Today’s Herald carries an interesting story about how the number of first home buyers with small deposits have been pushed out of the market to be replace by investor / landlords who are happy to fill the gap and obtain some income and profit as well. ( see the Herald link below)
This is what happens when there are unintended consequences. As predicted by me earlier, the LVR rules imposed by the Reserve Bank have, from the start, hurt the poorest in the country
More people are now renting, and even more people are buying and supplying rentals to fill the demand.
At this rate I fully expect that home ownership will continue to fall rapidly to levels not seen since the 18th century – maybe as low as 30% of “affordable houses”
The inevitable outcome of such a dramatic fall in home ownership will be a steep rise of the “rentier” class i.e. the person who solely lives off rents from unearned rental income.
This sounds very nice for those who may be in that class, but it will carry the seeds of its own destruction should it become too extreme. New and existing political parties will no doubt find favour from the dispossessed class and we face a real chance of a severe political tension erupting sooner or later.
Another side effect will be the return of the “Low Deposit Dealer” who will buy up cheap homes and on sell for a hefty profit by providing the money between what what can be borrowed and what falls short. While this in itself is an honourable job, it will not be long before loan sharks take over with the resultant uproar from the Left.
The conditions today for low deposit buyers mirror almost exactly the conditions I used to work with in the 1960′s and 70′s. Mortgages then were restricted to 2/3rds of purchase price and were almost impossible to get anyway. As a result there were, just like today, hoards of families who could never afford a home.
At the time, not only were lone sharks prevalent, but genuine whole-retail dealers flourished along side, providing cheap homes on low deposits with various forms of “rent to buy” schemes. These worked brilliantly and so long as the deal was fair and transparent no one was harmed.
Indeed to this day I still get thank you cards and calls from the good folk I helped into homes using one of the legally approved and straight up deals to help the deserving poor to (a) get a foot on the property ladder and (b) provide a fair profit for my efforts.
The notion that the country can build hundreds and thousands of affordable homes is fanciful, to say the least. Increasing immigration, rising interest rates and transport costs (most affordable homes being in the sticks) can only create depressing “Nappy Valleys” which will be shunned by all but the most desperate.
To add to the problem, the falling NZ dollar will bring a wave of inflation as all imported goods go up in price, oil being the most obvious, but also many building materials.
And here’s the Kicker:
The falling NZ dollar will make investment much more attractive to overseas buyers, who will be able to afford to buy even more properties with their own stronger currencies.
History is repeating itself, as I have seen all this before. The pity is, no one has learned anything from it.
Landlords up share of house sales
9:30 AM Friday Sep 26, 2014
Westpac has changed its business model after discovering landlords are on the rise with their share of house sales up from 37 per cent a year ago to 42 per cent last month.
Sales to first-home buyers are on the decline, with their share of the market down from 19 per cent to 17 per cent as mortgage loan-to-value restrictions bite.
Ian Blair, Westpac’s retail banking general manager, said the bank worked with information business CoreLogic to discover the trend and had beefed up teams dedicated to servicing landlord customers as a result.
His numbers tally with data out in July from NZIER principal economist Shamubeel Eaqub, also using CoreLogic data, to reveal that investors made up 45 per cent of the market, first-home buyers 19 per cent and movers 28 per cent.
Blair said Westpac had a new team of investment property lending specialists, and had refreshed product offerings for investors and developed an online resource centre.
That online tool has a new property investment calculator showing rent yields and capital gains in year one, as well as a forecast over a chosen period, and net cash flow position. It also includes key information, lending options, tools and resources, such as case studies and property manager checklists, Blair said.
Blair said movers were staying put and mortgage registrations for that category – people who owned or own a house and were trading up or down – have not moved.
Read the rest here: