Posts by BenWilson
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Speaker: Identification strategy: Now…, in reply to Katharine Moody,
What do you define as the “fundamentals” of a local housing market? Do you mean a measure of median house price to median income – as this seems to be the metric gaining traction in the housing affordability debate both here and elsewhere.
I can’t easily define it – this is a big question. So no, I don’t mean the price to income ratio of locals. I’m more in a situation of doubting that we understand the fundamentals than proposing my own ones, which means that it’s very hard to say if we’re in a bubble. 5 years ago I was pretty sure we were, but now…not so much.
What I mean by fundamentals is the idea of “underlying value”. The fundamentals are that which gives the thing long term value. Not the short term sentiments of the market that could just be feeling bullish or bearish at the time, but what “real” value the thing has.
I know it’s vague – the idea of fundamentals is disputable. But it’s also a pretty common analysis, the main alternative to a more “technical” view of it, in which you only look at the price and try to find patterns. To even call something a bubble, or overpriced, you have to pretty much believe in the idea that there is a real price, or a real value, to which, in the long run, the current price will return.
So what does drive the “real” value of property? Well I feel pretty sure it isn’t only the median income of locals, unless they are the only people who can buy property. When pricing things like stocks it’s common to look at the expectation of future earnings, usually based on current earnings, and other patterns you might find like similar houses, or similar cities, etc. But residential property is not solely for making profit out of. It’s at least as common to view the house in terms of what you personally want out of it. If you like it, you’ll pay more. If you can see yourself living in it, or your kids living in it, then you can value it higher than just what it can earn in future rentals. Also, you may have long term plans that totally change the value of it to you, compared to other people.
And that goes for Chinese people every bit as much as locals. It’s at least possible that their capital is not just coming in to make speculative income – it’s also a large part of a genuine desire to own these properties because they like something about them more than what the locals do. Or perhaps they like them the same, but they have more money to spend, and there are more of them.
And what would foreigners like about Auckland property? Well, it has a lot going for it. It’s in NZ. It’s the biggest city. It’s a safe, stable country. It takes immigrants. Immigrants can get an education here. It’s underpopulated. The weather is temperate. There are a lot of lifestyle aspects that are rare in the more populated parts of the world. You are allowed to buy property. Even if you’re not local. That property is mostly untaxed.
What’s not to like about all that? Maybe it’s the opposite of a bubble, the place is underpriced, at least in an international sense. I don’t personally know. I know I’d like to own more property here, personally. I just can’t afford to.
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OnPoint: My last name sounds Chinese, in reply to chris,
But it’s an interesting assumption you make, this assumption that I am a second language user, based on my disdain for imperialist rules, my unconventional word usage or my total contempt for punctuation.
LOL ooops. I really thought you were saying English was hard for you, reaching for the dictionary etc. No offense meant – as I said, you do fine. “Disdain for imperialist rules” makes a lot more sense in terms of how you communicate. To me, so long as meaning is clear then rules can be damned. And if it’s not clear, there’s no rule against trying again, another way.
I get your point about saying more with less. That is, however, the exact opposite of my writing style, and that is deliberately so. Certainly you can say something faster, but often what you lose in doing so ends up having to be all explained anyway. In your example, I don’t think summarizing a disagreement with another person over style by simply calling them a punk will actually lead to less words expended. It could just as easily go the other way, with endless fighting and backpedaling, reclarifications etc. Also, if it does lead to less, it could be in a bad way, with the other person simply refusing to continue with an argument that seems to be turning towards personal attacks.
But I do agree that if you do want to call someone a punk, it’s more honest to just do it, rather than wrapping it up more first. OTOH, sometimes it’s even more insulting with the wrapping on.
Are we digressing? Not sure. Are you saying that at the level in which using racial information to hint at a social problem hits the race concerned, it only adds insult to injury to go on explaining why it wasn’t meant to be racist? And makes it worse and worse to go on and on about it? If so, you’ve got a point. Or rather, any efforts I make to mitigate it would be futile.
Which is how I felt from the start. I just acknowledge that it’s insulting right off the bat. No fight there. Only fight is about what the information itself actually means. I’m barely even interested in the question of whether it makes a lot of Chinese people feel like shit. It’s a no-brainer that it does. Especially since they say it does.
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OnPoint: My last name sounds Chinese, in reply to chris,
As fascinating as that was Ben, and I’m not being sarcastic
Neither was I. Etymology of names is quite an interesting field.
