The is case growing for RBNZ to hold rates in Oct & Nov; US inflation coming off the boil; McDermott says don't hike; Strong demand for NZ 30 yr bonds keeps rates down; Wanaka runaways apologise
Recent history shows that post recession the neutral cash rate settles lower than pre crisis. I think Sharon Zollner/Anz suggested RBNZ are too optimistic in their assessment of the neutral cash rate and that post Covid the neutral interest rate will start with a 1. That means 3% mortgage rates are here to stay for a long time.
The RBNZ are becoming compromised with their constant house price interference which has nothing to do with financial stability. The latest restrictions on owner occupiers are the latest gimmick.
A hard DTI (4*/5*) is the only tool to squash demand. This would be a kick in the swingers to the losers of this covid crisis, entrench a landed gentry and hasten a brain drain to Oz.
The Chch earthquakes have proven only a supply shock restrains house prices in NZ. The NPS-UD is all well and good but too slow (2024 implementation)
Ultimately, the Housing Crisis is more important than the Climate Crisis and cities should be allowed to sprawl and densify until affordability ratios hit 6:1. Heresy I know.
This would require interim emergency planning changes until 2024 as well as require all construction related temporary works visas to be granted border exemptions but there is no appetite for any of it.
Julian's right. The single most important thing the govt can do is significantly decrease the per dwelling cost of land, through both up and out zoning.
Surely we can't allow Auckland to continue to sprawl over surrounding A grade horticultural land at the risk of our future food security. Densify and build up, and get used to leaving dreams of a home with much of a garden behind
Land may be abundant on a per capita basis but only 15% of NZ’s total land area is particularly good for food production - and fertile horticultural land is being lost forever due to Auckland's sprawl. See
I agree that strategically located prime agri land should be preserved. NZ is a long thin country, so putting half of our population in the incredibly difficult geographical configuration which is Auckland seems like madness. it makes more sense to interconnect regional centers with high speed trains and fibre and allow for redistribution of the population to a more pleasant lifestyle if they wish.
If the Government could actually do what you're suggesting, why can't it do other things, like intensify housing (more apartments, fewer gardens). In AKL, even apartment prices are nuts, and there seems to be either a lack of willingness or a lack of ability to do much about it. My point is this: I don't think they can actually do what you're suggesting. I don't know why, exactly. One thing I heard from people who work in this area is that the govt and local govt can't do much planning, and private developers hold much too much sway about what and how gets developed. Again, don't know enough to be certain, but this seems to make sense as the explanation. Maybe others know more?
“When we express a graduate salary in terms of rents, we see the problem. According to a 2020 GradIreland.ie survey, the top graduate salary is around €35,000, which means a take-home pay of around €29,000 after tax. Glancing at the latest Daft report, average monthly rental prices for a one-bed apartment in Dublin range from a low of €1,359 in north Co Dublin to a high of €1,817 in Dublin 4.”
While it is true previous governments have failed to build enough houses when the baby boomers die there will be all those retirement home houses available for the general public.
It would be interesting to see any intention stats on young professionals and tradies planning to leave Aotearoa when the borders open in 2023. Or info about how realistic a better deal is for them overseas?
Thanks Cam. Good idea for a poll. Rents in Sydney and Melbourne have fallen sharply in the last couple of years, and wages are 30/40% higher. Only problem is the dwindling citizenship rights for NZers. (And avoid committing crimes there...)
It is a sad state of affairs. But we will leave as soon as the bubble can be maintained. The lack of citizenship rights is difficult. Queensland for example imposes a 7% duty on property purchases for kiwis not in the country. This destroyed hope of purchasing some thing to live when the bubble closed. We landed here in the town I grew up in before covid struck but have simply been priced out of ever living here. Our children born overseas will not have the right to pass on citizenship the millions who we imported since we left in the early 2000s will. But at the end of the day we need a stable enviroment and a home to call home. that is no longer an option for those of us who were caught out by timing.
