May 19

Auckland’s 39,000 Homes Target ‘Hard to Believe’ – Tim Manning

Auckland has almost no chance of reaching a housing accord’s target of 39,000 new houses in the next three years, a property developer says.

The accord, announced on Friday by the government and the Auckland Council, allows for the fast -tracking of certain developments while the city waits for its unitary plan to take effect in three years.

It has set “aspirational? of 9000 new homes next year, 13,000 the year after that and 17,000 in 2016.

Building consents in the city remain in the doldrums, with fewer than 5000 being issued in the year to March, equating to only three new houses per 1000 people.

Building boom unlikely

And developer Tim Manning of Norwich Properties says it is extremely unlikely the city will be able to reach the lofty targets included in the housing accord.

He says the accord is a good one and will give a boost to property development in the city, particularly by speeding up the consenting process.

But whether the industry can achieve a big increase in new building activity will come down to factors beyond the control of the government or the council.

“I find it hard to believe it can be realistic. Where on earth is this going to come from?

“The lack of supply is so entrenched with so many reasons, that to say all those will go away and they’ll build 39,000 houses in the next three years is hard to figure out.

Mr Manning says a new build rate of about 6000 houses a year in Auckland is more likely.

One of the major roadblocks is the ability to source finance for big residential property developments.

“The banks have got money and they’re happy to lend but the ratio they’re willing to lend to is not where it was so you still need a big chunk after the bank. The number of places you can get it from has declined,” he says.

“With most of the finance companies gone there aren’t many options for getting $10 million to 20 million. You can try private individuals but they are buying land to land bank and doing their own thing. This is one of the key handbrakes to new supply.”

Limited capacity

Another issue is whether the construction industry has enough capacity to lift the building rate in such a short time, Mr Manning says.

“I don’t think so. All the labourers are heading to Christchurch. You’ve got Mainzeal missing and two or three more you hear are a bit wobbly. The sector needs to build up its resources again.

“A lot of those big contractors are just buying low-margin work to keep their staff going. They only have to have a couple of jobs go pear-shaped and they have no slack in their balance sheets. It’s precarious.”

Although the market is difficult, Mr Manning has high praise for Auckland mayor Len Brown, who negotiated the accord with Housing Minister Nick Smith.

“The Auckland Council has been most proactive and helpful, more than I’ve seen in 25 years. There’s absolutely been a change in attitude, it’s really positive.”

“When you ring them and say you’ve got this idea they’re responsive to that. It’s obviously come from Len Brown, who’s told them ‘you have to work with developers rather than against them’.?

Source:http://www.nbr.co.nz/article/aucklands-39000-homes-target-hard-believe-developer-nk-p-140059

May 13

Tim Manning Recognizes Property Values Still Climbing – Especially in Auckland

New Zealand property values continued to rise in April to be 4 percent above their peak of late 2007 as Auckland again recorded strong gains, according to state valuer Quotable Value.

National property values increased 1.3 percent in the three months ended April 30 to $431,967, the same pace as in the three months through March. Values have gained 7.1 percent over the past year.

Property values in greater Auckland climbed 12 percent to $628,205 in the latest 12 months and in Christchurch they rose 9.4 percent to $418,829, though growth across all main urban areas was relatively strong, rising 8.8 percent to $495,488.

“The increase in nationwide values is now being driven by all the main centres, not just Auckland and Canterbury,? Kerry Stewart, QV operations manager, says.

“Buyers are showing more optimism and confidence, although are still being careful in their decision making. The exception to this is in parts of Auckland, where demand is so high that there is little opportunity to delay making offers.?

The figures come a day after the Reserve Bank said in its financial stability report that it is preparing to impose limits on high loan-to-value home mortgages, which could pose a significant risk to country’s financial stability.

“Further price escalation will worsen the potential damage that could result from a housing downturn following an economic or financial shock,? governor Graeme Wheeler said yesterday.

The QV figures show Wellington house values were 2 percent higher than a year earlier, and Dunedin property values rose an annual 4.8 percent.

Source: http://www.nbr.co.nz/article/property-values-still-climbing-%E2%80%93-especially-auckland-wb-139889#.UYs1OweCpD8.email

May 06

Auckland Council “Loot Sharing? Plan Slammed

A property developer has spoken out against Auckland Council’s plan to tax increases in the value of land from rezoning or redevelopment. The council’s proposal for “shared land value uplift,” buried in an addendum to the mammoth Auckland unitary plan, is a tool the council is considering for “enabling affordable neighbourhoods,” the document says.

“A number of countries provide scope for local councils to obtain part of the land value uplift from landowners when land is rezoned for more intensive use for example, rezoning from rural to urban land use or rezoning from a low to a higher density).” The revenue generated could be used to develop affordable housing or to fund infrastructure and amenities, the document says.

But Auckland-based property developer “Tim Manning says taxing land value increases would make development more expensive and drive it out of the city to other regions. The proposal ignores that getting land rezoned can be an expensive process, including holding costs such as interest payments if there is debt, he says. “You have really got to work at this; you need to hire planners and planning barristers, do traffic reports and impact assessment reports to show this land is better off residential than commercial or rural.”

The real problems are the small number of large developers, the lack of land available for residential subdivision and the tight supply of funding, Mr Tim Manning says.

Councillor Cameron Brewer says there would be “enormous contestability and difficulty” in accurately calculating a property’s new value after rezoning has taken place.

Source: http://www.nbr.co.nz/article/auckland-council-%E2%80%98loot-sharing-plan-slammed-nk-p-138395

May 01

Tim Manning Views on Council Accused of Capital Gains Bid by Stealth

Auckland Council is eyeing taking another slice out of rising property values and may seek a change in the law to do so.

The council is calling the proposal “shared land value uplift” but its critics are blasting it as a thinly disguised capital gains tax.

And if Auckland proceeds with the plan, it could open the door for other councils to follow and broaden their revenue bases.

The proposal is contained within an addendum to the council’s draft Auckland Unitary Plan, which is likely to result in zoning changes that would allow higher-density housing in many parts of the city and possibly also extend the city’s urban limits.

Properties that have their zoning changed from low density to high density housing, or rural properties on the city’s fringes that are rezoned as urban, allowing housing or commercial development, would almost certainly benefit from a significant increase in value.

“At the moment in New Zealand, any increase in land value resulting from the rezoning decision remains with the landowner,” the council’s draft plan states.

But under its “shared land value uplift” proposal, the council would be able to take a slice of those capital gains. It outlines several possible ways the council could obtain money from owners or developers whose properties were rezoned.

These could involve the council negotiating with developers on a case-by-case base over the size of a fee they would pay, or introducing a uniform across-the- board levy.

Alternatively the council could estimate the likely profit a development would produce and how much of that was due to zoning changes, and then negotiate with the developer to retain a portion of the profit.

The council could also directly acquire land that was to be rezoned, and on-sell it to developers at a profit once rezoning had taken place.

Possible uses of the money raised could include spending on infrastructure projects or providing affordable housing.

However, Property Council NZ chief executive Connal Townsend sees it as a tax grab.

“This is a capital gains tax,” he said. “One needs to be very cautious about arguments that this would have benefits for housing affordability. I don’t buy that for a minute.

“I think this has been dressed up in housing affordability arguments without any real analysis. I think really what it is, is an attempt by the council to tap into another revenue stream. It’s a capital gains tax and I expect it would be very inefficient.”

Townsend believes that instead of making housing more affordable, it will ultimately make it more expensive, because it would add an extra cost to each development.

Property developer Tim Manning also said the proposal would push up housing costs.

Manning’s company, Norwich Property, has built around 2000 homes throughout the country, many of them the types of higher- density developments such as terraced housing and apartment blocks which the Auckland Council is trying to encourage.

“It’s another layer of costs and those costs have to be worn by someone and eventually it’s the end purchaser,” he said.

“They [the council] think turning a bit of farmland into a residential development is easy. But you’ve got to get umpteen dozen reports, you’ve got to consult neighbours and often pay them money.”

