Immigration and Auckland Housing – why Unitary Plan is flawed and bubble burst prediction

By   /   September 22, 2016  /   41 Comments

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A prediction. On the basis of the sluggish Auckland rental market, the end of the Auckland property bubble could be sooner rather than later. (I’m picking October 2017, a month or two after the 2017 general election.) The ‘correction’ will come when enough people who have bought in Auckland for capital gain realise that they will have to sell soon, or risk the consequences.

Bubble-Burst

This story in the NZ Herald on Tuesday – Rents fall in Auckland, rise across New Zealand – may be one of the most important stories that newspaper has published all year. It suggests – in support of my recent analysis of New Zealand migration data – that, far from being inundated by immigrants, the population of Auckland may be static or even falling.

From 2013, New Zealand’s net migration has entirely comprised people identifying as New Zealand residents returning from short visits (less than a year) overseas, minus the same group of people embarking on short visits overseas.

This seems rather odd, and it reflects statistical classifications not keeping up with the increased international mobility of a significant minority of New Zealand residents (enabled in large part by air-fares falling relative to many people’s incomes), as well as the fact that increasing numbers of New Zealand residents do not travel on New Zealand passports. The statistics suggest that – of that quite large pool of people practically resident in more than one country – more of them are spending more of their time in New Zealand.

There is nothing whatsoever in the migration data suggesting that Auckland, since the 2013 census, is affected in greater proportion than the rest of New Zealand by net immigration. Rather the New Zealanders who are staying put instead of going to Australia are mainly from outside of Auckland.

It’s only in the census that we get reliable data on regional population shifts. It is true that, prior to 2013 – essentially since the 1891 census – there has been net internal migration into Auckland, or at least into Auckland ‘province’; the so-called ‘drift north’. The anecdotal evidence – and that’s all we have got – is that since 2013 increasing numbers of Aucklanders have sold up and used their capital gains to settle elsewhere. Indeed Paula Bennett, Minister of Social Housing, wants poor Aucklanders to resettle elsewhere. Further, increasing numbers of non‑Aucklanders have been put off from moving to Auckland because of the prices of houses, perceived high rents, and the perception of traffic gridlock. Immigration New Zealand incentivises new New Zealanders to settle out of Auckland. Immigrant seasonal workers are mainly employed outside of Auckland. And international students go to many places other than Auckland.

Yes, Auckland has some overcrowded schools – eg in Manurewa, which is almost affordable for the growing numbers of working poor. Other parts of Auckland have distinctly undercrowded schools, as families leave, selling their homes to isthmus land-bankers.

The result of a lack of immigration into Auckland is the static – now falling – price of rental accommodation. Yes, Auckland rents are still higher than in the rest of the country, in part because possibly 60 percent of all Accommodation Supplement dollars are paid to Auckland tenants and mortgagors. But the rent gap is closing, and genuine housing investors – people seeking rental yield rather than capital gain – find that it makes much more sense to buy in the provinces.

A prediction. On the basis of the sluggish Auckland rental market, the end of the Auckland property bubble could be sooner rather than later. (I’m picking October 2017, a month or two after the 2017 general election.) The ‘correction’ will come when enough people who have bought in Auckland for capital gain realise that they will have to sell soon, or risk the consequences. As well as rental prices, the statistics to watch are increased listings of isthmus properties, and increases in the average time it takes for isthmus houses to sell.

Auckland does not need to give up its green places by dramatically increasing its supply of outer-suburban houses. New empty houses on the fringe are no more use than old empty houses in the inner suburbs.

Market forces – as revealed by rent price statistics – suggest that scarce labour and land resources should not be disproportionately allocated to Auckland house construction. Rather Auckland needs further improvement in city public transport – especially rail, and light-rail along places like Dominion Road and Manukau Road – and more people (especially young people, with and without children) living in quality rental accommodation in the isthmus suburbs.

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41 Comments

  1. Sam Sam says:

    Rail is a no brainer. I just don’t get the opposition to rail.

