoverished myself on an O.E. I have no kids. My desk is one of those old Telecom fold-up ones. My dad gave me my stereo in 1993. I get my mum to trim my hair when I go to visit them in Nelson, twice a year. I travel on the bus and plane on Wednesdays, because it's cheaper. I buy my clothes at the Warehouse and Glassons and Savemart. When it's cold, I put more clothes on and wrap myself in a blanket. I have $30k in savings. Even living like this, if I was to get a $250k mortgage, I would have about $10 left over each week after mortgage, power, phone, internet and food. My best hopes for house ownership is to a) find a rich husband or b) my parents simultaneously dying and disowning my siblings. Given the man shortage, it looks like it's (b).
Robin Herd
Thanks Mr Bollard! I was about to buy a new 42 inch Plasma Tv, but will now wait a month or two for your latest interest rate rise to kick in, as it will now be that little bit cheaper. I have also just given my tenants notice of a rent increase (what with interest rates rising, I will probably need the extra money), so even better for me! Thanks Mr Bollard, you rock!
David McLean
Im just wondering why no one has mentioned slowing down immigration as a way of slowing property growth. Interest rates going up dont affect me as what little mortgage I have is fixed. High interest rates just make the imbalance of wealth worse. I also believe high Government spending and high taxes are also causing some of this problem
Dean
New Zealand is slowly becoming a "senile ageing" population of feminist "that's my choice generation" dinky double-income-no-kids landlords. Watch feminist Beatrix Potter movie and its a total myth. NZ is being sustained by an influx of temporary workers. Pacific migrants harvesting NZ farming orchards on 6-12 month contracts. Temporary foreign language students learning English. Finally the brain drain, our best youngest and brightest male New Zealander's 20-30 year olds who do the OE Overseas Experience and never come back to NZ.
There is actually a man drought here in NZ. They talk about a lost generation of NZ men (ANZAC day) and how many were killed during World War I. NZ has today in 2007 a huge gender imbalance; the same ratio of men now in the 30-34 age group as in 1926 following World War I. NZ isn't even having enough kids (2.1) birth ratio to replace itself, without migrants. Is it any wonder that the country is now run by women. In my book it is not a bad thing. I thank Helen and future female politicans like her who have more sense than men not to drag us into futile wars. The USA is now trying to rattle sabres with China. Forget it. In China the one child policy dearest and precious to any Mother, is a no go zone for any war monger Chinese male politician over there. NZ women should be able to have the freedom of choice about having children, instead having to work and bring in a second income to pay for a costly mortgage.
Prem Deshpande
High interest rates are not the solution, unless Bollard wants NZ dollar to soar against all currencies and unscrupulous people taking advantage by exchanging it for US $ or Euros. High interests rates only encourages Urdashis and our hard earned money will be enjoyed by Japanese's and Euros kiwis. Stronger NZ$ will make imports cheaper and people will naturally spend; see the discount advertisements posted almost every fortnight on TV 15 to 50 % discounts. All these good are cheap imports from China. Drop Interest rates to 4% and that will help to stop spending and make export stronger. The strength of a country is gauged by Exports and not imports. Housing markets, bubble has broken in Japan, Singapore, Hong Kong and India. What about US? Imagine what would be the state of those guys who bought their house for NZ 750000/- only to crash it to NZ500000/-, Bank's will still claim the mortgages. Beware NZ citizens before buying expensive houses at this juncture. Bollard should attack the root cause of house price rise. Buyers should be New Zealand citizens and this should be checked. Seller's identity should be checked because many foreign tourists join together and buy the house and leave to the real estate to sell them. They take advantage of our privacy laws in helping to cover their identity. Check the identity of sellers I am sure you will find numerous foreigners owing houses which otherwise young kiwis should have been the owners. Capital gain tax should be imposed on sellers trying to dispose off houses on business only. Tax rate should be much higher say 50% when sold within 3 to 6 months and should reduce when the house is held for a longer period of time. Above 5 years there should be no capital gain tax as the house is bough solely for the purpose for additional retirement benefit. Impose these sanctions and house bubble will burst including high dollar rate will also decrease try this Bollard…
Yvonne
Yup, good thinking Bollard. Lets make the average Joe pay for the highly paid politicians' complete inability to steer the economy. Another couple of raises and you should just about be able to tip a whole bunch of average kiwis out of their homes. Then we'll have the property crash you want and misery and instability throughout the land. Kids won't be worried about the occasional spanking, they'll be too worried about keeping warm sleeping under the stars. Honestly, even a well thought out capital gains tax to discourage every Tom, Dick & Harry from buying all the lowest priced properties and painting them and flicking them off would slow the upward pressure on the housing market. Your interest rates are just causing even more havoc to the economy. Surely you can access some good economic advice from somewhere on alternative methods of controlling NZ's economy.