Of course it’s safe with Government and bonds they can create money at will. Problem is it’s not being spent to improve the well-being of the people they’re elected to represent. Government is working for the elite and wealthy and whether it’s purposeful or they’ve been bamboozled by smoke and mirrors, threats or just ignorance there is really no excuse for these oversights in leadership while people suffer unnecessarily while being quoted lack of money and resources. Given the current actuarial assessments like GDP do not even include real input and costs it just looks sicker and sicker like the people and the environment being exploited for this method of accounting.
In the US, as I understand it, the only security allowed for a property is the property itself. So if the property value drops or you lose your job or whatever all you do is hand over the house keys to the bank and walk away.
So a landlord can't group all their rental properties using some as security for others. One house, one mortgage; not five houses, two mortgages.
But I would suggest a variation to this. The family home can have other securities up to say 20% of the mortgage value, allowing parents to support their kids without having to front up with any cash.
How banks would react would be interesting; probably starting with "What loopholes can we find?" through to a greater range of interest rates.
Agree the bright line test is also nonsensical to me as people now play all sorts of games with witch house that live in and actually encourages people to horde property for 10 years. If they really wanted to fix house there are drastic measures they could have taken. The push back from the property owners groups was unbelievable on the interest deductable changes.
I for one have long since lost faith in this government (& previous ones) to act upon what's in the best interest for future generational equality/equity. I'm a professional, moderately well-paid 33 year old who has paid $18,200 in rent over the past 12 months and that's inevitability going to rise soon. I just cannot get ahead in this broken 'economy' and it hurts.
It breaks my fragile heart that the thirst-quenching home ownership oasis - in the city/country I love - is but a shimmering mirage fading into the horizon and all I want is a little drink.
I have now almost given up on having a family of my own as stability is a huge concern for me. And I'm sick of being told I should move to AUS or the like - this is my Whare tūpuna, my ancestral home, my love.
It's due time for a shift and I understand that this will require all disadvantaged generations to rise up together. I'm In!
I actually put in submissions to the RBNZ against taking off the LVRs in the first place. They took them off and housing jumped another 20%. TOP didn't get 5% last time around it was all to emotive with zero policy Labour came in with a landslide despite not actually dong any thing about housing or tax like they had promised.
Oh I'm a huge advocate and supporter of TOP and have been for a long time. It's a no brainer for me as they are literally the only party with practical solutions to our biggest problems backed by global data and evidence based approach from experts in their respective fields...
In saying that; fighting politics with more politics is not going to encourage change - if anything the current political parties in charge will just dig their heels in deeper and hide behind the support of the the (current majority) voters who wish to keep the status quo so they can continue to line their ever growing pockets.
Instead we need to front foot this emergency (and that's exactly what it is) with a more human, community, social approach with voices so loud that there will be nowhere for the government to cower/hide.
And unfortunately TOP is not in a position to outwardly endorse this feet-to-street approach (for obvious reasons).
So yes, it is time for the majority of the NZ population who are greatly disadvantaged in this current economy to get mad and start a new movement. Time has passed for pussy-footing around in fear of upsetting our wealthy neighbors.
Like the age old saying goes "The definition of insanity is doing the same thing over and over again and expecting different results" Time to try something new.
If the Reserve Bank is going to target low inflation, then the index should include all spending, including rent, and house prices. It makes no sense to exclude house prices.
Im married with two grown up kids. My son just purchased a new townhouse off the plans to get into the market - supply issues and lockdowns have stalled the build. waiting waiting waiting. my wife and i have worked all our lives starting from very little to own our own house. it is the biggest asset we own. people in this column would like a revolution to relieve us of our asset. punishing my son and his partner with a DTI is kind of nasty. slapping my wife and i with a CGT..? really. all tax paid mortgage payments, starting way back at 22%. We could not afford to buy our house now on either LVR or DTI standards if we were starting out. even at 3%.
Is it the case that the younger generation would be happier if my wife and i were poor, and could not afford to look after ourselves in retirement? we have worked hard to increase our wealth. No doubt we will want to convert some of that equity to income in our retirement.