    • Afewknowthetruth says:

      Have you never heard of vested interest?
      Have you never heard of bought-and-paid-for politicians?
      Do you not realise that most bureaucrats are incompetent?
      Do you not understand that the system is geared to maximizing inefficiency and waste?

      Today I witnessed two contractors install a bench in the worst possible place (as per council policy) where the maximum rain will fall on it to deteriorate it, where it will be unpleasant to use when the weather is wet, and where it will be unpleasant to use when the weather is sunny, and where it will promote skin cancer, away from an awning instead of under it.

      Contractors are very happy with such arrangements because they provide additional work (and profits) cleaning and replacing benches.

      The entire system operate at this level of thinking, or lower.

    • CLEANGREEN says:

      Sam it’s easy to understand,

      *The oil industry
      *and the vehicle manufacturers
      *plus our AA associations

      These all lobby for things they make money from.

      * and we see that rail does not provide all those things like;
      * increased energy use as road traffic has
      *Rail steel wheels has no “friction”.
      *and use less energy, *
      *Only roads are made from oil.
      *tyres are also made from oil.
      Rail saves the planet – but wont make money for;
      *oil companies
      *nor vehicle makers
      *nor be any use to AA – because rail users don’t join AA.

      • Sam Sam says:

        Not once did you mention that jafa’s are idiots. I just don’t get how they can tolerate stupid for so long.

        Just don’t get it.

  2. Mike the Lefty says:

    So you are picking an early general election next year Keith?
    So am I, but I think it will be even earlier, particularly if dairy prices keep climbing and John Key will want to try and capitalize on the rural feel good factor and the general smugness just before the bubble bursts.
    The next few months will be the decider.

    • Keith Rankin says:

      I’m picking September 2017; 36 months after the 2014 election.
      Or possibly a month or two earlier. Financial shenanigans in the past have happened more often in the NZ spring months, so a late winter election seems very likely.

  3. Siobhan says:

    If only.
    It’s just there seems to be a large, and growing, group of people who do not care about the rent they get for their properties.
    For starters you have the empty houses, 33000 dwellings empty according to some counts.
    Then you get the Herne Bay villas that the landlord is more than happy to rent out to ‘The Youth for, well, too much in my opinion, but realistically, comparatively low market rent.
    Again, they are not worried about collecting rent, they just want someone to occupy the house, and if the house slowly rots into the ground that’s just fine.

    A couple of days ago they had Bernard Hickey on the panel, and even he was back tracking on a housing collapse.
    With the relaxation of capital controls in China, and our Governments refusal to enact any real restrictions on the housing market we are in for a tough ride.

    • Keith Rankin says:

      Some good points here.
      Please note, however, that I’m not necessarily picking a housing price ‘collapse’ in 13 months time; rather a ‘correction’. I think that much lower interest rates give banks more options, so there will be less pressure than in 2009 to force mortgagee sales.

  4. CLEANGREEN says:

    Yes Keith a carbon copy of what happened to me in Toronto in 1992 slump that lasted over twenty years to recover from, it was blood bath.

    Sam during that time we had very good rail.
    * an underground rail tube system (TTC)
    * CN rail the passenger freight service.
    *Fast light rail to outer townships. (Go Train)

    *Auckland is pathetic. *
    *Government is pathetic
    *as they close down rail all over this country I was born in and now ashamed of.

  5. Mike in Auckland says:

    I fear Keith is disconnected to reality with this post. Look at the increased registration for motor vehicles, increased traffic count, the increased use also of public transport (buses and trains), the increased rolls in many schools across Auckland, and also increase in people in jobs and more overseas students coming overall.

    Wages and salaries are not growing that fast, nor does per capita GDP.

    Long term arrivals have been high and long term departures comparatively lower, hence the net gain, which is only up to a quarter made up from returning residents, as statistics have shown us.

    Although Statistics NZ recently changed their data gathering somehow, this will not lead to major changes in trends:
    http://datainfoplus.stats.govt.nz/Item/nz.govt.stats/f705ca38-ea6e-453f-b1d9-a95dc0fcaf59#/nz.govt.stats/ae0bef2b-f669-4867-aa16-7e890735349a#

    http://www.stats.govt.nz/browse_for_stats/population/Migration/IntTravelAndMigration_HOTPAug16/Commentary.aspx

    “Annual net gain of 69,100 migrants

    Unadjusted figures showed a record net gain of 69,100 migrants in the August 2016 year. This equalled the previous annual record of 69,100 in the June 2016 year. The latest annual net gain was up 8,800 from the year ended August 2015.

    Net migration is calculated from PLT arrivals less PLT departures. The larger gain in migrants in the August 2016 year compared with the August 2015 year was driven primarily by more arrivals.

    Migrant arrivals were 125,000 in the August 2016 year, up 7,100 (6 percent) from the August 2015 year, creating a new August-year record. New Zealand citizens returning to live in New Zealand accounted for one-quarter (31,000) of all migrant arrivals. The biggest changes in migrant arrivals by country of residence between the August 2015 and August 2016 years were in arrivals from:

    South Africa (up 1,600 to 3,700)
    China (up 1,600 to 12,200)
    Australia (up 1,100 to 25,600)
    India (down 2,100 to 11,900).”

    The following shows there has not only been an increase in “arrivals” for longer term, that outnumber departures, Immigration NZ has also registered a significant increase in permanent resident applications issued:

    https://www.immigration.govt.nz/about-us/research-and-statistics/resolveuid/be0575830d004015837bc7fd3b4359e1

    For more check this webpage:
    https://www.immigration.govt.nz/about-us/research-and-statistics/statistics

    There is a high demand for housing to buy, and the high prices are partly the result of increased demand, and at the same time fewer owners being prepared to sell.

    But looking around Auckland, I can ensure you, we have many more people and many new faces here.

    I agree though, the PAUP will not address the challenges, and rents do simply not increase much, as there is only so much landlords can charge, given the fact that those renting have only so much income to spend. But prices on Trade Me are high and costly, that is for rents.

    • Keith Rankin says:

      I’ve just checked the very latest data, for the year to August 2016.
      Net inflow of “NZ (resident) Travellers” is $64,000. Total net inflow is 69,600.
      Looking at the four years to August 2016, net inflow of “NZ Travellers” is 195,000 and total net inflow is 175,000.
      Does anyone wish to refute this?

      • Sam Sam says:

        I do not dispute your research and any one else would be well advised to trust your research over say Wheeler. What was all that rates reversal any way.

        Something else Iv been wondering about is with all the over crowding in Auckland how that has effected house hold income so official figures leave a lot to be desired and having some one in it to me can give better insight. Clearly. Ok Mike?

      • Mike in Auckland says:

        While I get your point, Keith, we must remember that the NZ governments of past decades have issued permanent residency and returning resident visas for handsome fees to many hundreds of thousands of migrants.

        Immigration is big business for the NZ government and for NZ employers, businesses and also for some people keen on selling real estate and letting out homes for handsome rents.

        What we appear to be having is a substantial inflow of permanent residents who do hold other passports, and I know a fair few of such people. With the economy in many countries not doing so well, and China’s economy slowing more than the public statistics reveal, there are many that have decided to come back to New Zealand, where they may have got residency years ago, to settle here now.

        There are in my estimate at least half a million of not close to a million New Zealand residents and citizens living in many countries overseas, most in Australia, the UK and the US.

        They chose to not live here, sometimes for long periods, so they are coming “home” now, to take advantage of their residency.

        We also have had a large increase in temporary work permits or visas being issued, as Mike Treen pointed out in earlier posts. That is also a substantial increase of persons “migrating” here, for longer than a year. Students may also get visas to study for more than a year, and at least 20 or 25 percent of them will end up getting residency.

        So what you present is just an interpretation of figures, which does not tell us the whole story, I fear.

        NZ passport holders only make up 20 to 30 percent of long term arrivals, so the rest must according to your figures then be mostly such permanent residents coming in on other passports. Also bear in mind, permanent residency can and is also issued to new intending migrants overseas, before they come here.

        Where exactly did you get that info from that most are returning NZ residents, I am interested to have a closer look at it.

        Thanks and Rgds

        Mike

        • Keith Rankin says:

          Statistics NZ, same data source as you. These are not all returning residents, just those who indicate that they were away from NZ for less than a year.
          The elephant in the room is the huge net outflow of people classed as “overseas visitors”. On the surface it looks like most immigrants are not staying in NZ. The full truth is clearly more nuanced, clouded by the fact that, in both public discussion and in our data collection regime, we are not asking the right questions. 21st century demographics are different.

    • Keith Rankin says:

      On the matter of commuting, if I go to work by car at peak time it is a 20-25 minute commute from Glen Eden to Mt Albert (for an 8:00am arrival). In previous years it was 30 minutes. True, this route is helped by the improved train service. Indeed I choose to get the train when I do not have an evening class to teach, despite the comparatively brief car commute.

  6. Waz says:

    This is article really difficult to believe given the amount of work visas issued to foreign citizens, and the stories we hear about how difficult it is to find accommodation. A drop of $ 20 on the already extremely high figure of $500 is a drop in the bucket.

    I truly thought Keith must have got this wrong somehow, so I checked. Even with the “kiwi factor” he talks about accounted for, New Zealand had “A record net gain of 71,900 non-New Zealand citizen migrants in the May 2016 year” see: http://www.stats.govt.nz/browse_for_stats/population/Migration/international-travel-and-migration-articles/kiwi-factor-migration

    It’s extremely unlikely the vast majority didn’t stay in Auckland.

    • Mike in Auckland says:

      Keith is living in fantasy land, he ignores firm migrant data and lives in hope and go well territory, not wanting to upset government and his fellow Kiwis.

    • Keith Rankin says:

      Look at the ‘International Travel and Migration’ figures more carefully, noting in particular the net outflow of 63,500 “overseas visitors” in the year to August 2016.

      • Waz says:

        I can’t find the figure you’re referring to. If their net migration figure is somehow wrong, you haven’t explained why.

        • Keith Rankin says:

          The “net migration” figure most commentators refer to is the net of those who declare themselfs as immigrants and emigrants. The actual net immigration figure is all arrivala minus all departures. You have to calculate it from the data.
          There are three sub-categories” “permanent migration” (based on declared intention rather than subsequent reality), “overseas visitors”, and “NZ resident travellers”.
          If we take the most commonly quoted statistics at face value, then we have to believe that, in the last year, about 70,000 people are arriving from overseas as “NZ resident travellers” and then departing within 12 months as “overseas visitors”.
          Yes, there are a lot of immigrants. But there are also a lot of departures.

    • Mike in Auckland says:

      I think Keith’s argument is that most non New Zealand long term arrivals are already residents, i.e. having resident visas and perhaps returning resident’s visas. But that is still immigration of non New Zealanders, as they chose to stay away for longer periods and now return to where they once emmigrated to, that is New Zealand.

      If all permanent resident holders out there in the world would return, I bet we may have a population boost by possibly half to a full million of people coming here.

      • Waz says:

        If they already have visas, they wouldn’t be added to the total of migrants.

        • Mike in Auckland says:

          Well Statistics NZ does not seem to count people arriving and leaving long term based on their resident visa status. They only seem to collect data on what passports they hold, i.e. a New Zealand one or a passport of other states.

          Also technically, if you have permanent residence and leave the country, you are no longer a permanent resident visa holder, you may have a returning resident visa that gives you the right to be re-granted permanent residence once you come back.

          In legalistic small print the permanent resident visa is issued to foreign nationals who are eligible for that status while they stay in New Zealand. Leaving New Zealand means it loses its effect, and you need to get a new visa once you return, and through a returning resident’s visa you can get that.

      • Keith Rankin says:

        Yes, Mike, that’s my argument.
        Also I suspect that many people coming in on student visas and working permits are being counted as immgrants when they come in, and visitors when they leave.