Dan
A big part of the problem is that property investors are able to set up an LAQC (Loss Attributing Qualifying Company), and offset losses from a rental property against their personal income, thereby paying less personal tax. There are property investors with a portfolio of properties on $100k+ incomes who pay virtually no tax. Therefore the retunrs from buying a house for these people is not just the rental income, but the saves personal tax as well. So they can afford to pay more for a rental property. Coupled with no capital gains tax why wouldn't you buy rental properties? you'd be mad not to. These rules must be changed correct house prices.
Steve Sutcliffe
Hear, hear Steve G. It will be the single homeowner that will be the first to abandon the housing market, making it easier for those already with investment properties to buy our homes. Then we can buy some cheap consumer goods that we cannot afford right now.
ByeByeNZ
We returned to NZ 5 years ago from the UK and were shocked at the inequity between wages and house prices (let alone the cost of living in general). Now despite our unforgivable transgressions into twice-weekly lattes and our insistence on starting a family we are finding it even more difficult. So we are off, back to live in a higher wage economy. It turns out that for us, having a beach nearby and cleaner(?) air is not the be-all and end-all of life. It saddens me to read some comments from monopoly playing landlords many of whom started decades ago in a different world. It must be nice to sit there with their LAQCs, free from capital gains tax and paying only 18% income tax on a special tax code designed for hardup kiwis but hijacked by landlords, claiming depreciation on their appreciating houses and waiting for the growing number of renters to further increase the demand for their rental properties. I'd like to be a fly on the wall when that house of cards comes crashing down.
Allan
You were right Gareth Morgan (seminar 3 yeas ago),cheap money fueling a housing boom and the investment property disease,just about righton picking when interest rates would hit this level,when will interest rates drop?,not anytime soon,3 yaer mortgage rollover "ouch".. Ask yourself ,why is a piece of 4x2 in NZ the most expensive in the world?
Andrew Atkin
The build cost of a simple but decent three-bedroom home should be about $50k for the section, $80k for physical construction, and about 100k for the materials, and a bit more for legal and other stuff. So a good new house should cost about $250k to buy. But because we have a ready-to-occupy land shortage it's more like $200k for the section, and under supply of builders, say, $130k for construction, and materials shortage makes it around $120k for materials. So houses cost about double what they should. The good news is all those under-supplies are temporary, so the market will eventually see its correction - it's impossible for it not to. But then again that's bad news - all those poor bastards with $500k mortgages on $250k houses. Many of them will be paying the banks for the rest of their lives. Thanks Labour.
Rob
I'm very surprised at the number of people that seem to believe Allan Bollard doesn't know how economics work. If you think he doesn't then read other economists views and realize they all pretty much agree with what he's done. Mr Bollard has been given charge to keep NZ's inflation between 1-3% and has been given only one tool to do it with - raising the cash rate. Sorry, but it's really the government that's to blame for these raises - they are the ones that have only given him one tool to do his job with.
Dom
RB - the plan to attack rising inflationary concerns and the high dollar by hitting home-owners hard isn't working. It simply means mum and dad home-owner have less $ to go around. The root of the problem has to be property investors artificially over-heating the market for quick gain - so go after them - not us!
Publicus
To all those who want to buy houses, stop complaining and go out and make more money. If you can not do that at your current company, then go find a better job. The job market is hot, you can easily increase your pay by 30%+ simply by changing a job and still do the same things you were doing.
Rob
There are 6 default providers for Kiwisaver of which the ASB is one. I think it's a good initiative for most people. On the whole hopefully it will help save my children's from paying for us generation Xers seeing are they're going to have to pay for our and their grandparents greedy environmental blunder.