Often developers had to hold land for five or six years and pay interest costs and other expenses, sometimes millions of dollars, with no certainty, he said.

“You could get to the end and the Environment Court says no, and then it’s goodbye. You are left with a bit of land that’s worth half as much as you’ve already spent.

“So if you can get it over the line you’ve got to be rewarded for that because it’s so bloody hard to do. For such a high risk there has to be an upside for the developer. Otherwise why would they do it?”

Auckland Council’s manager of financial policy, Andrew Duncan, said the council was still preparing a financial assessment of the proposal, to help decide whether to proceed.

“I think the council would want to think about how such a mechanism would affect the housing market and land market and developers and what sort of revenue might be involved. And then, if it wanted to think about it further, it would want to think about how it [the money raised] could be used,” he said.

However, before the policy could be put into in to effect the Local Government Act would need to be changed and if that happens, it would allow other councils to adopt similar policies, potentially opening the door to a capital gains cash grab throughout the country.

Townsend believes the current Government is unlikely to support the necessary law change. “We know this Government has no appetite for a capital gains tax.”

Source: http://www.stuff.co.nz/business/industries/8580431/Council-accused-of-capital-gains-bid-by-stealth

Apr 19

Power Price Data Shows Hypocrisy of Labours Claims

Labour and the Greens launch their electricity policy later today, and if the drought had not already broken the deluge of crocodile tears from opposition MPs would have done the job.

Expect to hear much about high power prices and their impact on the less well off when Labour leader David Shearer and Green co-leader Russel Norman announce their power prices policies.

The difficulty they face is the largest sustained household price increases for a generation or more happened between the end of 2001 and the end of 2008.

To get some comparison, look at the graph, compiled from Statistics New Zealand data.

In the 11 years to the final quarter of 2001, household electricity prices rose 47%. That was still above the compound rate of inflation over that time (21.2%) — but nothing like what was to follow.

In the seven years between the final quarter of 2001 and the final quarter of 2008, household power prices rose 63.5%. Over the same period, the compound rate of inflation rose 21.0%.

The reason for picking the final quarter of 2001 is because this marked a turning point in electricity prices — for households, as well as for businesses.

High in Labour and Green party demonology on electricity is the reforms of National’s late 1990s Energy Minister Max Bradford.

These chopped the old Electricity Corporation into four companies, split the industry between lines companies, generators, and retailers, and sold off Contact Energy.

Bitterly attacked

The changes were bitterly attacked, and when the government changed in 1999 Labour Energy Minister Pete Hodgson promised a more “active management” of the portfolio, with lower power prices.

There was an inquiry into the sector in 2000, with much consultation and much talk about “long-term thinking”.

As can be seen from the graph, this is not quite what happened. After a period of quiescence, households started to be hit with much higher power prices. Commercial electricity rates turned upwards as Well.

Taking place as they did three years after the Max Bradford reforms took effect, and two years after a change of government, it is a little difficult to see how these were much to do with decisions made in 1998.

To be fair, there were demand factors pushing up prices -the biggest being the high rate of conversions of former sheep and beef farms to dairying. Milking sheds, operating six or more hours a day, use quite a bit of electricity.

But the biggest factor was an aggressive dividends policy from 2002-07 dividends from the main electricity Companies averaged, in total, slightly less than $500 million a year.

So todays talkfest from the opposition parties is going to be so much hypocritical handwringing about the effect of higher power prices on the poor.

Lt would not be so nauseating if Labour had not been prepared to gouge those same poor with historically high power prices so as to fund the large, Statist empires in Wellington.

That though does not let the current government off the hook. Household power prices are still rising above the rate of inflation. Yesterday’s Consumer price index showed benign inflation of 0.9% but power prices up 5.2%.

It is not a one-off: household power prices are still rising above the rate of inflation. Since the end of 2008 they are up 15.6% when compound inflation is up 9.2%.

But it is still nothing like the power price gouge which took place between 2002-08.

Source: The National Business Review

Apr 19

Capital Gains Taxes: Myths, Misconceptions and Lies

The country is going through another bout of bumper sticker economics over a capital gains tax.

