Island Life: Green Acres
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Right I've done my re.... cue baby crying and go to sort it out.... right back again..... done my research (which involved finding the Metro magazine I was looking for after scouring the wrong ones.
Metro March 1991 Peter Ellison:
"More people own their own homes these days than they did in the "good old days". Fifty years ago, just over half of New Zealand homes were owner-occupied; by the mid-1950s the proportion had climbed to over 60 percent; nowadays, 74 per cent of New zealand houses are owned by their occupiers - about half outright, half with a mortgage. Only 23 per cent are rented, the other three per cent are rent-free.
Buying in Auckland has always been more difficult than elsewhere in the country: the median house price is $145,000 compared to the national median of $105,000. Even so, home ownership figures for Auckland are almost identical to the national figures - except that slightly more properties are mortgaged, slightly fewer owned outright.
It's a myth that houses were easier to buy 20 or 30 years ago. Sure, mortgage rates were lower back then - as low as six per cent. But, says Garth Barfoot, a director of Barfoot and Thompson and a former Auckland branch president of the Real Estate institute, you needed a bigger deposit - as much as one third of the total price - and getting a mortgage was harder.
Borrowing money required long-term loyalty to a lending institution: when you got your first job you took out building society shares or insurance policies to put you in the front of the queue for a mortgage 10 years later, Barfoot says. these days you can walk in straight off the street and borrow up to 85 per cent - but the catch is that still wicked 14 pointsomething per cent interest rate".
The obvious bits that interest me are the $145,000 median house price in Auckland in 1991 (probably figures from late 1990). These days it somewhere around 380,000? 400,000? That would go along with the experts statements that house prices roughly double every 8 years or so. Obviously not always the case.
The other bit interesting me is the 14.? per cent interest rates on mortgages. They make the increases these days seem like not all that much to put up with.
Still, would be nice to have been earning 13% on savings which the article goes on to mention.
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The interesting factor in Auckland is apartments. I visited someone in a city apartment last weekend and standing on his balcony brought home to me how many people, including families, are already living apartment lives. But how many people buy apartments to live in themselves?
we're living in an apartment, and really liking it. kind of makes wellington seem a lot bigger and more enjoyable.
as for purchasing? on our combined income we could afford something pretty sweet, but why impoverish ourselves? if we get kicked out we'll just put everything in storage, take some accumulated annual leave, and go to the islands for a few weeks.
savings you see...
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PS a few families in our building. no greenery for the kids to run about in, but there's parks everywhere downtown. we see people taking their wee tackers out to run about all the time.
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What strikes me is the attitude in the media that renting = poverty. Apprently its a terrible thing if lots of people rent rather than own. I haven't seen any stats on home ownership in other (comprable or otherwise) countries, but was under the impression that in large parts of Europe, the UK included, home ownership numbers were a lot lower than in NZ, largely due to a lot more history for landowners to build up larger portfolios to rent out.
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Living in Japan has some disturbing realities about property. It is generally believed that property and land prices have depreciated by 80% since their peak. Along with that, the $15 coffees in Tokyo have disappeared and you'll get a good cup of Japanese bitter for around $2.50. Oh, and I can even suck on a Heineken for $3.20 or a Hoegaarden for $5:50 in downtown Osaka on a Friday night. A colleague has recently bought a lodge that sleeps 30-40 people with a view of the Nagano Winter Olympics downhill course for less than the median price of a house in Otara. You can get a solid 70-square-meter apartment for around $1000 a month in a nice, leafy (OK, relatively) part of Osaka. Why so cheap? Because the economy is driven on actual production and exchange not asset inflation and debt.
You will also see the Japanese houswives beaming at the posters hanging in bank windows offering term deposits in NZ dollars offering at least 20 times the interest they would earn on a yen savings account. Obviously, the exchange rate risk is there but most of them have probably also enjoyed another 10% as the Kiwi dollar shoots for the stars. I wonder how much of this property boom is funded by the noble, tight-stringed Japanese housewife.
It is a particularly Anglo-Saxon notion that property appreciates forever. Go ask the Germans. Sure, Australia and NZ are unique in that this property bubble is driven on the supply side, but to think that it couldn't slowly deflate over time is a little naive.
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All these figures being thrown around - did I mention that I pay $120 in rent per week? And if something is broken I call our property manager and they fix it quickly? And all I have to do in return is clean the house thoroughly every three months for the flat inspection? Haha. My life is awesome.
If I had a partner, I would want to own my own house, because I have a nesting instinct. But I know that's unrealistic on a single income, so I will instead continue to put things on the wall in contradiction to our tenancy agreement. Muhahah.
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I remember the days of $13 per week in the old workers dwellings at the back of Greggs Coffee factory in Dunedin. I since hear that the flats have been snapped up by a marketing guy from Shotover Jet who reams the poor scarfies.
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Metro March 1991 Peter Ellison:
"More people own their own homes these days than they did in the "good old days".
Yamis, thanks so much for that quote. That was very interesting!
My parents had to jump through hoops to get housing loans in the '70s and '80s, sourcing loans from three different sources.