The fundamental issue is serviceability. i did some back of the envelope numbers for our serviceability on our original loan on our first house against what our son and his partner will pay now. the properties are very similar - starter town houses with same M2 and small patches of land. No difference in serviceability and relative mortgage cost. But vastly different circumstances. their risk is of course interest rates going up.
We simply must get that median income to house value ratio back down. Im happy with 6 as a medium term goal. Please RBNZ stay out of housing - youve done a superb job at price stabilisation since the crazy 80s and 90s - we need you to keep doing that.
It is a fine mess weve gotten ourselves into. but tinkering with DTIs, LGVs, CGT, all come with other negative consequences and usually dont do what you are intending them to do.
Its a supply issue, land and building. Free up land, reduce regulation choke points, build more houses, innovate. Support innovative access to housing such as long term leases/rentals and socially responsible rent-to-owns (with longer term secure ROIs), bulk house build systems, prefabs, small efficient houses (especially in urban areas). Yes supply chains are a nightmare atm, but that wont always be the case. We have one of the lowest population densities in the OECD, even in our cities, why then do we have this problem at all!
Yeah nice observation Jonathan... well firstly by not jumping off a cliff. Houses are overvalued in Akl, and NZ. But I'm old enough to remember negative equity, that was horrible for those that were over committed when prices fell. You'll note that i said in the medium term, it's not a simple fix. A sudden correction will affect those we least want to affect. That's why I focused on increasing lower cost alternatives and longer term equity builders so that we increase housing alternatives while we work on supply.
There is plenty I agree with you in your post. I think that DTI's and LVR's are blunt instruments that reduce the ability for first home buyers to get into the market. I also think successive governments have not addressed the supply issue. Serviceability has never been easier, but the deposit to get in has never been harder.
I don't think anyone wants you to be poor but your comment "we have worked hard to increase our wealth" is simplistic if you include home ownership in that equation. I commend you or anyone who has earned well, invested shrewdly and gained wealth in preparation for retirement but are you in a position to retire in comfort without converting any equity to income and the huge tax-free benefit you gain in doing so. I would imagine very very few in New Zealand are.
Simply owning your own home in this country has made you (and me) so so wealthy over the last twenty years that some sort of rebalance is overdue. Would it worry me if house prices fell 20% (back to where they were a year ago) not at all as I am still wealthy beyond what I ever imagined even 10 years ago. I have done less work (including being unemployed for a while) over the last year yet am so much richer than I was 12 months ago.
Thank you for that eloquent response Grant. And that's all the 'disadvantaged' (who do not own a house) want. A fairer playing ground where we can be optimistic about our futures here in NZ and not dread the thought of shifting all we have ever known to foreign shores in hope of 'getting ahead'.
And If that means we tax housing to flatten the equity rises or perhaps even brings the median price down as you said then this is a positive thing for the wider community along with every other NZ after us. Housing gains are not something to be proud of anymore and we need to change that stigma.
As Bernard says NZ doesn't have an economy it has a housing market and that market is getting so fat it's making people sick. Time for change.
I agree Grant. Another discussion re using houses as our key investment. I love that sharsies and the like are providing options and I would love it if our kwisaver pot overtakes the Superfund. Tjese are good signs..
Firstly are you the NZFirst, Whangerei candidate - Dr David Wilson?
Secondly, No, we "The younger generation" would not in fact be happier if you and your wife were poor although we would indeed like to use some of that 'retirement equity' that your house earned (Not You) to ensuring a more fair playing field for future generations of Aotearoa NZ. What I'm of course referring to is the fact that NZ needs (and I mean NEEDS) some form of Land/Housing Tax. Weather this be a CGT or a blanket land/housing tax of say 1-2%, something needs to be done. This tax will then be directly used to support housing infrastructure and supply (among many other general population housing related costs).
I'm assuming you bought your house in the mid 80's (given the "22%" interest you stated)? Let's say your house cost $80,000 to buy in 1985 and at today's value is worth $1M (i know, I'm being conservative here) - that's a whopping $920,000 or (1150% increase) in capital gains that you did next to nothing for - keep in mind that housing is a right and should Never be used as an investment.
So yes, I, along with many other 'younger generationals' think you should most definitely have to contribute some (a tiny portion) of those 'non-earned' capital gains (upon selling your house) into ensuring this country is well set-up for the generations long after your gone.
By the same token Danny if Id invested in Kiwisaver growth fund over the same period it would've beaten that increase... Secondly would you return my so called unearned equity tax if my house dropped by 20%? I know this is hard to believe but because housing has lost touch with the real value of land plus buildings - that is a bubble. I am happy for a correction to bring it back to some kind of reality. But remember those, like my son and his partner, might find their equity gone. So be careful what you wish for.
I wish we had the likes of Simplicity Kiwisaver when i was looking to settle down and build wealth. Those selling shares in the 80s and 90s were akin to snake oil salesmen, and yes there were a couple of crashes back then too. Not to mention the GFC 2008 which hurt homeowners. Watch this https://youtu.be/5FKWy5m11q4 - Sam Stubbs explaining the power of compound interest and a diversified portfolio.
I think you've got the wrong target if you want to reduce inequality. And trust me you do not want a crew of Baby Boomers relying on the working age population to support them.
David, You're missing a vital point here, and that is; Property (residential) investment is a NON-PRODUCTIVE asset. It's a dead asset that should only be used to house the population - as a home! where all nz'ers can be safe, warm and dry.
Before you contest this, let's look at the definition of 'productivity'. "Productivity is a measure of output from a production process, per unit of input. A productive capital investment therefore enables more future goods and services to be produced per unit of input" - Housing does nothing of the sort.
Therefore, even if ones Kiwisaver growth fund has increased in line with housing over the years - it is a moot point as growth funds invest in PRODUCTIVE ASSETS. For example my KS fund with Milford Assets invests my hard earned savings heavily into Fisher & Paykel Healthcare which I'm chuffed about as this is a productive asset - producing products (i.e respirators) that benefit many others.
As for your son and his partner (along with many of my friends), let's say there was a 20% drop in house prices (so prices went back to where they were mid last year) and they continued to earn as they are now. Would they be able to cover mortgage payments? Of course they would, the banks have stress tested their incomes. So yes their 'asset' has dropped in value on paper -But that doesn't matter to them as they bought the house to live in, right? Not a get rich quick scheme to flick off in hopes of gaining some unearned capital?
The markets will eventually get back to where they were when they bought the house - although this time in 5-10 years (Not 5-10 months).
House prices Must drop in order for wages to have any chance of catching up (or indeed narrowing the grand canyon of a gap).
But lets be real, Buying property during a bubble is always going to be a risk. And yes, there may well be some who will be negatively impacted if house prices dropped but we must broaden our focus if we are going to get this country back onto more stable grounds for all, It's time for older generations (and many young) to take their blinkers off and think about issues/solutions that don't just benefit themselves and their brood. We as NZers have lost sight of doing whats best for the future community as a whole.
We keep borrowing from future generations to line our pockets and leave them with all our debts. It's got to stop.
I pretty much agree with everything you've said. My point was to illustrate that I'd rather investment was in productive activities and that you at least now have better options, than we did. And unfortunately housing has been many kiwis go-to for lack of better options. That's what needs to change and I see good signs there. My original post listed some positive alternatives to address the housing crisis. This is where you and I disagree I think.
Was wondering what your take is on the Chinese real estate developer 'EverGrande'.
It's estimated that they've now managed to rack up more than $300B USD in debt. Rumors are swirling that Evergrande may not even have enough remaining capital to service the interest payments on their loans nevermind paying down their principals. Right now, Evergrande has $200B~ in assets, and $300B in unserviced debt.
Seeing as Chinese holds 15% of all global debt, weak economic involvement over the past 18 months and yet all time high stocks, huge inflation and disconnected markets.. What could this mean on the global economy? Is this maybe the tipping point of a recession?
