Posts by BenWilson
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OnPoint: My last name sounds Chinese, in reply to linger,
So “resentment” doesn’t come from sellers – it comes from the local buyers trying to compete.
Yup, I don't think any sellers are going to be resentful about getting extra cash, unless they are really, really racist. Greed trumps racism, easily, especially when it's such large sums.
Buyers could feel outraged at the sellers, that's what Kalka River seems to be suggesting they should do, or feel conflicted about. But I doubt many would feel that either, because it's what they'd do in the same place.
I don't doubt that there would be a lot of buyers resenting whoever overbid them, and in a racial way. But it started with being overbid on something they really wanted. The racism is most likely an afterthought, a little bit of bitterness icing for such people as enjoy that kind of thing. Mostly it's bitterness that the game is changing so fast that it's not working for them any more, and wondering what's driving that. The physical origin of the outbidding party is an obvious thing to resent. The racial origin is just "evidence".
It's pretty hard to know whether the same level of bitterness would be felt if the buyers were foreign but not Chinese. My gut feeling is that it would be much the same. If Germans were buying 40% of the houses for sale in Auckland and prices were skyrocketing beyond even the reaches of well paid young NZers, I expect there would be plenty of anti-German racism here.
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OnPoint: My last name sounds Chinese, in reply to Kalka River,
That is what is stirring the angst — not the fact they are buying, but the fact they can buy.
I'd say it's both. If they could, but weren't, there wouldn't be a call for bans. If they couldn't...they couldn't, and there would be no call for bans.
They can and are buying - that's what's causing angst. The question is: Is it causing angst because the resident buyers don't like Chinese, or is it because the resident buyers don't like not being able to afford to buy, and see an influx of foreign buying power as the cause?
Personally, again, I think it's both. The not liking Chinese, however, is probably a much smaller factor. Racism is definitely at work here. But is it all that's at work?
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Speaker: Identification strategy: Now…, in reply to Joe Wylie,
Yes, elevators have certainly done classical music no favours.
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Polity: House-buying patterns in Auckland, in reply to David Hood,
Nice digging! That is more than just indicative. It does presume that mortgages are the main way that residents buy houses. They could buy outright from other assets they sell. But that's a heck of a lot of money. If they were switching from, say, shares, then you'd expect to see the sharemarket take a 2.5 billion hit.
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Speaker: Identification strategy: Now…, in reply to Rich of Observationz,
In the case of Auckland property, you need to consider whether anyone would buy a tumbledown shack in a semi-ghetto for a million dollars if there was no expectation of substantial future gains. Probably not.
Hard to say. You can always build. A ghetto might not stay a ghetto. It's an ironic choice to bring up, really, because the land at the end of my street had very little more than a tumbledown shack on it, and at the time, the area is as close to ghetto as West Auckland gets. It sold for a shitload more than a million. Because the Chinese buyer then developed it massively. It's not clear whether they did it in the intention of renting it out, because for all the complaints that Auckland doesn't have enough rentals, there's a whole bunch of empty places at the end of my street.
At the end of the day - one person's tumbledown ghetto shack is another man's 20 million dollar opportunity. The previous bunch that failed to develop it were locals. They presumably did the numbers and came up short. Now it's a big collection of the newest houses in the district. I don't know the owner's plans - maybe they're just a whole lot longer term than what local people bother with. Maybe they have better information about a big pool of people they could sell them to, that local sellers are not privy to. Maybe it's just some really rich guy's vanity project, and he'll name the whole thing after himself and put a big statue up at the entry way.
I think it's quite hard to put a local price on what someone from abroad may put on the opportunity to do something entirely different with their life. Could an early contact Maori have really understood the motivations of some person from a city like London coming all the way to NZ just to confine themselves to an acre of dense forest? Only after they saw what that person did with it, and by then it's too late for the Maori guy to go "Oh shit! That was a good idea. Wish I'd asked for a whole lot more. No wonder the weird white dude looked so pleased with himself afterwards". Or even "Oh Shit!!! I never realized he was going to do THAT!! Fuck it!! I never signed up to let him do THAT!!" (thinking of something like clear-felling all the trees and selling them off as logs. Or starting up a saw mill, or an open cast mine, or a big hotel full of drunken white sailors).
We're not quite so unlucky as those Maori. We might, at least, see this coming. Or we can convince ourselves that our ideas of value are real, theirs are false, and wait for the bubble bursting that never comes. Or, it could be a bubble. I don't know. I just have my doubts.