  7. darth smith says:

    i went to property auction 2 nights ago i think the signs of the bust have already started the frenzy of 1 year ago wasn’t there. its a different market

    with a bust comes many problems thousands of new zealanders will shortly be under water the squealing from the indebted will be deafening.

    as a society there should be no bailout those who used there homes as atm machines have made there own bed nobody made them take loans that they will not be able to pay back and lets not forget new zealand home loans are recourse loans there is no strategic default they stand to loose all there retirement savings as well.

    bail in for savers is unfair these debtors need to coff up what they owe…

    • Mike in Auckland says:

      Most NZers are damned hard minded IDIOTS, sorry to upset, but that is what I observed over years, also re support for this shit government. You have to be an idiot, a gold digger addict of economics, to go for what most went for. Any intelligent person would have thought long ago, this will end badly. But I see it all over my neighbourhood.

      I saw many houses in my suburb sell over and over again for a few times the last few years. But most Kiwis are mediocre at best, to offer more productivity, it is a shit scheme here, to make believe, they can all get rich through speculation and buying lotto tickets. Nowhere else in the world are people any more gullible and silly and short sighted as in NZ.

      The news on TV with the idiot newsreaders, rather focused on silly stories, chat and giggles, that proves we are run by idiots. I was Key and his speech at the UN, he is a damned WEAK leader, an idiot, only island dwellers at the end of the world, not familiar with the real challenges of the world, would vote for such an arsehole and idiot.

      It does not bode well for Kiwis to have this situation, you better wake up and learn to do the hard yarn and face reality, dear friends, you do not get it with this corrupt government.

      • CLEANGREEN says:

        Bloody well said Mike for Auckland,

        I was born in Pt Chevalier in 1944 and family took me to Napier to live in 1951, and never been back to live there again, and mow I am at peace that my birth home city is now a rat race literally.

        I estimate we will all see many rats desert the sinking ship and move to the provinces soon so perhaps the future is set for Auckland it seems now.

    • CLEANGREEN says:

      100% Darth Toronto 1992 bubble burst again mate coming here.

  8. righty right says:

    its those who don’t have any debt will be demonized not helping the economy hoarding money.the debtors will demand action against greedy hoarders of capital anyone who is solvent better hide because you will get the blame.

  9. Castro says:

    The housing collapse is going to be engendered by social unrest in No Zealand. A tipping point will soon be reached in Auckland when the NZ-born homeless and ripped-off renters rise up against the increasingly transnational capital overlords… this is the Achilles’ Heel of the political class here… they cannot or will not acknowledge that, while it may all be about “the economy, stupid”, without a cohesive, functioning society, the economy is seriously f*&ked

    • Keith Rankin says:

      It’s more likely to be the cause of middle-class social unrest.
      Collapses occur for purely financial reasons, when a market is overstretched and can no longer deliver the hoped-for capital gains.
      Further, a capital-gains tax makes no difference to this dynamic. Much better to properly enforce the present rules which treat ‘professional’ capital gains as income and levying the 33% marginal rate (and not some puny 15% CGT).

      In large part, home-owner-occupiers do actually regard their capital gains as a source of secondary income. The IRD could recognise this by taxing real capital gains at the normal marginal rate. The only exemption would be a person’s lowest-valued property, and that only so long as any mortgage finance is firstly attributed to the exempt home. (For this last point, if a person owns two homes worth $1m each, and has a $1.5m mortgage, then tax exemption would apply to one of those homes, and only to interest on $0.5m worth of mortgage.)
      Real capital gains on homes owned by trusts or other corporate entities would be taxed at the trust rate, or the company tax rate.

      Real capital losses could be offset for tax purposes against other income, but only so long as any previous capital gains have been properly taxed. These tax measures would constitute an important ‘automatic fiscal stabiliser’; they would dampen demand (especially speculative demand) in expansionary times (such as NZ in 2016) and would stimulate spending in recessionary times.

  10. Andrew says:

    Keith: An interesting and thought provoking article. Thanks!

    Looking at this from an investors perspective, it is possible to ‘value’ a market (and I too think Auckland is currently overvalued) but it is not possible to predict *when* the correction will occur. So I think you’re going on one hell of a limb with your timing.