Thanks Adrian. Definitely worth watching. But I'm wary of predicting collapse in China. The Government can knock heads together and force various parties to take the haircuts needed to start again. Except for the party boss(es). There's no accountability for them and ultimately it's the poor Chinese consumer/saver who pays the price with low returns on bank savings accounts.
Bernard..😂money is and always has been a social construct to keep wealth in the wealthy hands and lock out the peasants and proletariat particularly women. It is made up of nothing and we all continue to let this occur despite the consequences upon ourselves our loved ones and countries. We have all been conditioned into believing it’s a scientific fact of nature which it absolutely is not and has and can be redesigned and reallocated to work for us rather than only a few who wish to hoard and abuse us all with this imaginary thing that gives them power over the rest of us.It simply takes the will to do so which none of our major political parties have. It is possibly the biggest con ever perpetuated on humankind which some American leaders were warning about as early as early last century and possibly explains why of late bankers have disappeared from politics or jumped out windows. It has no relationship to inputs or outputs or reality it is simply handed out to the richest amongst us and they do not even have to pay tax on it for the privilege but we (the poor)of course have to pay these vast sums back via our taxes of course to legitimise the vast continuous wealth transfer to them on a never ending money go round as rational to rely upon for public good or well-being and human and legal rights for all as visiting a circus and going on the ride as a guarantee.😂
Oh and they will keep charging interest on these made up computer generated figures in order to continue the facade that it is in any way real while in reality if things are made tough for us we remain exhausted and distracted by the magicians tricks.
"Do young renters and their parents, who are now the first resort for help with deposits and guarantees, not understand this upward spiral is politically, economically and socially unsustainable in the long run?"...
But is it?
I wonder if NZ is slowly going in the direction of the massive wealth concentration that we see in the US. Maybe "ideology" will allow the young renters to accept their fate?. Watching the movie "Nomadland" (US, 2020), I thought that can it be that that's the future and most will accept it, as it happens currently in the US where hundreds of thousands live in tents in the streets of cities like Philadelphia and Los Angeles. Or as in the movie, thousands live in trailers and campervans all over camps in America, with even the poor retirees working at places like "Amazon CamperForce".
I wondered Bernard, if you had the power to completely overhaul the system, in order to design a better outcome for MOST of New Zealanders (and not only the few), what would you do? What would you consider the correct measures to take?
As a parent I don't regret having children but I regret having children for the world they might inherit. I too see the insidious creep of the inequality in N.Z. I hadn't been down to the South Island for a road trip in more than 20 years and on this occasion I did notice from the motorway passing by some permanency in camp grounds dwellers as they had don decks with fairy lights and flower pots.
I'd get a political party to propose the following at the next election and hope they got enough votes to convince both major parties to sign up to it:
Here it is:
That's why I'm a fan of a 0.3% annual land tax on unimproved value of all non-iwi land to fund at least $200b of investment in affordable medium-density housing and public transport/cycling/walking infrastructure inside the cities' current envelope over 20 years. Make the tax 3% for residential-zoned land without houses on it.
Ensure the $3b a year of revenues (plus the eventually forgone $4b/year spending on accommodation supplements and rent subsidies) is used to service $300b of debt maturing from 2050 that is issued, managed and spent by an independently legislated-for Affordable Housing and Climate Infrastructure Commission. It would replace Waka Kotahi/Kainga Ora/Infrastructure Commission and Climate Commission.
Set it targets in law of zero net carbon emissions from housing and transport by 2050 and housing costs of three times income to buy and less than 30% of disposable income to rent by 2050. Make it a Reserve Bank/Public Finance Act/RMA Act style cross-party deal legislated for decades to come. And then let the Commission get on with it, with oversight and the ability to sack the Commissioner who fails to get on target. Job done...
On the [undeveloped] land tax issue, it hurts me deeply to see sections of beautiful land in the area where I live (Bay of Islands, around Kerikeri), mostly around 3,000 sqm, which is used to put ONE HOUSE on it. Just One house on 3,000 sqm. A real pity.
