In NZ we have created a culture that obsesses with house prices. It's been this way since at least 2000, if not earlier. Many peoples retirements plans hinge on them being landlords or holding large amounts of property.
The NZ share market is a joke. Pretty much any serious global company that started in NZ moves away from NZ without even entering our sharemarket. There are a few exceptions of course, but by and large it's a dull, depressing market and there are very few incentives to invest in businesses rather than property.
NZ's tax regime also actively discourages investment outside of NZ. Holding growth shares in US tech stocks will result in annual wealth taxes, even if you hold and never sell. No wonder property is easier and more profitable.
Last year a friend was gloating at how they purchased 5 rental properties in the South Island (with mortgages of course). Yes a degree of rental properties is required but what we're doing in NZ is way out of proportion.
> In NZ we have created a culture that obsesses with house prices. It's been this way since at least 2000, if not earlier. Many peoples retirements plans hinge on them being landlords or holding large amounts of property.
Canada and New Zealand are similar in that respect. There are a sizable number of people with "investment properties", but the majority of homeowners own a single home and are counting on the price to rise indefinitely to fund their retirement.
Economists and politicians regularly brag about how much 'wealth' the average Canadian has; in reality, being able to sell your house for 1.5MM isn't that much of a windfall when other houses are at least 1MM and rising rapidly, and renting is more expensive than having a mortgage.
> in reality, being able to sell your house for 1.5MM isn't that much of a windfall when other houses are at least 1MM and rising rapidly, and renting is more expensive than having a mortgage.
This is starting to hit a lot of my parent's social circle. They are retiring, mostly from the edge of a big city.
About half plan to or have retired in a small town. In that case they are able to get something with the $1.5M they sold for, but they are driving prices up in those towns in a way locals can't afford.
The other half wants something else in the city. Some remaining in the suburbs, others move more into the city, others "in the sticks" and are all surprised that that's going to use up all of their $1.5M. They expect to buy something for $200k and have the rest for retirement lol.
House prices are like car dependency in that when it becomes an issue it makes so many conversations so boring. Housing and traffic. Exciting! People become obsessed and then it's all downhill.
No I don’t believe you can get tax credits for paper loses. But you definitely do have to pay for paper gains.
Most financial firms in NZ wrap US/growth stocks in a special type of investment called a PIE, which essentially they handle the tax issues for you (Ie your net % gain includes after this wealth tax is taken into account).
I wonder about this as well. Let's say Amazon did really well for 5 years and you paid significant wealth tax from these shares. Then Amazon plummets and you lose 50% and then you sell shares. Would the NZ government reimburse a part of the wealth taxes you already paid?
There is a decent bootstrapping startup scene in NZ. Not too many active investors, and if they are they aren’t the same nature as you would find in the US. Less risk takers, more property buyers.
The problem is most NZ startups don’t have the hockey stick growth due to our isolated market. We have to spend a lot more on sales before network effects kick in. The Internet can only help soo much.
I'm currently living in Tokyo and have family visiting from NZ. I've already had a few uncomfortable conversations about when I'll be coming back. Realistically I won't be, not only would I lose more than half my salary, but I would then have to dedicate a large portion of what's left on an overpriced hovel that's probably rotting from the inside. It's no wonder that most of the people I graduated with left the country long ago. Those who stayed had well off parents who could get them onto the property ladder.
> I've already had a few uncomfortable conversations about when I'll be coming back
If they truly care for you, they'd understand that where you are right now is better than back home. If a place is expensive and unaffordable, the best option for you (and anyone really) is to leave.
How are the lending laws in New Zealand, if they're regulated?
Here in Norway, one can loan 5x of annual gross income (minus any debt you have), and at least a 15% down payment.
Average annual household income here is 610000 NOK (~64500 USD). Average home price here (end of April) is 4483328 NOK (~473914 USD), so the ratio here would be 7.34 - but that's assuming single income household. For double income, that ratio would obviously halved.
In any case, the average person buying an average home here would have to save up a down payment equivalent to 2.34 annual gross incomes, in order to get the maximum possible loan/mortgage (5x annual income)...and that's assuming this person is completely debt-free.
If this person managed to save up 25% of their annual income, it would still take almost 10 years to save up for that down payment - but the housing market will likely outpace the saving potential of a your average person. So now you have to save up 2-5 extra years to afford the down payment. All while you're paying rent that is much higher than the mortgage would be.
Lesson learned is that being an average single person trying to buy an average house sucks, at least over here.
(Caveat: obviously most people do not purchase "average" homes, but start on the lower end - and most will save up with partners, as well as enjoy appreciating value of their first "starter" home)
Public policies are now heavily favouring public transport and cycling, which both require higher population density than single family homes to be effective. As a consequence, a higher share of the population is expected to live in apartments rather than homes compared to the 70's and 80's.
Additionally, averages tend be impacted by outliers. Take the example of a rich heir buying a multi-million dollar mansion. His property will heavily influence the average house cost and his income is close to 0 since he lives off his capital, thereby reducing the average household income. This can twist the perception of what's actually happening for most people. The best way to fight that is to use medians instead of averages.