But it was a fantastic day.
And a good post too. I'm not sure what all of it meant, but the feeling was conveyed all the better for it. It sure must be exasperating to talk politics in a second language. Even with very high levels of competence there's going to be the nagging feeling things are going on at a level that can't be perceived. Probably a true feeling. But you seem to do OK, and I wasn't trying to patronize you by explaining what I think was happening in this data. It took me at least a day to get it myself. And I could still be wrong. As I said, we don't know the algorithms used, because Salmond is keeping them to himself. It's possible that in matching name for name that linguistic tricks are used to decide that one name really is actually the same as another, or at least sufficiently so for an ethnic classification. But when they're letter for letter identical, there's no need for such sophistication. And a heck of a lot of the names will have been just like that. Letter for letter identical to names found in other data that carry ethnic grouping variables.
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Speaker: Identification strategy: Now…, in reply to Katharine Moody,
Using median of actual sales does give quite a different picture to the usual stats pumped out as news by real estate agents. But looking even at that, all I see is a one year flat period, not some massive downwards correction. If you cherry pick the most extreme data points in that period you can find a 9% down drop from late 2007-early 2009, followed immediately by an even bigger rise, which continues until now.
I'm not going to dispute that there was a tiny correction when the GFC hit, if you base such judgments only on median of sales data. But I wouldn't count that as a bubble popping. It wasn't an indication that a massive overvaluation had happened here. It may have indicated that the riskiest of the loans the banks had given out were probably not wise, or at least a widespread perception that that was the case happened during that period - justifiable in light of an actual sub-prime bubble popping elsewhere.
I've become less and less convinced that this is a bubble. If the driver is massive foreign capital, particularly from China, then that is not necessarily bubbly. It could be an ongoing reflection of the changing nature of where the money in the world actually is being made.
Sure, China itself could be in a bubble. But I'm buggered if I could understand the drivers of their economy, much less predict the way it will go, considering their government's extreme power to make sudden unilateral changes. I guess what I'm saying is that I don't really see the Auckland housing market as being particularly bubblesome. It's having unusually high growth, for sure, and that is quite dangerous, sure. But it could be because the fundamental drivers pushing it are real, rather than because we're all deluded about the true value.
The one driver we can really tinker with is demand. Supply is something we have far, far less power to alter, because it really does mean a massive building drive. You can slow demand just by changing policy settings. It costs a bunch of politicians making a political decision and then acting on it. NZ can do this extremely fast for a democracy. But building hundreds of thousands of houses means finding tens of billions of dollars, finding the labour, getting the labour to build, getting all the planning streamlined. It's a project of colossal magnitude. Only a sustained and massive effort could make a small dent. But foreign demand could be crushed by an Act of Parliament in a few short weeks. I don't think they should do that, but it has to be on the table that this side of the equation is at least allowed to be tinkered with in the interests of the people in the country.
If we did suddenly pass such laws then I'm pretty sure Auckland would look like a bubble had burst. But only because we had, in fact, deliberately changed the fundamental drivers. Which is not what a bubble bursting actually is. A bubble people driving prices up beyond the fundamentals.
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Speaker: Identification strategy: Now…, in reply to Katharine Moody,
Auckland is a bubble that will soon pop dramatically.
Only problem is: How soon? We've been hearing that for over a decade now. Longer from quite a few economic commentators.
Especially since this continued right through the sub-prime bubble elsewhere, through the GFC. It makes me think that our understanding of the drivers is very weak indeed, and that could be largely because we don't keep good information about one of the biggest ones. This flood of capital isn't something we can easily see popping - not if it's actually a flow-on from massive growth in China. There are factors well outside of our control there. It's just a tiny rivulet of what Chinese capital is in the bigger picture, and who is to say that such a flow couldn't go on for years and years, if the Chinese government just keeps the taps turned the right ways. Or any other foreign government with a ton of money - there's not really a shortage of them.
What we can do is throttle the flow ourselves. Not rapidly, which would be disastrous for many, whatever Swan says. The losers would mostly be the poorest investors. We can slow the flood into this country, if we have a public will to do it. Or we can divert it more productively. I'd personally favour the latter.
If it's a bubble and it pops, that was going to happen anyway and there's bugger all we can do about it. But if it isn't it can still do massive damage, just by making home ownership unattainable to residents. That we can do something about. Perhaps slowing the land grab down might also make any popping bubble less catastrophic, if/when it happens.
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As I said above it’s those traditional names native to the land area covered by the Ming dynasty. There was a limited name pool.
Fascinating though the ultimate origins of the names is, I don't think any effort at all would have been spent on that by a statistician trying to ethnically classify a bunch of people based on their names. They'd use an actual massive list of name-origin pairs, as reported by the owners of the name themselves in the population of interest, and build up a table of relative counts. Wilson would have a spread across a number of ethnicities. Say, for instance, 10% of Wilsons are actually Maori in NZ. That means in a random selection of 1000 Wilsons taken in NZ (by, say, appearing on a list of sales data), it's a pretty good guess that 100 of them will be Maori. So you estimate that 100 of the Wilsons will be Maori. You do the same with every single name on the list. Of the Zhangs, say 95% are Chinese (as reported by the people called Zhang when asked about it). So if you get 500 of those in a list you count that as 5*95=475 Chinese as an estimate. The remaining 25 are counted against whatever other ethnicity shows up with that. Could be NZ European. So you count 25 Zhangs as NZ Europeans. And so on. In the end you've got an estimate of what ethnic profile the list has with a pretty high degree of accuracy as self reported by people in NZ with those names. Quite a few Wilsons will be counted as Chinese, because there are plenty of Chinese Wilsons in NZ.
There is really no need to go into the underlying linguistic origin of the names. The names are just strings of characters to match up.
My wife’s family name is Tang, I will give you a free car if you can tell me her ethnicity, not simply the country her name originated from, but her actual ethnicity, I’ll give you one guess.
Why would I try? It would be wildly inaccurate to do that for an individual. It only starts converging towards the population's true proportions on a sample of decent size. I mean a single individual is only one of the ethnicities anyway - they're not 40% Chinese (say), and a smattering of other proportions of other ethnicities. I'd have to make a point estimate, based on the largest group. If that was the hypothetical 40% then I'd have a 60% chance of being wrong. But in a group of 100 people with that name I could say that 40 of them would be likely to be Chinese, with a tight standard deviation around that. Chances of there being more than 50 or less than 30 would be quite small.
That's what was being done here, so far as I can tell. It doesn't work with individuals, but it does work with groups. There are some statistical requirements for it to work, but I feel pretty sure that Salmond is a competent statistician and would know how to deal with that.
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OnPoint: My last name sounds Chinese, in reply to Katharine Moody,
Did they do any breakdown of probable ethnicity for sellers beyond just ‘Euro’?
Don't know, sorry. I don't even know what roll they used :-) All I can say with high certainty is that Rob Salmond didn't go through a list of names picking numbers out of his bum about whether they sounded foreign. Not least because it would be an incredible inefficient waste of time. He'd have cross tabulated from some kind of more reliable statistics.
On the matter of foreign direct investment, I’m thinking a lot of that might well be parents of overseas students buying because they want to house their children while studying.
I can't blame them. I wouldn't even blame them just for doing it to make a quick buck. I would, if I had capital to chuck around and wanted to get it out of China. It's not the fault of Chinese people to want to better their fortunes and those of their children. It's normal. But there is a conversation as to whether the people of this country want to let people wishing to better themselves from outside of NZ do so at the expense of the people already inside NZ. It's very shitty that the conversation would get kickstarted by data that could only glean information through racial profiling. Other people have tried many times to kickstart it using more neutral information, but it's all to complicated and abstract and amenable to ideological economic modeling. "Lots of capital flooding in" sounds like an abstraction you might be able to deal with, or even profit from. "Lots of people coming in from whichever extremely powerful and massively populated country at the time that has manyfold times the population of your own country, and manyfold times all of your capital as pretty much excess to their own requirements" is something I guess people can see more clearly. They can certainly feel it when the rate at which they can save up money for a deposit is much less than the rate at which the amount they need for a deposit is growing, fueled by those people and their capital.
Then even the actually bullshit rhetoric all falls apart about the importance of hard work and saving to get ahead that forms part of local mythology. Where the national self delusion that Maori don't have so much property because of lazy foolishness suddenly turns on the people spouting it and they realize that the luck of having enough capital to buy property is and always was unfair, and they don't like it. They start to wonder whether maybe this laissez faire property business wasn't such a good idea after all.