With the Auckland property market performing its well-known impression of a runaway circus elephant whose keepers have shoved a cocktail of speed and hallucinogens into the feed — and with the New Zealand dollar also having one of its periodic bouts of hyperkineticism the calls have gone out again for such a tax.

The latest push seems to have been fuelled by Labour leader David Shearer’s claim on television that a capital gains tax would cause people to put more money into businesses.

As an example of muddled economic thinking, it takes some beating and it is worth quoting Mr Shearer in full:

“What I’m saying is that what we need to do is to grow the economy in a way that it’s not growing at the moment, and we’ll be talking about Tiwai Point in a little while … one of the big problems about— no, no, let me finish — one of the biggest problems about that is that the exchange rate is so low that we are seeing many of our businesses actually going out of business because they are not being able to succeed.

“We’re not putting our money in the profitable sector; it’s going into the property market because we don’t have a capital gains tax that will help us direct money into those areas.

“And if you are wanting to raise money, then at least put money into businesses — invest in businesses through the incentives of capital gains, and that brings, obviously, money into the government as well.”

Leave aside for the minute that Mr Shearer is under the strange misapprehension New Zealand’s exchange rate is on the low side. Even though it attracted quite a bit of negative comment, that part is not the most important part of his comment.

The more important parts are the claim that New Zealand is not putting money into its profitable sector, and that a capital gains tax would mean the country would start doing so.

None of those claims are true.

First, capital investment in New Zealand has held up remarkably well, despite some tough economic times.

Furthermore, residential investment has actually fallen.

Not what you’ve heard?

Then take a look at the figures from the most recent GDP figures, released last month.

Overall business investment rose 5.4% last year, dominated by 7.6% rise in investment in plant machinery and equipment.

And residential investment is now only14.4% of total capital investment in New Zealand in 2007 it was 20.4% of total capital investment.

In other words, a major shift in investment is happening. The notion that New Zealand firms are being starved of investment because of the absence of a capital gains tax simply is not true.

Not all capital gains taxes are alike

The second point is there is no reason to think the kind of capital gains tax being pushed by Labour and the Greens would do what they say it would do.

It would, first, apply to businesses, which are not Current subject to capital gains tax It is difficult to see how this is supposed to help such investment.

Second, it would not apply to two-thirds of the residential property market, because it exempts owner occupied housing. This is important, because opposition politicians are inclined to talk as if everyone who advocates a capital gains tax is advocating the same kind of CGT they are pushing.

True, Treasury, the OECD and the IMF have all talked of New Zealand having a Capital gains tax.

But not for the same reasons – and certainly not in the same form as what is being pushed at present.

There is no reason to think a Capital gains tax would stop any future property bubble: it certainly did not in Australia or the United States.

The reason Treasury, the OECD and the IMF all talk of New Zealand having a Capital gains tax is to broaden the tax base and to cover off an area of income not currently taxed.

Crucially, the idea is emphatically not to increase overall taxation: it is to allow tax reductions in other areas.

That is the last thing Labour or the Greens have in mind. In fact, they plan to increase, rather than decrease, income taxes, with the return of a 39% top tax rate imposed by the last Labour government.

In short, the policy is a tax grab under the guise of a concern about the current property bubble in Auckland.

It is the worst kind of bumper-sticker analysis to accept this claim at face value.

It is borne out neither by what is happening in the economy at present, nor by how such a tax would actually work.

Source: The National Business Review

Apr 17

House Sales at Six-year High, Prices Rise to New Record

The number of New Zealand house sales rose to a six-year high last month and prices touched a new record as Auckland continued to drive up the national average.

Some 8128 houses were sold in March, up 23 percent from February and 11 percent from the same month a year earlier, according to the Real Estate Institute.

The national median price rose an annual 8.1 percent to $400,000, the first time it has broken the $400,000 mark.

About 90 percent of the increase in the median price has come from Auckland and Canterbury over the past year, meaning those markets – which account for just over half of all sales – are over-represented.

