Generation Rent TPA CHRISTCHURCH, 2 ND SEPTEMBER 2015 SHAMUBEEL EAQUB, CFA Economist, author, commentator EAQUB & EAQUB LTD +64 21 573 218 shamubeel.eaqub@gmail.com
Broken dreams & impacts 2 Unaffordable housing Broken dreams, generation rent & ghettoisation Complex market… …with multiple issues Sustained poor regulation and lack of leadership.
Unaffordable 3 B R O K E N D R E A M S
Disconnected 4 House price to income ratio, 1957-2014 7 Multiple of household 6 annual income 5 4 3 2 1 0 1957 1967 1977 1987 1997 2007 Sources: Statistics NZ, QVNZ, RBNZ
Regional variations 5 Sources: QVNZ, MBIE
Housing as an investment 6 Gross rental yield, 1994-2015 8% Auckland Rest of NZ 7% 6% %pa 5% 4% 3% 1994 1998 2002 2006 2010 2014 Sources: REINZ, QVNZ
Consequences 7 G E N E R A T I O N R E N T G H E T T O I S A T I O N
Broken dreams 8 Home ownership rate, 1936-2013 80% Share of households 75% 70% 65% 60% 55% 50% 1936 1946 1956 1966 1976 1986 1996 2006 Sources: Statistics NZ
Generational theft 9 Years to buy a home 60 Number of years 50 40 Pay off mortgage 30 Save deposit 20 10 0 1992 2013 Sources: RBNZ, QVNZ, Authors’ calculations in “Generation Rent”
Eroding city benefits 10 Average weekly household incomes Before and after mortgage payments West Coast Nelson Southland Otago Wellington Canterbury Taranaki Marlborough Income after mortgage Manawatu-Wanganui Hawke's Bay Mortgage Bay of Plenty Waikato Northland Auckland Gisborne Tasman 0 500 1,000 1,500 2,000 2,500 Sources: Statistics NZ, QVNZ, RBNZ
Unhappy 11 Net satisfaction with housing (25-44 year olds) Owner-Occupied Rented 100% 80% 60% 40% 20% 0% Couple Without Not In Family Couple With Sole Parent With Child(ren) Nucleus Child(ren) Child(ren) Sources: Statistics NZ
A complex system 12 A M U L T I T U D E O F S I N S
Housing is complex 13 • Demographic • Price • Investment • Availability for other reasons 1. DEMAND 2. FINANCE 4. PRICE 3. SUPPLY • Rent • Land • Home • Buildings ownership
Broken parts 14 Housing costs relative to income, 1992-2013 225 Section 200 Index 1995=100 175 Existing home 150 Construction cost (135 125 sq. metre home) 100 Rent 75 1992 1995 1998 2001 2004 2007 2010 2013 Sources: Statistics NZ, REINZ, MBIE
Demographic demand 15 Sources of housing demand, 1945-2013 30 Migration 25 000s per year 20 Household size 15 change 10 Natural 5 Total 0 -5 -10 1945 1961 1976 1991 2006 Sources: Statistics NZ
Investors: tax, culture & literacy 16 House purchasers, 2013 First home buyer 19% Possible foreign Investor cash buyers Other 45% 8% 92% Mover 28% Sources: CoreLogic, NZIER
Finance distortion 17 Borrowing capacity at $100,000 income Deposit Mortgage $775k 800 600 $414k $000 400 200 0 Using a bank calculator If 1/3 of income spent on mortgage Sources: Author’s calculations using online bank calculators
Rental distortion 18 Restrictive: NZ, Australia Standouts: Germany, Switzerland Indicative rental features: Typical lease term Notice period for landlords Reasons lease can be terminated Pet ownership Minor alterations Sources: Grattan Institute, NZIER, “Generation Rent”
Slow supply 19 Housing supply responsiveness, 2006-2013 Northland Auckland Waikato Bay of Plenty Gisborne Hawke's Bay Taranaki Manawatu-Wanganui Wellington Tasman Nelson Marlborough Canterbury West Coast Otago Southland Total New Zealand -1% 0% 1% 2% 3% 4% Realised supply in excess of notional demand, % of stock Sources: Statistics NZ, NZIER
Mismatched supply 20 Housing demand vs. supply, 2006-2013 8,000 # per year, 2006-2013 7,000 6,000 5,000 Demand 4,000 3,000 Supply 2,000 1,000 0 One Two Three Four Five+ # of occupants/# of bedrooms Sources: Statistics NZ
Conflating savings with shelter 21 Realised vs expected returns 6.0% 7% 6% 4.1% 5% 3.4% Real % pa 3.0% 4% 2.5% 2.3% 2.2% 2.2% 2.1% 3% 1.7% 2% 1% 0% 10 20 30 40 50 60 70 80 90 Expe cted %pa over ‘x’ years Sources: QVNZ, Statistiics NZ
So? 22 T I M E T O A C T
Swiss-army knife approach 23 Complex market: Better rental contracts Faster land supply Better banking regulation Remove tax incentives for housing What is needed? Revolution not evolution.
Thank you & Q+A 24
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