Dozens of sections being sold recently with those characteristics.
I have been listening your analysis and reading articles since last couples years, and i am noticing that even you've lost hope since last 3-4 months and started agreeing that this housing market is too big fail. That is really sad! Just like other readers and listeners, i have paid close to $30k rent in last year which is probably less than my landlord's mortgage commitments. I have one kid and my wife is pregnant with another one. We are seriously thinking of selling my wife's well set business and quitting my job to move overseas even we can afford one but cannot justify it.
However, i do think that there is no way prices going to double in next 7-10 years from current level if the wages don't go up significantly.
I feel for you and your family. I too am in a similar boat. This insane pyramid scheme we call housing has to change. Please. Take hope that all others in the same boat are near breaking point and are tiring of seeing zero responsibility from government (along with the wider predominant voting population) and are ready to revolt.
I think mass protests up and down the country are required (and just a start) to illicit positive change before we all throw in the towel and migrate to 'brighter' shores - this should always be a last result not a means to an end.
You and your children should not be ejected from NZ society because of the naive misdeeds of a single generation.
Thanks Danny. Agree with you, mass protests up and down the country are required to encourage positive change. We have to try otherwise nothing will change.
Normally I thought low salaries will be a natural obstacle to a run-away market prices in housing, but I am astonished at what is happening.
As Bernard pointed out, neither Labour, nor National will hurt their middle-class (old) housing base by causing a price crash. Their votes will suffer. And a huge proportion of NZlanders own their home, seems to me --I might be wrong. More importantly, they are the voters and have more access to centers of powers. The poor do not vote.
COVID19, "quantitative easing", and policies taken by the last governments ended up in this catastrophe. Seen people around with not too fancy jobs, getting credits for 700K, 800K... or close to 1 million which astonishes me.
If and when interest rates go up people will find their mortgage payments are too much for them to manage through their rental income. If they try to sell their expected price will not be realised and might not cover their mortgage, In NZ you cannot hand in the keys to your house back to the Bank. That debt remains on the Banks books. Even if they don’t want to sell but end up with no equity in their home the Banks can ask the mortgagee to pay them more money so that the debt to equity ratio is maintained. All this cannot last but as the Banks have been declared to be too big too fail I would expect that in such circumstances the Government will guarantee 50% of all Mortgages. A sort of debt jubilee. The only other way the young may possibly be able to buy a house is say three or more friends buy a house together. Three incomes might be able to service it. Yes, they might fall out but each interest could be sold. Messy I know but possible.
Bernard, I've pinched some of your ideas & added some of my own:
1) All the neo lib economic policies of the last 36 years are redundant in our COVID & climate change environment.
2) The government needs to take back control of the Reserve Bank & once again make it the arm of government's monetary policy, as it was for the 55 years from 1934.
3) For future QE, the government bypasses the trading banks & fund managers & instructs the RBNZ to create new money & put it straight into the government's a/c with the RBNZ. That way, the government controls where the new money is spent, eg. COVID wage subsidies, state housing, infrastructure, etc. That creates valuable new assets without a house price explosion.
4) The Ministry of Works is reformed & becomes the government's lead contractor for all infrastructure projects.
5) Government embarks on an industrial scale state house building programme, using prefab construction, tiny houses & any other creative measure required to build at scale & at pace. Rent to buy schemes agressively pursued.
6) The family benefit is reinstated, along with the State Advances Corporation so that working families can raise a house deposit through capitalisation & plug into affordable mortgages.
7) The government amends/ignores Douglas's Public Finance Act & borrows at an effective zero interest rate, whatever is required to turbo charge the huge infrastructure deficit which has arisen because of 36 years of neo lib economics. Any increased debt on the government's balance sheet is offset by the new assets created by the debt/QE money created.
All of the above ideas were successfully implemented during our post WW2 years.
The Don Brash invented inflation targeting should be seriously reviewed as it appears to be very outdated in world with significant disintermediation (Online Stores), Globalisation (Cheap offshore manufacturing) the Gig economy (cheap Labour) etc. To run most major global economies with the key objective to keep CPI in 0-2% or 1-3% band is insane. Why not accept that there is not inflation and allow small amounts of deflation, this should not cause debt defaults.