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Speaker: Identification strategy: Now…, in reply to Rich of Observationz,
Van Gogh’s and the like are Veblen goods – their desirability is based on the price.
Maybe. But however they get their value, it's intrinsic. It's not pure speculation that makes them valuable. Van Goghs are rare, culturally important, incredibly famous. Not to mention beautiful, ground breaking works of genius.
Which is all beside the point I was making, which is that their price doesn't have anything to do with median incomes. It may well have tracked mean incomes more closely, since that captures the earnings of the ridiculously rich. But really, incomes isn't the driver. No more Van Goghs will ever be made. These things are accruing value because they are rare and important. That won't change just on market sentiment. They will never become less rare (well, OK, if some of them are destroyed or lost, then maybe. But they're pretty well protected). They will never lose their place in the annals of Western Art. Their value is intrinsic.
That's all if you believe in intrinsic value at all. It's not a certainty. A whole school of thought says there is no such thing, that there is only price. But in that school of thought there is no such thing as a bubble. There's not even a correction. There's just people making decisions in their interests, which are in constant flux. It's a conundrum all right, and part of the reason I can't feel sure we're in a bubble. Maybe they're right. I don't think so, but it's a pretty difficult area of economic philosophy - possibly the hardest of all, the very heart of it. What is value?
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Speaker: Identification strategy: Now…, in reply to Katharine Moody,
You’re right, it’s only a bubble if it pops.
Well, it's only clear that it was a bubble at that point. So the absence of popping (yet) doesn't make it not a bubble.
Also, a sudden sharp downturn isn't always indicative of a bubble. We could drive down the prices of Auckland property on purpose just by passing laws about the prices. In doing so we would be deliberately changing the fundamentals, rather than failing to hover close to them.
To accurately call it a bubble you have to have an accurate model of the fundamental value, and then show that prices are well in excess of that. But fundamental value itself is quite a difficult and nebulous field. Part of the risk in investing is that people evaluate it differently. To say Auckland is overpriced you have to have a model of what is the correct price for a property in Auckland, taking into account all the things that all the buyers will consider important in the value. And here's the problem - do we really know what those are for the pool of buyers outside of NZ, most of the world's population? People from other place might, quite simply, see it differently. Where we see overpriced, they see underpriced. This isn't just theory - I think this is exactly what is happening. We're sitting here thinking the prices are crazy high, but investors from places where it's harder to get property like what's in Auckland think the exact opposite, that it's a goldmine of valuable property that they want to have. Their perception of that makes it so. Their desire to own the property adds to the fundamental value, so long as it's not purely speculative. And I just don't think we have enough information to judge what the motives of the foreign buyers are. We don't even have information about how many or who they are, really, that's what all this kerfuffle is about.
If I determined the risk of job loss during a contraction was medium to high – I’d plan now for such an event. Additional investing in the market right now is silly
Sure, but you're talking about a local investor. The risk of job loss from a contraction in NZ is pretty minimal for someone whose job is in Hong Kong.
Not worth risking capital at that yield – but this is the problem the world over, no matter what the asset class.
You're modeling property like it's a stock. But other people don't necessarily see it that way. They might have very different ambitions for that property in the long run. They might want to live in it one day. Or to let their kids live in it while they study, then send their parents there, before coming themselves 10 years down the track. That's not something cold P/E ratios are going to pick up. Especially if moving to NZ becomes trendy for some particular set. Then it's got not just the Kiwi lifestyle that they can have later, but they could be bringing in a whole lot of their own cultural comforts - many friends, whole areas that are developing around their tastes, nice places for their friends from home to come and visit. Maybe even bringing branches of their businesses from where-ever they come from with them, maintaining a stronger connection back home and keeping a high income going. This is the immigration pattern of every group I've ever known. My own family did it this way. Hell, since my wife is Australian, I even did it. I didn't think of the spare rooms in my own house as wasted earnings, I thought of them as guest rooms for an endless stream of Ozzie visitors, and then as bedrooms for my future children. I chose the price with that in mind, and spent my Ozzie earnings accordingly.
It's not like this is the first time that NZ has been seen as a land of opportunity. From the perspective of the rest of the developed world, it's a pretty unexploited place.
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Speaker: Identification strategy: Now…, in reply to BenWilson,
Also, when it comes to spending power, I think mean income is actually better as a predictor of price. Median is a good measure of affordability, and I'm glad to see it quoted more often. But if in a group of 10 people, 9 of them earn 50k pa, and one earns 1000k pa, the median of 50k pa is not a true reflection of the money available. That one person could buy ALL the houses and rent them to the rest. You don't have to set your price at what the 50k people could afford. Futhermore, once the 1000k pa person gets all the houses, they could become a 2000k pa person without affecting the median at all. With double the buying power, double the ability to influence prices.