    Have you factored in interest rates? NZ mortgages can currently be arranged for 4-5% but it’s very likely the Reserve Bank will make further cuts to the office rate. So in a couple of years could we see mortgages being offered at 2-3%? This would align with current European rates so I think it is highly probable. This would greatly increase the leverage available to buyers and maybe lead to further escalation in prices.

    Based on history, I can envisage maybe a 10% drop in prices combined with a long period of price stagnation. This is not a rout, just a consolidation.

    At the same my trade contacts report significant wage rises for tradesmen whose skills are in demand and who work in the CBD: Businesses are struggling to attract people into roles that require a commute into the city. So wages are rising to partly counteract the higher house prices: Maybe the market is sorting itself out without the need for government tinkering!

    • Darth smith says:

      What stands out is one simple fact stupid kiwis have borrowed far to much money if you take out a loan you have to be able to pay it back its not rocket science civil unrest of the former middle class the glass ceiling of illusoinery wealth will be shattered where will the blame fall imigrants the solvent savers will be blamed there is no way to sugar coat half trillion dollars as nation we are on borrowed time sooner or latter the piper will come calling and the cupboard is bares. Key will do a runner game over .

      • Keith Rankin says:

        The last thing banks want is to be paid back.
        Banks simply want an income stream in the form of debt servicing.

    • darth smith says:

      bubbles don’t deflate they burst Andrew consolidation is wishful thinking a cold look at the facts kiwis private debt is a basket case nz incomes cant support the level of debt and as a saver iam pissed off with debtors/speculators wanting more subsidies in form of lower interest rates rise the rates we are not being compensated for risk or loss of purchasing power

    • CLEANGREEN says:

      You wished Andrew!@!!

      But the bubble is now appearing and why?

      Because the property values are far to high to carry that debt exantly what occurred in Toronto in 1992.

      So the correction will also follow now the public realise the value of the homes is far to high now.

      This happened as exactly when the rot set in as I suffered with my home in Toronto in 1992 it became a endless pit of debt and the banks repossessed 25% of the homes in distress for sale for the next five years.

      The banks took a loss big time, and they lost their shirts trying to hold to these overpriced homes until the home prices decreased to a 30% devaluation then they were able to sell them as no one wanted the overprices homes until they dropped.

      That effect followed forb five years until the market stabilized to a stagnant market for the next 15 yrs believe me.

      If you haven’t personally experienced this don’t just speculate mate .

      • Andrew says:

        CLEANGREEN:

        As Neils Bohr said: “Making predictions is difficult, especially about the future”

        No two bubbles are the same. The main difference between the bubble in Toronto and here is that Toronto was building stock during the bubble so when it went bad it went REALLY bad.

        In Auckland, thanks to a constipated consent process and the geography of Auckland, we have not been building enough to even half keep up with demand. Sure there may be excessive leverage but there is also a genuine shortage of property on the market.

        When the consolidation comes, the cheaper, nastier peripheral areas will be hit worst. People such as myself who live in leafy expensive suburbs near the CBD will muddle along just fine because there is real wealth here and lower gearing.

    • Keith Rankin says:

      Yes, I’ve commented above that low interest rates may well make a difference to the nature of the correction when it comes.
      But we should note that low interest rates do not stimulate the housing markets. Do house prices rise fastest in the countries with the lowest interest rates? No. Did house prices rise dramatically in the mid-2000s when interest rates were high? Yes.
      Low interest rates are intended to stimulate business (and government, including local government) borrowing. When these kinds of loans increase, then housing loans decrease. (The biggest economic problem in NZ at present is the refusal of our government to respond to the low-interest rate stimulus. In times of voluntary or compulsory austerity, the price elasticity of public borrowing is very low; the result is that monetary policy itself is largely disabled.)

      Re my prediction, I’m not trying to be a soothsayer here. I’m simply giving readers my best guess, and noting that, in line with the efficient marketrs hypothesis, in the light of new information (about Auckland rents) I am bringing forward the timing of my best guess about when the correction will happen.