Million $ madness

Friends took us to an open home on Waiheke Island.

When they told us the price it was expected to sell for my farmer said,”How many stock units could you run on it?”

At the time we were buying a few hundred acres on our farm boundary for less than that house on a quarter acre section.

That was a few years ago. It seemed mad then and it’s got worse.

The average Auckland house now costs $1 million the price of the average house in Queenstown isn’t far behind and the rush to buy is spreading.

I walked past a real estate agent in Oamaru on Tuesday. Three quarters of the posters had  sold stickers across them. Of those still on the market, one house was had an asking price of $200 and something thousand, a couple were selling for $300 and something thousand and the rest were $400,000 plus.

Houses aren’t assets for most people. Unlike productive land they usually cost more than the owners can make from them.

Even if the value of properties is increasing, the owner only realises the gain when they sell and if they are able to buy somewhere else to live which costs less.

So why do we have this million dollar madness?

Demand has outpaced supply.

Solving that requires reducing demand and/or increasing supply.

Capital Gains Taxes haven’t stopped steep price rises elsewhere and Eric Crampton cautions that it’s too early to tell if Vancouver’s tax on foreign buyers has worked and anyone telling you otherwise is trying to sell you something.

If buying a house for eye-popping sums, is silly, what about the $1.35m paid for Colin McCahon’s painting The Canoe Tainui?

The artwork was owned by the late Tim and Sherrah Francis, and was on the market for the first time in 50 years as part of a sale of their extensive private collection last night.

They bought the painting in 1969 for $500 and took it with them on their diplomatic postings around the world. . . 

Paying so much for it now might look like million dollar madness.

But only time will tell if it’s a good investment and that might not be what motivated the buyer anyway. Not everyone who can afford fine art is looking to make money from it, sometimes the beauty of the buy is enough in the eye of the purchaser.

 

 

 

 

7 Responses to Million $ madness

  1. Andrei says:

    Houses aren’t assets for most people. Unlike productive land they usually cost more than the owners can make from them.

    No – you need a roof over your head and if you aren’t paying a mortgage you are paying rent.

    We are seeing a property bubble though – there will be a crash sooner or later and when it comes the absurd situation will arise where there will be lots of empty properties while people sleep on the streets

    And probably Government bailouts of the Banks as in 2008

  2. JC says:

    People have memories and they remember the crashes of 87 and 08 and how much savings was lost to dodgy companies.

    And people don’t actually see Kiwisaver type schemes as less risky.. after all, there’s huge political pressure put on it to divest from profitable investments like arms companies or companies that use cheap labour.

    So housing investment it is for the foreseeable future.

    JC

  3. Richard says:

    $ Million is not madness. Its the market. In 1980 I purchased a two bed roomed flat in the east end of London for UK 18,000. I sold it a year later to a friend for 30,000. He thought it was a good deal and so it was; five years later he sold it for 90,000. In the meantime, with my late wife we purchased a house in Cambridge (UK) for 85,000 selling it to the Anglican church in 1988 for 245,000, just before the market crashed at that time.It is now worth approx 1,250,000 according to neighbors who are still there.

    We did well in the market of capital gains, by chance and lucky. It could have gone the other way.

    Ele, houses are assets and desired by most people. The alternative, as Andre points out is to rent but in doing so you are still contributing to your landlord’s mortgage that could be your own.
    There are no short – term solutions except to recognize that the market will rise and fall So look for the bust shortly

    The general consensus is that this a 20 year cycle. Unfortunately the bottom never reaches the bottom level of the previous cycle

  4. Paul Scott says:

    Its interesting to contemplate what you would do or not do, if you were in Government.
    I would
    1/ Legislate to end urban boundaries
    2/ Compensate for a high rise zone in Auckland.
    3/ Rescind the RMA completely and build up common law .
    4/ Give Don Brash the task of a new Reserve Bank Act
    5/ Restrict Immigration to proven required skills, with emphasis on societal background
    6/ Deport Geoff Palmer from New Zealand and banish for ever.
    7/ Legislate against any form of race based appointments anywhere,

    My Government would be short lived, but money would start going back into productive assets, as houses reached equitable values.

  5. Paranormal says:

    Sorry Andrei I can’t see we’re i a bubble. Demand for housing in Auckland will always outstrip supply. When the next shock comes (and i think it will be soon) property values will only drop minimally before recovering again and carrying on their inexorable rise. It happened in 87 and again in the late 90’s early 2000’s and as recently as 2008.

    The only thing that might change the rate of increase would be massive reform in council planning/consenting and the RMA.

  6. Will says:

    I have to say Paul has some solid suggestions. Especially No.6

  7. Freddy says:

    The advantage of seeing things from a far perhaps but agree.
    1. Why do we always go for all or nothing, why can’t it be managed boundaries ?
    2. Yes
    3. Again all or nothing. The RMA was drafted when we were a piddling little back water where more people left than returned, that changed in 2008. Review reform.
    4. Good thinking.
    5. The thing is we don’t necessarily need skilled migrants, we need people who are willing to work and good people from good backgrounds like working also, it’s their family culture, I think we’re doing ok.
    6.-
    7. Nah, I like my bros, don’t want to see them get left behind.

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