I am not able to find reputable sources for data in Norway, but what does your analysis look like when looking at median household income and median appartment prices. As this will more likely reflect the reality on the field.
Of course, people will want to own houses, but large - car optimized - and low density suburbs, are an anomaly of the last 50 years. They actually aren't sustainable, so their expansion has to stop, and the expectation is that the median worker will be steered towards appartment, while the richer elite will be able to afford houses - but that will gradually become a minority.
I had to look it up - median income here seems to be 45910 NOK (~4830 USD), but couldn't find any median price. But just from anecdotal evidence (i.e. sampling from different counties here), the it would be lower than the mean. Ratio wouldn't be too different, if I had to estimate.
> Average annual household income here is 610000 NOK (~64500 USD).
Norway's GDP per capita is about USD70.000. Surely you're using GDP per capita, or average individual income, not household income? I have a very hard time believing that Norwegian average household income is just over half that of New Zealand.
So, if the average person can save 10% of their income, it takes 8.8 years to save a 10% down payment? Factor in tax and the time it takes to save a down payment is starting to look close to the time it took my parents’ generation to own a house free and clear.
In USA this isn't true. We bought a house using an FHA loan and put down less than 5% and our interest rate was lower than 3% if I remember correctly. Maybe not as reasonable as you are imagining but it was really low in our mind.
> if the average person can save 10% of their income, it takes 8.8 years to save a 10% down payment
Not according to this article, where it mentions the average household income, not the average per-capita income. So you can expect it to take quite a bit longer than that to save for that down-payment, for the average person.
This is assuming the priced don’t increase. In many places, the prices increase so fast your downpayment grows faster than your savings.
Home value goes up 10%, from 1 million to 1.1 million, 20% downpayment goes up from $200k to $220k. If you’re saving under $1666 per mo, you’re actually further away than you were last year.
In Vancouver, the average price is $1.36 million and it went up 21% in a year. For detached, $2.12 million/25% yoy.
Waiting and saving money is no longer a feasible housing strategy, unless you can save at least a few thousand every month.
Ah yes, I'm sure that's what my parents had to do in the late 70s to get their deposit together.
I'm not saying your wrong or that it's not a bad idea, but should you have to take risks by investing your deposit just so you can have the chance to take a bigger risk in the housing market? It's mental that that's the case these days
> should you have to take risks by investing your deposit
yes. There cannot be ways to obtain risk free returns that out-performs inflation. Where would that return come from if it was risk free? It must come, at some aggregate level, via other people's productivity growth. But this means it's a free lunch, and more and more people would try to take advantage of it, thus lowering the expected return of such a deposit scheme (however it is funded).
> the chance to take a bigger risk in the housing market?
A house is not a bigger risk than the stock market tbh. It's why the lender for the mortgage is willing to give some 5x leverage (20% deposit) vs a margin loan in the stock market (which at most they're gonna lend you 50% LVR), and at a higher interest rate even!
It's the fact that real estate is such low risk that so many people, esp. the poorer/middle income people who cannot take the risk of stock market, want to buy real estate.
In the past, you didn't need returns when saving for your down payment. Proverbial dollars in your mattress was plenty good enough to ensure your savings were growing faster than the required down payment
The greater Vancouver area though is not 1.3M and a detached house is something not even taken in consideration in Europe.
I lived in Rome and having a yard meant you were loaded
I can’t believe this hasn’t been mentioned, but NZ has no capital gains tax, making property an interest-free investment. People put their wealth into the housing market ever since the 80s and are putting their untaxed profits back in. Source: kiwi.
Can you explain what the cause of this sharp rise is? The linked article has nothing on that. It even feels a bit alarming without much depth. And is anything being done?
In the Netherlands, many investors, big and small, are buying up houses to rent out. Airbnb renting was a part of this as well. Many local governments are now creating rules, like, you have to live in the house when you buy it. Also, some taxes for investors have increased a lot. What is happening in the last few months is that less investors have bought houses and more have been bought by people buying their first home. The sharp rise in prices has been more normalized.
Still, there is a shortage of housing and the low interest caused over-bidding by people in a rushed market. The result was that only investors and people which had financial support from their parents could buy houses. Of course somewhat to their own detriment with paying too much and having too big loans.
A lot of demand for housing (both to buy and rent), and in my experience (live in Wellington) a lot of the newer apartments being built seem very much architected with buy to let in mind, so I think renting is a large part of it, along with limited supply.
The government did tighten the rules a bit several years ago so that effectively (there are ways around it), you needed to be a resident to buy property, but I don't think that had that much impact (although maybe it would be even worse if that wasn't done?)
There are no significant taxes on housing investment in Australia and infact there are tax concessions to do so ("Negative Gearing") which no government has the guts to repeal because the largest cohort of voters (people 60+) benefit so much from it that to repeal it is political suicide.