Tony
Q. Why doesn't NZ just adopt the (proven to work) UK measure of inflation (CPI?) that ignores house prices? Background: UK removed housing inflation from their CPI back in late ninety's and their Reserve Bank from that time set interest rates effectively by ignoring the housing market. Their decision (much discussed in the UK media at the time when their Reserve Bank became independent) means their inflation is based on a basket of needed items, not 'wants' like owning property or other investments. We all 'need' somewhere to live so 'rent' is included, but owning of a house is really an investment 'want' so is ignored in determining inflation, and hence interest rates. The result was definitely a success story for business, as they have had a nice long period of low interest rates and the certainty it was going to stay that way. Business above all else likes certainty, because it facilitates long term decisions. This need for certainty was the message they drummed into the UK govt for years.
If this was done, NZ could have a lot lower interest rates, the currency would drop a bit, the exporters would be happier, the currency speculators would stop using our currency for cheap gains and some pigs may almost levitate; possibly.I had a long OE with my family in the UK from 88-03, it was amazing to see the financial confidence everyone had once interest rates went down and they saw the reasons that they would stay down for the foreseeable future. Doh! simple really...
Peter Mossman
Good on you Bollard. But shame that you didn't squarely attribute the inflationary pressures to things such as Working for Families plus all the other handouts, including the thousands of spurious central and local government jobs created over the past few years. When will people realise that there is no free lunch?
UreKismet
The problem that young NZers face is that too many politicians of whatever stripe have read the reports of NZers having to work into their 70's and decided that's not for them so are supplementing their already generous employer (that's us) financed super scheme with a little property investment. Not on commercial properties where the risk is just too great for these fat and sleek parasites, and where they just might be contributing something to the economy. No they are buying up residential property whose construction was originally financed out of taxes or tax breaks 20+ years ago and are keeping that home from battling young families so they - the politicians - can enjoy sitting on their spotty behinds in their old age. Yes I know that this is something that just about every baby boomer bar myself is doing, but when the pollies do this it inhibits them from considering the range of options that they need to fix our economic problems.
As well as introducing a punitive tax on anyone who owns a domestic residence, they must prohibit sales of houses to anyone who doesn't reside in NZ for most of their year. Injustices would result from that but the size and nature of those injustices pale into insignificance when considered against that which are currently occurring.
Todd
Am I missing something or what? This government taxes us all on just about everything and runs up a massive surplus then complains that the good people of NZ can't afford a house? Perhaps if it stopped pouring money into the dead hole of social welfare and gave some of the hard working kiwis a bit of their money back through an incentivised tax regime to encourage savings, we wouldn't see people investing in property and therefore causing all this unnecessary hassle over the OCR hikes. Bollard has no other options than what he has done he has no other tools in the shed to use! Stop complaining NZ'ers, and vote this government out at the next election, bring on some sensible tax policies and social welfare reform. Bye the Bye - this governments immigration policy is driving house prices up too, by creating more buyers and more demand - seems logical the answer to this problem - close the doors NZ we've got enough people here and problems already! Keeping it Kiwi.
Matt
I can see merit in all arguments re rates going up or down. What I cant stand are the expat Kiwis who use this forum and such events as a reason to dish out the dirt on NZ in general, Hey stay away we don't want you back, you think your the only Kiwi who has travelled and lived overseas, plenty of us have and while NZ is not perfect its a damn sighte better than most places. For credibility sake I am a not a labour voter and would class my politics right of centre. .
Graham W
As others have already made mention, the only way to effectively cool the housing market is to introduce capital gains tax, if only applying to residential housing. It seems totally unfair that a $100k windfall capital gain on a rental property investment is typically tax free even though substantial interest deductions may have been claimed in preceeding years - perhaps these could be clawed back in some way as an alternative measure? To accumulate $100k after tax (e.g. for a house deposit) would take the average taxpayer a substantial length of time and many hours work - why then the current opportunity to earn these windfall sums (for the already wealthy) on a tax free basis? It beggars belief that this loophole still exists and which is clearly the main reason for the rampant property market over the past 5 or more years. Surely possible to structure a cap gains tax that doesn't affect the family home - i.e appropriately targeted. For some reason a capital gains tax is seen as politically unpalatable - although those it would target are presumably well out-numbered by those it would assist. Puzzling stuff.
David Harrison
There is to much speculation in the housing market, one of the reasons that the market is so hot. A solution would be to be to tax profits