And of course, if someone like me (a single lady) tried to get a loan back in the '70s, I wouldn't have had a hope.
Things have changed, but I'm still renting.
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I paid about $167 for my room at my last place in Wellington. But it was a beautiful flat though, my room had a view of nearly the entire harbour. Interestingly enough we didn't have a lot of choice in this flat, we looked for 4-6 weeks and this was the only place we could get. It was also the best place we'd seen.
Lesson being not to look for a flat in Wellington in January - February, nor have a cat. Really limits your choice, and there is little more frustrating than fighting with 20 other people over a mediocre flat.
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ASB will lend you up to 70% of the value of quite a range of shares. The rates are a little less favourable than mortgage, but it's still not too bad. ...A number of australian shares offer warrants, which are also quite attractive in terms of leverage, plus you don't have ongoing interest costs.
With no other security? - that's a bit brave, although I suppose if it's only blue chips. My US broker will only go to 50% I think, though I haven't pressed the point. The difference with a house though is that a bank/broker will usually make a margin call if the price falls (I assume ASB would do this). A house can be deep in negative equity and provided the "owner" keeps paying the interest the bank will do nothing about it. (Question: what happens when you refinance a 5 year fixed rate - do the bank want a new valuation or are they happy to just roll the loan over?)
Warrants aren't really the same thing. The loss is limited - if they expire worthless you lose your principal but no more. Also, if you plan to play derivatives you've basically got to factor in a large amount of your time to watch the market like a hawk. Plus, you need to trade a lot and as a small investor you'll get nailed on transaction costs.
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Sheesh does anybody here own a house?
Er... I'd tell my story but I fear with my real name here Alan Bollard might hunt me down personally.
But left to my own devices there is a very good chance I'd still be living in the very first house I bought in 1989, 3/4 of an acre & a little bungalow on the town belt above the old Athletic Park site. I'd be mortgage free ...sigh...
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Rich, here's the list. On a lot of shares ASB will only lend 40%. Also note that if you don't gear more than about 50%, then the dividend yield may well cover the interest.
You're right about the margin calls, but that assumes you've drawn all the credit you can. I never have (and I don't have any margin debt right now). Anyway the point that houses are not the only leveraged option for the average punter has been made, I think.
Maybe houses have more going for them psychologically though. As several people have noted upthread, some people really are focussed on owning a place to live, not making a great investment.
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Personally I think owning rental property is the greatest scam currently running in NZ. Mortgage it to so that the repayments wipe out most of the rent, use the rest for maintenance and repainting once in a while. If you start making too much, add something on like heat pumps or a deck. The name of the game is to make no profit on it, hence no tax. If the mortgage gets wiped out buy a second one and try and tie them together legally so the income from the first one goes towards the mortgage of the second.
Then if you ever sell it at some stage, you've made a couple of hundred grand, and that doesn't get taxed either at present.
It's the best way to invest $50K and come out ten years later with $250K not having paid a cent of tax.
It might be that the housing bubble does 'burst', and you only make 50K rather than 200K, but it's not like the stockmarket doesn't have horrendous crashes every few decades. At least with a house you're still left with something useful rather than almost worthless bits of paper.
Having said all that, most people are still going to buy a first home for a hundred reasons which aren't to do with money. I've tied myself down really tight to get into a first home (only possible with Dunedin prices), but it's still great.
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Warrants aren't really the same thing. The loss is limited - if they expire worthless you lose your principal but no more. Also, if you plan to play derivatives you've basically got to factor in a large amount of your time to watch the market like a hawk. Plus, you need to trade a lot and as a small investor you'll get nailed on transaction costs.
That's just how speculators play the game. Once upon a time, a long long time ago (perhaps a couple of hundred years now), derivatives were used to shore up future sales and purchases (in much the same way that airlines hedge fuel that they actually intend to buy). And you can still used them like this, rather than day-trading or whatever.
Take something like BHP. 3 years ago you could have picked em up for about $12. Currently price $30. If you think that their mineral resources will continue to be in demand, you might consider some June 09 warrants. Exercise price is $6.30, warrant price $24.30. Current BHP share price is around $30 (quite close to 6.3 + 24.3). You buy 100 for $2430. If in 2 years time the head share price is $50, then you have made a 105% gain. You could even consider parting with the princely sum of 630, and keeping the shares. On the other hand, you could buy 2430 worth of shares, but you would only have made a 67% gain. This doesn't seem particularly far fetched, given broker's current price targets. So you can still use warrants and options as a leverage strategy.
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merc,
And then there's that Palm Oil!
Sorry James I had to do it, I'm a bad machine and I lived through The Crash. -
I'm sorry James, Stephen and your fellow bourgeois-boomer fellow travellers - I really do not believe that anyone is going to be lending sizeable amounts money for securities to twenty-somethings with pre-existing minimal net worths and salaries well below the $70-$90k numbers you are throwing around.
As if any more reinforcement was needed, this thread shows there is enormous generational blindness and apathy about the massive age and class based redistribution going on.