I'm not a kiwi but I heard until recently, or still, New Zealand either has low or no tax on foreign property investments? If it's true, it's like an open invitation to regional millionaires from a certain country where people can't even legally own properties.
I'm Brisbane outskirts. Moved here to avoid the crazy Sydney prices about 5 years ago. We would expect a bit under double now, maybe 70% up.
It's crazy. Great to feel you have more equity on the surface, but it's meaningless really as you have to sell to buy if your moving and then things like rates and stamp duty are higher than ever.
I think the best solution is cap how many properties people can own. Homes are good for people or investors, not both. While interest rates are the main driver, a country like Australia has little ability to far steer outside global rates. From that I think the best solution is to place a limit of ~3 residential properties per person, or something like than with a grace period to ease the new rules. Get the big investors out of the market. Make homes for people again. Action should have been 15 years ago before it was todays problem, but was still obviously heading this way. It's going to be hard to unwind now without creating serious pain somewhere.
Unfortunately it's been the policy of successive Australian governments to put "real estate investment" into the engine room of the economy. They didn't do it 15 years ago vecahse they didn't want to. It's going to be an absolute ball-breaker trying to unwind the whole thing, too.
If you limit it to 3 houses per person you'll get people buying houses for their three year olds (which already happens). It's an improvement, for sure, but it'll be rorted.
4-5%!? Aren’t central bank rates in the 0-1% range pretty much globally still? My mortgage is usually around one percent over the central bank rate so it’s been hovering around 1-1.5% for years now.
NZs on its way to a crash. Debt to income ratios of recent mortgages are insane, and they don't do long-term fixes there. Either lots of defaults or massive drying up of disposable income. https://www.stuff.co.nz/business/128396590/world-watching-nz...
Similar or worse situation is here in Prague, Czechia, person working in Prague needs about ~16 yearly incomes to buy average home here, it's insane, see:
https://www.idnes.cz/ekonomika/domaci/praha-byt-cena-bydleni...
Also Czech National Bank just increased the base interest rate to 5.75% this week, you can imagine how expensive regular mortgage is currently.
it's household, not person income, which is consisting usually from 2+ people at least in Czechia
the problem with mortgages is that they should be heavily regulated long time ago requiring at least 20-30% first downpayment, cheap mortgages are just pushing prices for everyone including poor people, I'm glad for current regulation, but sadly it's way too late, my apartment in Prague also doubled value in last 5 years, which is insane.
I'm idiot, so I paid it in cash. I am also idiot, I could buy next apartment in cash again without being mortgage slave (I have savings roughly worth 40 m2 Prague flat currently), but nowadays mortgage slaves are preferred instead of people who can save their own money and stupid people happy with cheap mortgages don't realize these are just pushing prices up, instead with inaccessible mortgages prices would be much more stable and you would need to scrap money elsewhere but without greedy banks.
But there are good news, recently prices started to go down and need to be already cut, because they are even beyond of mortgage slaves already.
What does an average home in Prague look like? Is it an apartment or a detached house, how many bedrooms?
In Eastern European countries, the quality of housing varies greatly, from cramped apartments in gray concrete buildings to elegant mansions. I wonder, which of this is worth 16 times annual income.
65 m2 apartment is Czech average, obviously it will be apartment as well in Prague, since houses are reserved only for extremely wealthy or people with family here who inherited it, though I'd not guess what's average m2 in Prague, I'd assume less than Czech 65m2 average, which is btw. quite small 2BR+1LR apartment
and it will be mix of old brick buildings, commie concrete block buildings and new brick/concrete buildings, msot of the people live for sure in commie block ghettoes (8-13fl usually), I am lucky one bought apartment in concrete building but with only 5 floors which looks also from outside like brick building (only around 50 of these models built in Czechia) and right next to my building is older brick building owith almost same height, lot of green and quite close to city center unlike those commie block ghettos which are on the edges of city
How have other countries dealt with that? In Norway, the cap you can borrow is 5x your income. This cap is total of all loans (student loans, mortgages, limit on your credit cards etc)
Not sure of the effect, but perhaps it has cooled it somewhat You notice certain "bands" on apartment prices. An apartment for a single person is capped at ~5x what a single person makes, then there is a gap until the next band etc. One problem is that normal people are capped, but someone with upper class parents can get help to win the bidding round by bidding just above what most people can. So it can feel unfair, at the same time one probably shouldn't be liable for that amount of loans as well. Dunno.
In Ireland we've got a cap of 3.5X income (which banks can sometimes stretch to 4.5 income but it's pretty difficult to do due to government limitations) and that hasn't seemed to have helped house prices much (although it was iirc more to stop a housing bubble and crash rather than to keep house prices down). It's just meant that it's easier for investment firms and cash-buyers to outbid everybody else.
That's not correct. I suspect that the source you saw said:
> As of 2017, the average annual real disposable income of Dutch households was roughly 31,500 euros.
Disposable household income would be, at a minimum, after tax, and possibly after accommodation. You'd want to increase that by about 60% to account for tax/etc, which would be 50.4K. That seems more reasonable to me, and would put the multiplier at 7.7.
