Housing: Affordable Fringe Land Required Urgently
“Housing: Affordable Fringe Land Required Urgently”
Demographia International Housing Affordability Survey
September 21, 2008
Within this excellent article “Mortgage costs feel the crunch - 21 Sep 2008 - NZ Herald: New Zealand Business, Markets, Currency and Personal Finance News”, Bernard Hickey sets out clearly the “key facts” relating to New Zealand housing – and how credit conditions have tightened – to the extent new mortgage lending in July 2007 was $NZ1.24 billion and has since collapsed to $NZ229 in July 2008.
New mortgage volume is therefore 18.46% of what it was a year ago.
20% deposits are now required to access the Kiwibank 8,49% and National Bank 8.3% short term fixed rate mortgages, No mention is made of the likely more stringent loan to annual income ratios, which will be further limiting the availability of mortgages.
Within a December 20, 2007 article “Scoop: Housing Affordability – The Shift from Fantasy To Reality” I wrote –
“Then the question needs to be asked – ‘If previously they were lending on artificially inflating house prices, where household income was either of little or no consequence – what do they lend on now – in an environment of declining house prices?. It can’t be ‘assets’ any longer of course – because they don’t know what these will be worth going forward.
“It simply has to be income – as it should have been all along – had there not been these massive regulatory failures at both national and local level.”
“The urban inflation we have seen in too many markets over these past few years has been ‘unprecedented’. To gauge the extent of the inflation component – one would need to adjust current pricing back to a reasonable Median Multiple of 2.7……………..’
“It is not a pretty sight – and should have been ‘obvious’ to politicians, bankers, regulators, economists, property professionals, urban planners and others ten and twenty years ago.”
“It needs to be borne in mind too – that as markets ‘adjust’ – they do not simply move casually and conveniently back to their ‘equilibrium value’ – but tend to ‘overshoot’. (The current US situation is a further illustration of what could not be described as “casual and convenient”)
“It is difficult to accept the idea that somehow this adjustment can be ‘gentle’ as the criteria for debt financing moves rather quickly from that based on ‘ever inflating values’ to the ‘tried and true’ historical convention of lending based on income – which has been at 2,5 to 3.0 times (and slightly higher) gross annual household income and no more than 80 – 90-% of the “true worth” (not artificially inflated pricing) of the property being secured. It seems likely that ‘assets’through this adjustment phase will be considered secondary to incomes………….”
The only decisions politicians need to make at Federal / National and States and Local levels is –(a) do they wish to stand idly by and allow their housing construction industries and jobs to collapse – and compound the problems - to Californian and United Kingdom levels (less than 40,000 units annually in Australia’s case– 8,000 in New Zealand’s case) – or - (b) act constructively and quickly to open up fringe land and responsibly debt finance infrastructure to allow affordable fringe housing to be built as soon as possible.
There are no other options.