House prices are essentially a Bond as they have become an investment asset class rather than a home to live in.
The key issue is that we don't have recessions any more, if there looks like one then we just follow what Greenspan did and print money or lower cash rates. The average 40 year old has not seen a true recession, so we all just keep leveraging.
If you have put this question directly to Grant Robertson, what was his response? "How can an economy and society be sustainable in the long run when its Government settings are actively driving wealth and passive income to a consistently smaller and smaller group of consumers and voters? " Please and thank you. JG
Recent history shows that post recession the neutral cash rate settles lower than pre crisis. I think Sharon Zollner/Anz suggested RBNZ are too optimistic in their assessment of the neutral cash rate and that post Covid the neutral interest rate will start with a 1. That means 3% mortgage rates are here to stay for a long time.
The RBNZ are becoming compromised with their constant house price interference which has nothing to do with financial stability. The latest restrictions on owner occupiers are the latest gimmick.
A hard DTI (4*/5*) is the only tool to squash demand. This would be a kick in the swingers to the losers of this covid crisis, entrench a landed gentry and hasten a brain drain to Oz.
The Chch earthquakes have proven only a supply shock restrains house prices in NZ. The NPS-UD is all well and good but too slow (2024 implementation)
Ultimately, the Housing Crisis is more important than the Climate Crisis and cities should be allowed to sprawl and densify until affordability ratios hit 6:1. Heresy I know.
This would require interim emergency planning changes until 2024 as well as require all construction related temporary works visas to be granted border exemptions but there is no appetite for any of it.
In short, nothing will change.
Only 6? Why not 2-3?
The Overton window. 6 is doable in a decade or so. 2-3 would take at least a generation, maybe more
Fair point. Bit sad for that generation though. Think they're happy to 'take one for the team'
Really unfortunate but the rational thing for anyone under 40 who doesn’t own property is to get on the first thing smoking to Oz
Julian's right. The single most important thing the govt can do is significantly decrease the per dwelling cost of land, through both up and out zoning.
Surely we can't allow Auckland to continue to sprawl over surrounding A grade horticultural land at the risk of our future food security. Densify and build up, and get used to leaving dreams of a home with much of a garden behind
Yes we can. NZ is 260sqkm, less than 10k is urban. Land is abundant.
Land may be abundant on a per capita basis but only 15% of NZ’s total land area is particularly good for food production - and fertile horticultural land is being lost forever due to Auckland's sprawl. See
https://farmersweekly.co.nz/section/horticulture/view/call-to-protect-productive-land
I agree that strategically located prime agri land should be preserved. NZ is a long thin country, so putting half of our population in the incredibly difficult geographical configuration which is Auckland seems like madness. it makes more sense to interconnect regional centers with high speed trains and fibre and allow for redistribution of the population to a more pleasant lifestyle if they wish.
If the Government could actually do what you're suggesting, why can't it do other things, like intensify housing (more apartments, fewer gardens). In AKL, even apartment prices are nuts, and there seems to be either a lack of willingness or a lack of ability to do much about it. My point is this: I don't think they can actually do what you're suggesting. I don't know why, exactly. One thing I heard from people who work in this area is that the govt and local govt can't do much planning, and private developers hold much too much sway about what and how gets developed. Again, don't know enough to be certain, but this seems to make sense as the explanation. Maybe others know more?
This from Ireland
“When we express a graduate salary in terms of rents, we see the problem. According to a 2020 GradIreland.ie survey, the top graduate salary is around €35,000, which means a take-home pay of around €29,000 after tax. Glancing at the latest Daft report, average monthly rental prices for a one-bed apartment in Dublin range from a low of €1,359 in north Co Dublin to a high of €1,817 in Dublin 4.”
While it is true previous governments have failed to build enough houses when the baby boomers die there will be all those retirement home houses available for the general public.