Not sure about the UK - that could very well be accurate, but London throws averages completely out of whack.
I don't think London throws them out of whack all that much. I'm around Milton Keynes/Bedford so SE but a bit further than most folk would want to commute to London (and I'd imagine a reasonable percentage of the population live within a similar radius of London) and that average house price feels about right. You'd might manage to get a three-bed terrace or two-bed semi for that sort of amount I'd say.
I dunno - I always assumed that London-proper prices (i.e., not Milton Keynes) being so outrageously high, upwards of £1,000,000, would throw out the average. Though perhaps the number of slightly cheaper apartments brings it back down again (although of course statistics can't tell you that's because the apartments are the size of a shoebox).
Plus as I understand it, a bit further north you could probably start getting a decent house for £300,000 or less. And in really out of the way places, under £150,000. Trying to talk about "average" house prices in most countries is generally a bit daft IMO because the range between "remote little country town" and "centre of the largest city" is vast.
Do agree that it's hard to talk about averages - you almost need e.g. a heat map of the price for a certain size of 3-bed semi or 2-bed flat or such like. It's tricky too because house prices in areas of the country where there are few jobs are irrelevant for anybody needing a job who can't get one in that area. Although I imagine remote working has flattened things somewhat.
What is most depressing to me, where do people get the money???
It would take me 30 years of saving to get 500k, that's like 70-80% of my working life. That's assuming you don't get sick or lose your job.
This metric annoy me because only a fraction of your income can go toward rent or mortgage . You would pay over 100k in interest fees alone on a long term mortgage.
A friend of mine is selling his 1 bed terrace (about £200K) and the prospective buyers are older than they would have been twenty years ago - in their 30s not their 20s is the impression I get. I imagine there are large mortgages too. Possibly some help from parents or inheritances as well. And couples so two salaries.
Yes, why would I vote against my own interests? I am after all a temporarily embarrassed millionaire, rather than a poor person. I’ll get there one day, surely.
> What is most depressing to me, where do people get the money?? It would take me 30 years of saving to get 500k, that's like 70-80% of my working life.
Mortgages. This is why they exist.
> You would pay over 100k in interest fees alone on a long term mortgage.
You pay 100k of today's money in interest and fees over the course of 30 years. 100k in 1992 was worth far far more than 100k is worth today.
Yea here in the SE prices have gone crazy the last couple of years, we're pretty much priced out of our local village now - if we hadn't bought 4 years ago, no way we would be able to now.
Czechia - 220K CZK per person with average household 2.1 people makes 462K CZK / 18823 EUR with average real estate price 3.751M CZK /153K EUR (65m2, data from end 2021) so roughly 8 yearly average household incomes to get average 65 m2 apartment with prices varying a lot across regions (in Prague would such apartment cost almost exactly double price)
It spreads too, in the little towns around Brno prices are raised as relatively wealthy people (who aren't quite able to find something suitable in their budget range in the city itself) seek to buy something near the city and commute or work remotely. I don't imagine the salaries of the people who were previously living in these towns and villages have risen the same way salaries in the city have.
Housing prices and income have a skewed distribution (more like a lognormal than a normal distribution); therefore the mean is higher than the median.
What's the median home price and median income? Also, can the average household get a mortgage on these houses? Affordability is pretty much arbitrary and depends on the banks' lending criteria and interest rates (which depends on regulatory factors mostly).
Edit: this is on top of supply and demand for the houses themselves, of course.
In Norway the median income is NOK 550 920,- and the average income is NOK 609 480,-. The average price for a home is NOK 4 483 328,-. So respectively 8,1 and 7,3 times.
And in Norway it's still very common for young people (25-50) to buy property. Often couples buying together, but it's almost a given that you buy instead of renting.
but the article is per household, so you should slash your prices by half since household usually consist of two people, so it seems Norway has extremely cheap properties
true - many households here are with double income, but you can't double the income just like that since there are many single person housholds. I find statistics that say that for all households the median after tax, is NOK 546 700 (2020). I can't find the official statistics over income before taxation. I do however, find a public research article that indicate that just under fifty percent of the poulation has a household income lower than NOK 750 000.
Here is something I would like to get opinions on -- whether this is a valid historical viewpoint. Talking very macro here.
We (the world) have spent the last 80 years in a period of relative prosperity, peace, and general building up of countries' (and people's) wealth and productivity. Currencies -- stores of value -- have not defaulted generally, and as everyone engaged in producing more over the last decades (real physical goods and services representing raw materials and labor), we have accumulated all those years worth of output and stored value. Any properly operating controller of currency has to issue more currency as physical output increases (money supply, etc).
As long as there are things that do not grow as fast as wealth or people / population grows and are finite in supply (land, housing), that accumulated 80 years of wealth has to go somewhere, and we are seeing it go into rising prices of finite housing by people and institutions searching for where to put it. Everyone is actively seeking ways to spend / invest it for a return and not sit idle.