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I really do not believe that anyone is going to be lending sizeable amounts money for securities to twenty-somethings with pre-existing minimal net worths and salaries well below the $70-$90k numbers you are throwing around
Sure. But that has always been true of 20-somethings. People in their 20s never have had much by way of net worth or the capacity to borrow to purchase assets, (unless they were made of sterner stuff than me).
We brought up margin lending to counter the statement that houses are the only way for the average punter to be leveraged. It was not proposed as a solution for the poor 20-something,
If you read my first posts, you would have noticed that I think we have a bubble caused by tax evasion, and that the handwringing from the real estate people is self-serving. That accusation of blindness is a little harsh.
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And then there's that Palm Oil!
Sorry James I had to do it, I'm a bad machine and I lived through The Crash.Again, it's a counter argument to the idea that housing is the only source of leverage. Also, FWIW, in the case of warrants, your exposure is very low. Sure you can loose all of the money you paid for the warrants, but your exposure is a lot less than if you owned the same number of head shares. You also have to consider your risk profile, and how much you can afford to lose before you make an investment. This is hypothetical, but I'd be a lot more likely to buy the warrants than a lotto ticket.
I really do not believe that anyone is going to be lending sizeable amounts money for securities to twenty-somethings with pre-existing minimal net worths and salaries well below the $70-$90k numbers you are throwing around.
And there you'd be wrong. The actual ownership of your margin shares rests with the bank, they only let you borrow a certain percent, and can and would forcibly sell them before they were losing money. I'm aware of postgrad students with margin accounts, and they fit pretty comfortably into that demographic.
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Stephen: I take your point - I realise that the 70s and 80s weren't necessarily a financial golden age for twenty-somethings.
However, I do think that the "average punter" in their mid-20s now faces a very different situation to the "average punter" in their 40s-60s now did when they were in their twenties. Real estate assets/places to live are genuinely more expensive now than they were 5/10/ 20/30 years ago.
Increasingly, young people are being priced out of the markets for these places to live/assets as the incomes of young people have not caught up with the imperatives of desposit saving and interest repayment.
Generally, the" blindness" of boomers is produced through their lack of personal experiences of the student loan program and these low incomes. This is further obscured by the wider availabiliy of consumer credit to young people and the falling costs of status goods that older people still percieve as relatively expensive.
I also suspect that much of young people's spending is being displaced to status goods giving that saving for asset accumulation in the form of real estate is increasingly percieved as impossible.
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James: I would suspect that your post-grad students with margin accounts are precisely the upper middle-class minority I mentioned earlier, who have probably benefitted from an inheritance at some point.
There may be exceptions, but I very much doubt their capital was raised through working at $12/hour while paying rent/buying food/and so on.
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One thing I will agree with you on Marcus is that salaries for new graduates do not seem to have risen in a way that compensates for the typical student loan. This thread and the original post has a few hints at why...
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I learn all my life lessons from watching the Sopranos.
"Buy land AJ, cos god ain't making any more of it".
.... well unless we all bugger off to live on that new planet they've found. -
Marcus, I fear that your cynicism is doing a disservice. Middle class I'd cede, but rest is fanciful. Plenty of time spent working for $8/hr, and then thinking with better quality of jobs that $10.86 was really in the money! The kind of middle class where you were just ineligible for an allowance but not able to expect much help from your parents. So part-time work and uncle loan. Come postgraduate time there were scholarships, tutoring for $15, but no inheritance. The idea of investing in shares was borrowed from genuinely wealthy families, and then we applied the academic research skills to this investing biz.
So while the capital wasn't raised at $8/hr, the budgeting skills and spending discipline were. -
James: When I wrote that Post-Grads with margin accounts were middle-class I did not have your personal experience in mind, although despite your protests I feel your seemingly exceptional experience reinforces my point.
Aside from those with lumps of capital, the sort of product you are advocating are only really open to persons such as yourself - ie. apparently highly educated in the field or with time to spare.
These sort of products are not accessible as a means to financially get ahead to the vast majority of the population who are time and capital poor or lacking in formal advanced financial education.
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Hi Marcus,
I expect that the group with which I mingled where rather motivated by seeing people with rather wealthy parents getting allowances, support from their parents etc., while if your parents had a job such as teaching, or some other salaried occupation, you'd get neither.
And you're very right, they're not the sort of things that easily accessible. Interestingly, none of the people I'm thinking would have touched a commerce subject, but a good research background (and/or perhaps a background in sciences, which tend to necessarily involve some complex math)...
I think it is much the same with random missives that NZers should invest. The barriers to investment per se are not high, but the the barrier to successful investment is.Just as a more abstract point, I think the basic idea of leverage is an interesting, and not well understood, one. All too few people understand the differences between "good" debt and "bad" debt. And what I mean is debt for lifestyle, versus debt for income earning purposes. Student loans are an example. Business owners take out loans all the time to finance better income earning opportunities, and certainly don't view the loan as something that should be paid a.s.a.p. Students don't see it that way, however. I think many people would be better off if they didn't see the loan as something to get rid of right away, but were more happy to pay it off over time.
This is totally not to say that I'm a fan of the loan system. I think the most hard done by are those who live in small towns who don't have the choice of living at home. But I don't think people are making the best economic use of the system as it stands.
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