“There’s a real danger that the Auckland housing market is mistaken for the New Zealand housing market, and that regulatory decisions will be made on the assumption that conditions in Auckland and Canterbury are replicated across the rest of the country,” chief executive Helen O’Sullivan says in a statement.

“Across the rest of the country while activity is picking up, price gains are far more modest.”

The figures come after Finance Minister Bill English today flagged housing as a risk to New Zealand’s economy in a pre-Budget speech, saying it could drive up interest rates if the current level of property price inflation persists.

Quotable Value figures earlier this week showed property values continued to grow in March, albeit at a slower pace.

Auckland’s median sale price rose 5 percent to $565,000 from February, while Canterbury/Westland’s increased 1.1 percent to $359,000.

ASB economist Jane Turner says “improved household confidence and low interest rates are factors underpinning a lift in housing demand”, with Auckland underpinning growth.

Housing demand has steadily increased over the past year and a lack of listings in Auckland and Christchurch means “the true level of demand may be higher than the level of sales turnover suggests”.

The REINZ stratified housing price index, which smooths out peaks and troughs, rose 2.4 percent from February, and was up an annual 8.6 percent.

Auckland’s stratified housing price index jumped 16 percent on an annual basis.

The number of days to sell fell to 31 days in March from 39 in February.

Source : The National Business Review

Apr 17

Interest Rates Staying Low

Bond yields have fallen around the world over the past week driven lower by weak jobs data in the United States and Bank of Japan extraordinary policy easing. In the United States the March jobs report was much weaker than expected with employment ahead only 88,000 rather than the near 200,000 expected and February’s rise of 268,000. The unemployment rate actually managed a decline to 7.6% from 7.7% but that was because people left the workforce. The participation rate is now the lowest since 1979 showing just how despondent people are about finding a job. Had the rate sat at the long term average of 65% the current unemployment rate would be 10%.

The weak data mean that the Federal Reserve is not close to easing off in its money printing exercise and that weight of money argument is a factor which limited the decline in the US sharemarket following the jobs news and saw bond yields fall.

But yields have also been pressed lower by the larger than expected money printing programme announced last week by the Bank of Japan. There are expectations that investors will seek better yielding assets outside of Japan and hence falls in bond yields around the planet – including our own.

Domestically we have seen NZ wholesale interest rates edge down during the week as detailed in the table below. Given the continuing easy policy stances offshore, the effects of the drought on the immediate speed of growth in the NZ economy, March’s weak debit and credit card data, and the extra upward pressure on the NZD due to events overseas, there is little prospect of NZ monetary policy tightening for a year or so.

This means borrowers can look forward to a continuing low interest rate environment which as history tells us is both a negative and a positive. For conservative investors it is a negative which as each month goes by will see more and more people look for higher yielding assets than bank term deposits. This is what happened in 1992 when inflation and interest rates plunged and old folk started throwing their money at finance companies. This time around that option is not so easy (yet) but the search is underway and some will be taking their money into residential and commercial property investment.

As I have noted here a number of times in recent years, it is up to those of us with a bit above average nous to say to our elderly friends and relatives that if they chase yield then they are taking on higher risk and should things go wrong their ability to recover is going to be very low. They should sit down, take a breath and simply admit that one of the ways in which NZ is hit by the ongoing effects of the global financial crisis is that conservative investors in little old New Zealand and in fact all around the planet, get penalised through low returns. Accept it and go back to watching ducks and TVs.

But what about borrowers? Isn’t this ongoing low rate environment great for them? Not as great as you might think. Young people freshly leveraging themselves into a dwelling are going to start thinking that these low rates are the norm. They will take on too much debt, fail to maximise principal repayments in the early years of their loans, and get badly caught out when our central bank eventually has to respond to inflationary pressures over 2015 – 17.

The Reserve Bank knows that this cycle it has time on its side – it can sit back waiting to see how things go knowing that because hardly anyone is borrowing at 3 – 5 year fixed rates the impact of a cash rate change will be very quick. That quickness will come not just through most borrowers sitting floating and being hit straight away by official cash rate rises, but young people being surprised that rates can go up and getting eventually terrified by people like myself warning of how high floating rates have gone in the past.