So much money seeking a return has exhausted the growth of demand for capital, and returns are pretty much 0% these days. (think of it as, how could so much capital all earn 10% interest like it did at one point?) And that money seeks out wherever it can find appreciation -- housing.
Gripe as much as you want about wealth inequality, etc. and debate/tinkering around the edges of who in particular has more money or power to purchase. There is no escaping this fundamental buildup of 80 years of postwar resources in the average person's bank account or that of governments and institutions.
Is this off base? Is my interpretation wrong? Are we just seeing the fundamental force of wealth accumulation manifest into the one place that it finds value? This is a long-term problem, isn't it, if we can't escape this truth? Especially for someone born today, who finds that everyone existing already has tons of money in the bank and you're trying to start on that ladder too, but have nowhere the same resources to compete for limited supplies of the hot item?
No I think this may be off base (but appreciate your original viewpoint) but also correct.
I think for luxury goods like artwork boats etc what you say is correct, but what I think doesn’t work is property prices. There’s no reason for the majority of the world to be struggling with rent given all the advancements in the world. it is human generated scarcity that doesn’t make no sense except to existing capital owners taking advantage of the rest
>> it is human generated scarcity that doesn’t make no sense except to existing capital owners taking advantage of the rest
This! What I think most people missing is that all the money and wealth in the world is just a substitute for future consumption. There is at least billion people in this world that expect that their investment (delayed consumption) will be recouped. Those are not only wealthy capital owners, but simple people that believes in their pension funds or state provided pensions.
This is the system that we live in - the real culprits are not only those in castles on top of the hill but millions of old people counting on the young to fulfill social contract that they did not sign.
A lot of our current problem is actually caused by too little domestic population growth. They tried to cover it up with low interest rates and immigration but it isn't working.
The problem with New Zealand seems to be that if you have an education, it is often no where else to use that education than Auckland or Wellington. I have never been to New Zealand, but the problem seems to be very similar to the housing problems we have in Norway. The sub arctic capital city of Oslo, has ridiculously high prices.
Stupid question... is the problem with not enough land (eg. if you want to live in manhattan, you literally have nowhere to build, unless you demolish something else),... or is there enough buildable (physically) land in "near-enough-to-commute" locations, but the government doesn't allow people to build (large enough) housing there?
In Wellington at least (where I live), there are limits on the density of housing that can be built (and height). Recently, the council was going to free up some of these restrictions a bit, but there was a lot of backlash by residents who didn't want the "character" of their neighbourhoods to be affected, so the relaxation in the rules has been a lot less.
Wellington is a bit different in that there is a limit on the amount of empty land in the centre and the neighboroughing regions: it's quite hilly and pinned in geographically, and most of the central regions are fairly built-up already. Some areas (near the CBD) were also built up on reclaimed land from the harbour, and what with earthquakes, that's not great...
"penned for pinned" is in the Eggcorn database[1] - doesn't look like "pinned for penned" is yet but probably worth a contribution (also see the pen <=> pin dictionary definition in the linked thread.)
New Zealand has lots of land available. Zoning can be an issue. That said we have very low density housing.
I think compliance costs and times don't help. Neither does our building code. We should allow the use of materials that have been approved in more advanced countries like Germany.
The real cause has been low interest rates. People borrow as much as they can. At sub 2% rates they can borrow a lot and are pushing prices up.
There's a lot of land. New Zealand is about the 2/3rds the size of California. It just has to do with lack of development. About the same size if you include the habitable land / non desert.
I suspect a big part of it is that many people who would have built a new house during the covid years (people are always building) instead changed to buying an existing (since building was reduced/restricted).
And if you build a house you're adding to the housing market (assuming it wasn't a teardown/rebuild) whereas if you buy it's just shuffling existing stock around.
Not true, I've been in Palmerston North scince getting my degree. There are always high skill Jobs going and not enough people willing to move here.
Our house prices are very high as well.
> Palmerston North ... always high skill Jobs going and not enough people
? links to good job boards ?
I know several people (stem MSc / PhD)s who are on and off looking into migrating. They would come with around NZD 0.8-2.4M net capital from selling their current houses.
For a long time a "rule of thumb" was 33% of income dedicated to housing + debts (usually based on underwriting rules, the bank wanted to see that your home loan payment + any other loan payments would be under 33% of your gross).
That depends on income though, surely. If someone is on $1M a year, even 90% going to rent would be quite sustainable if the other living expenses are affordable. On the other hand if someone's on $10k a year they'd still live poorly even if rent was free.
Until 9 years ago I was living in a 3 bed semi detached within commuting distance of Birmingham, near a trainline, monthly season ticket was £90 - mortgage was around £400 a month - interestingly, houses there are still relatively affordable.
it is an extremely violent and dangerous place, and not reflected in crime statistics due to peoples distrust of the police and general motivation to "not be a dirty grass".
I hear it's getting better with the students these days, but, as mentioned, it's quite dangerous to be any amount of affluent in Coventry.
It's actually hard to convey how frightening it can be, to randomly be targeted while walking through the streets.. I'm having a mild panic just thinking about it.
