Kieran's thoughts

Kieran Trass is a property market and property cycle analyst of local and offshore property markets (for over 20 years) and authored several books on the specialised topic of the property cycle both here in New Zealand and in Canada.

Here is an outline of Kieran Trass' letter to the Government.

When National came to power there was optimism of potential to influence housing and rental property supply to be able to meet the increased demand the wave of migrants is bringing to the property market.

Their policy to bring back interest deductibility certainly was helpful however alone it is inadequate to solve the looming housing problems. So, that optimism has now rapidly faded.

Whilst New Zealand benefits from strong net-migration, migrants must be provided housing at a reasonable cost and before long we will not be able to because of policy settings that are anti-property investment. 

The average small time property investor is currently struggling to be able to invest in a property to rent out and make the numbers work due in a large part to the onerous penalty of ring-fencing property losses against other income.

The outlook for supply of rental property looks set to deteriorate even further when DTI's are introduced by RBNZ. 

The National party must plan to meet the surging housing need because if not, rents will rapidly rise as a result of the looming rental stock shortage.

Kieran spent decades in property cycle research and has found that we now have an artificially suppressed property market where increasing demand cannot be met by supply. Property prices can also not respond to that basic economic principle of supply and demand due to Government and RBNZ policies.

At the same time, the cost to build has skyrocketed due to more expensive regulation and material costs. It is virtually no longer economic to bring newbuilds to the market due to the stagnation of property prices on the back of historically low property sales volumes.

Supply is no longer responding to the soaring demand due to being choked off by Government and RBNZ policies. We can expect a point in time before long where this will create immense volatility in rental and property prices. 

The extremely low level of property sales volumes (like we have had for the last few years) has rarely been seen in the last 30 years. It is unsustainable.

Consider that our population has increased by 45% since the early 1990's (when we also had a deep recession) yet today we have an unbelievably similar level of property sales volumes as back then.
Property sales volumes lead values and to attempt to interfere with that natural cycle of increasing and decreasing sales volumes and expect no negative consequences is naive.

The longer people's ability to buy a property is suppressed the more extreme the surge of sales volumes (and property prices) will be when that suppression loses its impact and it always does for one reason or another, sooner or later.

Suggestions to reduce the looming property market volatility are to urgently reconsider:
1) Removing ring-fencing of losses for investors to help Mum and Dad investors to again address the rental supply shortage.

2) Curtailing RBNZ's powers and focus on attempting to quell absolutely any property price growth. DTI's are a bridge too far and will lead to serious negative consequences for the property supply/demand equilibrium. That will have negative consequences for many New Zealanders.

3) Ending RBNZ's efforts to create instability in the vain attempt to create property price stability for everyone forever. It cannot be done. The property market is naturally cyclical and to overly interfere with that cycle by over regulation ALWAYS ENDS IN DISASTER SOONER OR LATER.

To conclude, a sensible Government would not try to curtail ALL property price growth or attempt to manipulate the entire property market for all time in the name of making ALL housing affordable. But a smart Government would direct its housing focus and significant resources to helping first-home-buyers get on the property ladder and let the rest of the property market find its own way as it does so quite efficiently cyclically.