I guess my point to you is "don't confuse what should happen with what is happening". Housing prices probably should be driven by median incomes in the country the houses are in. But I don't think that IS what is happening. That doesn't make it a bubble. It makes it a boom, and one that could go on for decades. NZ's ability to soak up excess Chinese millions is really quite small. We could slow the boom by tightening up on foreign investment - I think we should*. But until we do, it's a boom and possibly a very wise investment, much as property has been since Europeans first landed in NZ. Great for whoever has the money to shovel into it, and terrible for the locals. The other story in these figures is how much that is the case - Euros are still doing OK, getting a reasonable chunk of the property here. But Maori and PIs? They're screwed, and getting more screwed every day.
Which is all racist observation. Individual Euros are still poor as, in exactly the same boat as the average Maori. And some Maori have stacks of cash, as do some PIs.
*When I say we should, I'm certainly open to some of the ideas that instead of just stopping it, we redirect it into "productive" housing development. Then we get a boom that flows beyond property ownership into the entire construction sector. That would actually do a great deal to help poor people. And I want a bigger city too. I want this place to grow massively. If it's got a lot more Chinese people in it when I'm old - great! It's got a lot more PIs in it than it did when I was a lad, and we're all the richer for it.
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Speaker: Identification strategy: Now…, in reply to Katharine Moody,
Wiki is as good as anything for my definition;
Suits me, that’s basically what I said mine was. Let’s put it here for completeness:
An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is trade in an asset at a price or price range that strongly deviates from the corresponding asset’s intrinsic value. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future.
If we agree on this definition, then the problem is just to identify what makes “intrinsic value”. You could theorize that when it comes to houses, there’s some kind of ratio of median earnings to media price. That looks to me like what you’re saying?
I have 2 main questions here:
1. Where does it say that intrinsic value is based on affordability? A Ferrari has intrinsic value, but is highly unaffordable to most people. A Van Gogh painting has a huge intrinsic value, so high that only a tiny percentage of people could ever afford one. This value is steadily rising (with ups and downs, but the overall trend is up). Does that make it something that is bubbled? Or is it that the Van Gogh is actually intrinsically extremely valuable?2. Following from that, you could counter that the affordability that matters is to the right population. Say a Van Gogh is only affordable to billionaires or government backed museums. Then it can be overpriced at some time, if the billionaires are taking a bit of a haircut, or the countries that want to stock their museums are cutting back on art investment. But if we extend that to housing, the question becomes: Who is the population we are talking about? Affordable to who? Pretty clearly it’s anyone who could feasibly buy the thing. If we have the doors wide open to foreign investment that means that median incomes in NZ aren’t really the driver you think they are. What matters is the median incomes of people who might be attracted to buying a house in NZ. That pool could be many times the population of the entire country, and could have a far higher median income too.
So what I’m saying here is that with our extremely open property market, I don’t think we can model whether an asset is overpriced by looking at local incomes alone. Are there foreign incomes that are rising far more rapidly than ours? Of course there are. So if median incomes is the bound, the baseline that sets where bubbles are, we probably have to look at the median income of the more rapidly growing and populous nations.
Then there’s the confounding factor of their very different property market. They might be gagging to buy property, even at earning/price ratios that would make NZers retch, just because they can’t buy it easily elsewhere. And then there’s the question of whether they might have reasons beyond earnings to wish to own such a foreign asset. It could be seen as a bolthole from a very oppressive regime. That has a very different price tag to them than it does to me, because I don’t live in a regime that has, in living memory, purged the population, shot up protestors, rounded up dissidents and shot them, strangled poor neighboring countries, denying them freedom of self-rule. If I lived somewhere like that, was moderately rich, and had an opportunity to get a bolt-hole in a safe little haven at the other end of the world, I’d pay well above market to get it.
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Speaker: Identification strategy: Now…, in reply to Katharine Moody,
Maybe it's my turn to ask how you define a bubble, because it may not be the same as I see it. Your points here indicate that you see it as a more technical thing - it's been rising too fast. Which takes no account of underlying value. You can have extremely rapid growth in a market if there is driving force behind it. Like you find gold, or perhaps a massive investment is made that enables the growth.
I don't dispute that it's becoming unaffordable for residents. I'm just questioning the reason for that. Not all rapid growth is bubbles.
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