Huh - I'm not a million miles away from Cov (Rugby) and never felt particularly unsafe there, then again, I've only been there at night a couple of times.
Where I live (southern Germany), you cannot find a house under 600,000 EUR. The average net household income in Germany is around 43,000 EUR. That means that house prices here are over 16 times the average household income. Yupp, it's bad.
My wife and I both have university degrees, we have good and secure jobs, and our net household income is above average. But we have generally accepted the fact that it is impossible for us to fully own a house before we are dead here, even with the national or state-wide support programs for families (we would not get much, if any, support because our income is too large). Our parents don't quite get this. When my parents were our age in the early 90ies, my mother was a homekeeper and my father worked as a carpenter at a small company with a completely average salary. Yet it was no problem for them to build a fairly large house in a very nice neighorbood, without any financial support from their families. I remember we didn't go on vacation for 2 years in the late 90ies "because we now have to pay off the mortgage", but that was it. Their house is today worth so much (> 1,000,000) that it would be impossible for us to find a bank willing to lend us the money to buy it.
We currently rent a 4 room apartment, but lived in a 2-room apartment with our daughter for 2 years before because we couldn't find an apartment in a 30 km radius around our home town. The problem was not money - there was simply nothing available. For our current apartment, we were one of around 500 families that were initially interested, and one of 50 families who made it through the various hoops and obstacles created by the estate agent to get that number down to something managable. This is completely standard here. We only got the apartment because we were lucky.
At the same time, we are now starting a legal battle with our local district for a kindergarten place for our 3 year old daughter, which she is very clearly entitled to by law and for which we applied years ago. But their are no free places anywhere, and nobody in our local town seems to care anymore. Our local mayor basically said "well, sue the district". The people in charge at our town hall also regularly quit. The previous person, who has now also left, told us she cannot bear parents in tears anymore who scream and yell at her because they have to both work full-time to pay of massive mortgages, and don't know what to do with their children. Again, this is something our parents cannot even remotely understand, because the situation was completely different 30 years ago, when it was absolutely standard for a child to enter kindergarten when it was 3 years old. You just went to the town, asked for a place, and one was assigned to you.
The situation for families here has become so bad that we are seriously considering leaving the country.
>Where I live (southern Germany), you cannot find a house under 600,000 EUR. The average net household income in Germany is around 43,000 EUR. That means that house prices here are over 16 times the average household income. Yupp, it's bad.
1.65 % for a 5 year fixed mortgage at sparda bank. While inflation is at 7.4% in germany...
Each year you don't pay any interest, you are paid 5.75% to have debt. They(mainly retirees) are giving you roughly $34,500 each year to buy a house. Mind you, they(mainly retirees) want to sell their homes. Hence the beneficial arrangement for you.
Even when inflation gets under control and they get back to ~2%. You'll still be earning some small stipend.
If you don't buy a house, your rent is literally equity that you lost. That's coming out of your retirement fund.
Moreover, that $600,000 isn't going to be paid in 5 years. You'll amortize it for ~25 years. In 15 years the remaining mortgage will feel like it's nothing. Your salary will be $100,000 or more and the remaining mortgage will be nothing.
In high inflation, low interest rate environments. Buying a house is a no brainer with only 1 exception. Are you betting the housing market will crash? That you'll be able to buy homes for much cheaper and possibly cheaper rates? That's the only bet you're playing right now.
Well… 100 km around Munich €600k brings one 3-4 room apartment with the size of ~100 square meters. No house under 1 million EUR and it gets more and more worse every year.
With rather average salaries and lots of borrowed money in the family we managed to get a mortgage from the bank for a super old house. Then a super surprise came in - there was no handyman or a company who wanted to work for less than 1000€ a day. Every free minute goes into renovation, even very promising side project was put on hold. I already mastered plastering. Thinking about getting electrician’s license, then I will make more than McKinsey consultants.
It's pretty much the same for anything around the city of hamburg in the north and most of the time it's less about the houses and more about the land they sit on.
Building got more expensive but land even more so. 1.000 EUR/m² of land for adjacent cities are becoming the norm.
Most of my friends graduated from university with either a bachelor or a masters degree and only those who stand to inherit a sizable sum of money or their parents home are going to have houses. A 50k salary simply won't cut it. Most have given up on the dream entirely since 30+ years of debt is not something they can justify.
As a quick back of the envelop calculation:
Let's say you had a household income of 86k for two people (43k+43k) which translates to about 4550 EUR per month after taxes, health insurance and pension fund. Their cost of living on average (not including rent) in the hamburg area would be somewhere around the 1900 EUR mark, leaving about 2650 EUR per month. Since people need to save at least a little money, or go on vacation once in a while or repair their car or maybe they have kids it's probably generous to assume they could use 2000 EUR per month to pay off a house.