At which point I agree with them. Distributing property and the right to live in it "fairly" is a vital part of the entire makeup of the economy and political system. It can and always should have been done much more fairly. We still can actually change it, to make the dream less of a fantasy and more of a reality for all the people who fall under the umbrella of wanting to keep living in this country and caring how it ends up. They don't have to just accept that the winds of international capitalism will blow it where they will without any of their say so at all.
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OnPoint: My last name sounds Chinese, in reply to Dismal Soyanz,
This would suggest that the answer to that is “very”.
Maybe. Resident Asians could well have had secret caches of money stashed away from their NZ earnings just so they could go on a buying bonanza now. A bit silly of them to wait until prices got so high, tho. I find it a bit unlikely that this money originated here.
But yes, it's not certain that some kind of rule change to make it only be residents who can buy would do much to stem such a capital inflow. It doesn't look like it's made much difference in Australia.
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OnPoint: My last name sounds Chinese, in reply to BenWilson,
Actually, looking a bit closer, Euros are overrepresented on the sales side. Not massively compared to the proportion in the population, but pretty massively compared to how many are buying. So you could conclude "Euros are selling out the country to Asians" if you wanted to put both the acceptable and the unacceptable racial twist into one sentence. 61.7% of the sellers in the data were Euro, but only 56% of the population, and only 40.7% of the buyers.
There's a pretty good reason why that isn't the news, and it's indeed quite a shitty one. Because Labour's definitely had enough of intergenerational conflict, and wouldn't want to draw attention to all the baby boomers profiting by selling out for their retirements tax-free as at least half of the problem here. They never had any other plan, not being savers. That at least is a bi-partisan thing. The final bit will be the destruction of pensions, because "I worked hard to get my money. I had to save up the whole $200 deposit for that house I just sold for 2 million. Kids these days just don't know about work. Let's learn 'em".
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OnPoint: My last name sounds Chinese, in reply to chris,
We don't know the exact details of how Salmond got his name proportions, but he says it was from census data and some other things left unspecified. So I don't think that he would have gone about just forming opinions on what names were Chinese etc. He would have built up a table of names from such official data as he had that linked names to the actual ethnicity of the person, as noted on the census (or other tables like it, we don't know for sure). The whole "sounds Chinese" thing is not literal. That's him trying to describe what the algorithm does to a layperson. Maybe there is some phonetic stuff at work inside the unspecified part, for resolving names in the real estate data that don't have an exact match in the official data. I don't know. But the overall proportions of people in each ethnicity with each name are most likely being estimated very accurately in this way. Because the owners of those names self reported being ethnic Chinese, Pacific Islander, European, etc to the census.
The choice of which names to target would not have been made on a racial basis. It's made on what names were buying property - the entire lot of them. An algorithm would be doing the estimation of proportions. We got all of the ethnicities and the proportions to which they are likely to be in the real estate data. The name Lee, for instance, would have produced a lot of counts for Europeans and Chinese, and probably a number of Maori and PI too (since they will have these names in some proportions too), and any other ethnicities that were in the census in which someone had the name Lee.
If there is any bit were racial discrimination pops up, its in the interpretation of the data. The data showed a very unusual discrepancy for one group. The other groups also had discrepancies - as some have noted, it's depressing how few PIs can or do buy houses. Then the big jump is made to explain the discrepancy. Foreign capital may not be the only explanation. Kiwi Asians could be 4 times more likely than other Kiwis to buy property in Auckland. The question then becomes "how likely does that seem?". Since practically every ethnicity seems to want to buy houses, house ownership is a major part of the so-called Kiwi Dream, it's not unreasonable to think that the discrepancy isn't from a greater desire to own house by Asians, it's by greater means to do so. So we look at whether resident Asian have greater means than other residents. It seems that they do not. Thus the conclusion: This money must be coming from somewhere else. The obvious other place is from non-resident Chinese.
There certainly is a dog whistle pinging over the choice to highlight this finding over the other findings. The big news could have been that PIs aren't getting houses in proportion to their numbers, even with their foreign capital. Or that European "sounding" names get roughly the proportion of houses that European "sounding" names represent in the census data.
But are either of those last points particularly controversial? I'd have guessed them anyway. Well, actually, probably I'd have guessed that the Euro numbers were a bit higher. That they are not could be because they are driven down by the only data that is truly surprising in here - the curiously high extent of Asian "sounding" names buying property.
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