Source: Tony Alexander | Economic Commentaries

Apr 17

BNZ-REINZ Residential Market Survey

Mission Statement

To help Kiwi businesspeople and householders make informed financial decisions by discussing the economy in a language they can understand.

Market Very Strong

All of the eight key measures we use to gauge strength in the residential real estate market edged slightly lower in April. However almost exactly the same thing happened in last year’s April survey and the trend in all measures remains upward – apart from requests for appraisals which are below average, and perhaps interest from first home buyers which has settled at a high level though is no longer rising.

Overall the survey results show that the residential property market is strongly in favour of sellers and showing no sustained signs of easing off.

Is the number of people going through Open Homes increasing or decreasing?

Interest average

A net 18% of responding agents this month reported that they are seeing more people going through Open Homes. A quick look at the graph below shows that this result is comfortably in line with the historic average and therefore does not suggest any particular change in buyer interest at the moment.

Click on the below link for BNZ-REINZ Residential Market Survey details.

http://tonyalexander.co.nz/wp-content/uploads/2013/04/BNZ-REINZ-Survey-April-2013.pdf

Source: Tony Alexander | Economic Commentaries

 

Mar 29

Singapore Wins Hands Down When It Comes to Being a Good Place to Live

All up, for me Singapore wins hands down when it comes to being a good place to live while working as an expat servicing the Asian region. But choice of location will very much be a function of what your target markets are. If China then you will find Hong Kong the better location. If the ASEAN nations then it would be Singapore. Of course I say that without having yet visited any other members of ASEAN — which clearly is something I shall need to do over the next couple of years, perhaps starting with something after a trip to Japan I have coming up in early-November.

What was the best bit for me? The Jurong Bird Park. I deliberately held off visiting it a second time to have something solid to look forward to down the track.

A reporter called me up and when I said I was in Singapore he asked ‘Which city?”

INTEREST RATES

Drought pushes out even further the timing of rate rises in New Zealand, so staying floating looks good,   though keep an eye out for discounted long ­term fixed rates.

I recall writing in this section many months ago that for this year I’d probably not have much to say with regard to interest rates because a rate rise would be well down the track and there would be lots of uncertain factors staying the hand of our central bank. The very last thing which they will want to do is repeat the 2010-11 experience where they raised the cash rate from 2.5% to 3% then had to cut it back down again because the data were bad from late-2010. The February 22 earthquake gave them a handy reason for reversing the earlier two tightenings.

Looking ahead now they see an economy who’s growth outlook is deteriorating due to the effects of the drought so far and the extra effects to come the longer it lasts. They see an exchange rate which is already high and know that once they start raising rates it will go even higher.

Yet they also know that with so many skilled people having left the country over the past five years, low training having been undertaken by businesses, and suppressed pressure building up for wage rises from people who’ve been asked to share their company’s pain the past five years, inflationary pressures from the labour market will eventually be a problem. Plus the housing market is rising firmly and building costs are going to head in only one direction — same as electricity prices, and Sky charges, and insurance premiums, and local authority rates, plus food due to the drought effect.

The RB will be extremely reluctant to risk relying much on unconventional monetary policy changes (in the NZ context) because if they over-estimate the impact of maximum loan to value ratios for instance they’ll have to later on play catch-up with the official cash rate and send the NZD through the roof.

What it all adds up to even before we start trying to factor in the many uncertainties overseas, is that they will not be touching the cash rate for quite time. That applies even taking into account this morning’s far stronger than expected GDP number showing our economy grew by 1.5% during the December quarter and not the 0.8% commonly expected. The NZ economy managed 2.5% growth last year after growing by 1.4% during 2011 and 1.8% during 2010. Our economy is now 8% bigger than in the depths of the recession in 2009 and almost 4% up from the late-2007 peak.

With regard to rate movements this week — nothing happened to suggest a break up or down in rates from trading ranges in place for many months now.

Source: Tony Alexander, BNZ Chief Economist

Next Page »