Let's say you'd get a house for 600k all inclusive and you had to take on 500k of debt. With a current interest of about 2.76% fixed for 20 years and paying off 2000 EUR per month, then after 20 years you'd still be at about 224k of debt and you'd have paid 203k in interest. Assuming the same interest thereafter it would take a total of 30 years and 10 months to pay the house off entirely. During that time larger repairs or renovations are likely needed which would most likely forbid to pay off more than 2000 EUR per month.
Now one could argue that people could find places for half as much in rural areas but then again, lots of professions won't find any jobs there and those that do often get paid way less. Somehow the situation saddens me. My parents bought a semi-detached house 20 years ago for 200k (which would be 264k today adjusting for inflation). Two identical semis in the same street got sold last year, each for more than 500k, so pretty much double the inflation adjusted prices albeit being 20 years older houses now.
I don't disagree that the housing market in german cities is overheated, but isn't it pretty standard to take 30+ year mortgages? Keep in mind that 20+ years into paying this back your monthly payment will not increase to 2042 levels but remain in current 2022 levels.
When I talked to my parents they told me most of their peers would pay off their mortgage within 20 years but maybe times changed, I don't know the data on that. I am 30 now and I have trouble imagining being in debt for a time equivalent to my entire lifetime so far - just to live in a house. 15 years sounds so much more bearable emotionally but it's probably never gonna happen.
You are obviously right about 2042 payment levels probably being different but that also hinges on inflation being positive - but I would agree that that's more probable than deflation.
> I am 30 now and I have trouble imagining being in debt for a time equivalent to my entire lifetime so far - just to live in a house.
I can empathise. 10 years ago, I had friends in their early 20s "buying a house" (signing up to a debt of $1.2m+ dollars over 30-35 years for a $700k house), and could not see the value propositon for the emotional turmoil.
Looking back years later, they don't seem so stressed by it, but it's definitely affected their ability to make decisions around their job, relationships, social life, etc. But they've all made pretty strong profits (on paper, assuming they ever sell).
I bought a house for cash instead. The trade off of living further away is much better to me than feeling enslaved and not in control for decades.
Buy some land if you want - a small package in a small town 30 minutes past all the developments. You'll probably find once you've paid off the mortage in 5-10ish years, the area has built up and you're in a non rural position with a good block.
Yeah but you’ve had to live out in the boonies for 5-10 years in the meanwhile. It can be fine in some situations but not in others. My kids are going to school now & I want them to get into good schools now, not in 10 years.
I think you think that because buying (rather than renting) is not traditionally that common in German/Austrian cities. In other countries it's perfectly expected that you take a mortgage for 30+ years if you buy a house, it's the same* as paying rent for 30 years except you get to own the house at the end
* i know it's not exactly the same, e.g. you need a downpayment and you have to pay for maintaining the house but it's not like you wouldn't have had to pay rent the same 30+ years had you rented instead of bought.
I'd say same in Italy, even in small cities of 100k residents you cannot find a barely basic and nice home for less than 400k, which is over 10x the average household income.
This seems a fairly easy thing to fix except for the politics. (Similar to climate change)
Anyone got a good solution including the politics angle?
You'd need to give people an off ramp from their house investments and give them confidence that they'd get a share of the economic goods that they currently receive by holding a house plus a bonus from the bounty unleashed by the sane housing market.
There's no need: Stubbornly high inflation due to loose monetary policy (which is the largest contributor into asset overvaluations; including housing) is forcing central banks to raise rates.
Higher interest rates means buyers can afford to offer less, causing property prices to fall.
Home prices in Auckland is already down 10-20% and the RBNZ is continuing to hike. The same is happening in Canada, and if you check Zillow's latest report, it's happening in America too although likely to be more muted (i.e. take longer) due to the US's fairly unique 30-year fixed rates and people's 3 month interest rate locks expiring.
Just give it another year or two, the housing bubble will have sorted itself thanks to normal levels of interest rates.
Is this a NZ-caused problem like the article seems to imply?
Or is it foreign countries / companies buying up houses in place of stock like seems to be the case everywhere else?
Or is it just more billionaires (from other countries) buying backup/vacation homes in NZ?
It annoys me when they compare countries and don't consider income tax - you don't pay with pre tax income...
If you earn 150k in High Tax Euro Country you're losing 50% of that. In low tax US state you're closer to 33%. Thats the difference between 75k and 100k.
> you also have to consider what services are included in the tax
Yes! And a lot more as well. Many are under the impression that income tax is the majority of their major tax burden.
Total taxation from billing to salary net + vat of normal spending. This must include all forms of employment, social fees, and other government imposed costs for the employer. This is higher than income tax for many regions and income brackets. On top of this should be added other taxes for a given lifestyle. E.g. fuel and vehicle taxes, property taxes, etc.
Then the services provided: health care, schooling, child care, child support, pensions, etc.
Things look a lot different when making a complete cost comparison between countries, and varies a lot depending on what is included as a "normal" lifestyle. E.g: couple with 2.2 children at median income looking at retirement at 70 vs a single high income earner looking to retire at 50... and ... so ... on ...
On top of that we can also include other living costs ... but we started somewhere at average house price vs annual family income?
- Free university education, with a stipend payed to study (so no student loans, no need to save for the kids college fund).
- Social security net so you have to save less for that kind of thing.
- unemployment benefits, so less need to save for that
- No co pay on medical expenses.
- cheap and good childcare
- good public schools, cheapish private schools
US has state schools that have subsidized education and grants for low income. And we're talking internationally ranked schools like Berkeley, UCLA, U of Michigan, U of Virginia. And cheap loans to pay for it (plus high salaries to pay it back).
US Social Security is actually very generous with the max pension pay out ($3,300USD per month per person). Lots of American retire with nothing more than their SS pension. SSI is disability insurance if you can't work. You can also qualify for free Medicaid or Medicare if you're poor or can't work due to illness. Once you hit 65 you get very generous healthcare coverage.
Unemployment benefits are very generous. During the 2008 crash they were extended for 2 years at 80% of your normal up to a cap (like $4,000 per month in CA I believe). Even during normal times you can get 26 weeks. Welfare after that.
Medical maybe but in Europe, private insurance isn't uncommon along with premium payments and co-pays. So I wouldn't act like Europe is entirely "free" unless it's like the UK and you stick entirely with the public system. In the US your employer pays much of it, you can get HSA (tax free) money to help with out of pocket. It's a massive paperwork hassle and annoy bureaucracy I'll agree.
Childcare if it's subsidized sure.
The US has plenty of great public schools. Don't let the movies fool you. I lived in a small town in Michigan and the public schools were outstanding and entirely free.
I always chuckle when people say "the US has no safety net" when 50% of our taxes go to "safety net" programs.
high speed rail is overrated. Tickets cost as much or more than an airline ticket, but even going at 300km/h, it takes 2 or 3 times the amount of time to travel. Even more if you have to make frequent stops to embark and disembark passengers.
Most Euro countries have capital gains tax rate that's mostly flat and significantly under 50%. By the time the progressive income tax rate starts to exceed the near-flat capital gains tax rate, people start finding ways of converting their income to capital gains.
GP must think the maximum tax rate is reached at 5 million euro a year. In most Euro countries you're at 45% (combining both social security and income tax) at around 50k/year. Or actually close to 60% taxed if you count the 33% paid by the company in social security tax that is somewhat hidden to the employee.
In the well known tax haven where I live, Finland (sum of taxes and employee part of pension and other social security, 2020. YMMV due to municipalities setting different rates, deductions etc):
30% at 50k
40% at 100k
49.5% at 250k
52% at 500k
53.5% at 1000k
I have these handy in a spreadsheet I use to calculate.. things. (Nope, not making enough yet for special arrangements to make sense. edit: aside from the commonly used tricks my current employer already provides)
The average in Belgium is around 45k, in Germany 47k, France is ~40k. So aside from Belgium if by close to 60% you actually mean close to 50% then yeah you’re right…
If you want to do a comparable structure on this subject you need to set many parameters. There are some resources you can use for this, i.e. https://world-statistics.org/. Anyways, tax level is not the only indicator for the purchasing power in a population since it is often related to public services and common support programs.
It annoys me when people don't realize that just because Euro States are taxing at 50%, it doesn't mean that the US is cheaper. We're paying for the services that Europeans take for granted while someone else makes a profit off of these services. The US is more expensive and US citizens are getting less for their money.
For some. But at $200k, another 15% in tax is $30k. That covers healthcare (the extra not covered by employer insurance), childcare for 1 with a little left over.
And it's not just $30k. That same role is likely paid less in the EU. So it's more like $50-70k extra.
It depends, if you’re earning 200k (or even 100+) private health insurance is probably quite a bit cheaper than ~10%. Obviously for an average person you’re probably right.
The prices are artificially inflated by WEF connected funds. They pay above market price for properties, pricing out locals out of the market. This is part of Great Reset. The artificial financial crisis will force people who own homes to sell as well and by the target date of 2030, people will own nothing.
And what makes this an artificial financial crisis? As far as I see it, much of recent inflation is happening as an effect of all COVID financial support programs and the effects on supply system because of lockdowns and turning down factory production too aggressively. And now additionally the effects of sanctions and stopping of energy imports from Russia after Russian aggressive move into Ukraine. Hardly artificial except if you believe that Covid or Russian aggression is manufactured by a conspiracy of some rich people in the WEF...
And what will force current home owners to sell a home? Since in this country you loose more money renting than owning.
The NZ share market is a joke. Pretty much any serious global company that started in NZ moves away from NZ without even entering our sharemarket. There are a few exceptions of course, but by and large it's a dull, depressing market and there are very few incentives to invest in businesses rather than property.
NZ's tax regime also actively discourages investment outside of NZ. Holding growth shares in US tech stocks will result in annual wealth taxes, even if you hold and never sell. No wonder property is easier and more profitable.
Last year a friend was gloating at how they purchased 5 rental properties in the South Island (with mortgages of course). Yes a degree of rental properties is required but what we're doing in NZ is way out of proportion.