It would be interesting to see any intention stats on young professionals and tradies planning to leave Aotearoa when the borders open in 2023. Or info about how realistic a better deal is for them overseas?
Thanks Cam. Good idea for a poll. Rents in Sydney and Melbourne have fallen sharply in the last couple of years, and wages are 30/40% higher. Only problem is the dwindling citizenship rights for NZers. (And avoid committing crimes there...)
It is a sad state of affairs. But we will leave as soon as the bubble can be maintained. The lack of citizenship rights is difficult. Queensland for example imposes a 7% duty on property purchases for kiwis not in the country. This destroyed hope of purchasing some thing to live when the bubble closed. We landed here in the town I grew up in before covid struck but have simply been priced out of ever living here. Our children born overseas will not have the right to pass on citizenship the millions who we imported since we left in the early 2000s will. But at the end of the day we need a stable enviroment and a home to call home. that is no longer an option for those of us who were caught out by timing.
Of course it’s safe with Government and bonds they can create money at will. Problem is it’s not being spent to improve the well-being of the people they’re elected to represent. Government is working for the elite and wealthy and whether it’s purposeful or they’ve been bamboozled by smoke and mirrors, threats or just ignorance there is really no excuse for these oversights in leadership while people suffer unnecessarily while being quoted lack of money and resources. Given the current actuarial assessments like GDP do not even include real input and costs it just looks sicker and sicker like the people and the environment being exploited for this method of accounting.
In the US, as I understand it, the only security allowed for a property is the property itself. So if the property value drops or you lose your job or whatever all you do is hand over the house keys to the bank and walk away.
So a landlord can't group all their rental properties using some as security for others. One house, one mortgage; not five houses, two mortgages.
But I would suggest a variation to this. The family home can have other securities up to say 20% of the mortgage value, allowing parents to support their kids without having to front up with any cash.
How banks would react would be interesting; probably starting with "What loopholes can we find?" through to a greater range of interest rates.
Agree the bright line test is also nonsensical to me as people now play all sorts of games with witch house that live in and actually encourages people to horde property for 10 years. If they really wanted to fix house there are drastic measures they could have taken. The push back from the property owners groups was unbelievable on the interest deductable changes.
I for one have long since lost faith in this government (& previous ones) to act upon what's in the best interest for future generational equality/equity. I'm a professional, moderately well-paid 33 year old who has paid $18,200 in rent over the past 12 months and that's inevitability going to rise soon. I just cannot get ahead in this broken 'economy' and it hurts.
It breaks my fragile heart that the thirst-quenching home ownership oasis - in the city/country I love - is but a shimmering mirage fading into the horizon and all I want is a little drink.
I have now almost given up on having a family of my own as stability is a huge concern for me. And I'm sick of being told I should move to AUS or the like - this is my Whare tūpuna, my ancestral home, my love.
It's due time for a shift and I understand that this will require all disadvantaged generations to rise up together. I'm In!
So true. If you would like to be involved in organising a social 'movement' let's talk
I actually put in submissions to the RBNZ against taking off the LVRs in the first place. They took them off and housing jumped another 20%. TOP didn't get 5% last time around it was all to emotive with zero policy Labour came in with a landslide despite not actually dong any thing about housing or tax like they had promised.
Oh I'm a huge advocate and supporter of TOP and have been for a long time. It's a no brainer for me as they are literally the only party with practical solutions to our biggest problems backed by global data and evidence based approach from experts in their respective fields...
In saying that; fighting politics with more politics is not going to encourage change - if anything the current political parties in charge will just dig their heels in deeper and hide behind the support of the the (current majority) voters who wish to keep the status quo so they can continue to line their ever growing pockets.
Instead we need to front foot this emergency (and that's exactly what it is) with a more human, community, social approach with voices so loud that there will be nowhere for the government to cower/hide.
And unfortunately TOP is not in a position to outwardly endorse this feet-to-street approach (for obvious reasons).
So yes, it is time for the majority of the NZ population who are greatly disadvantaged in this current economy to get mad and start a new movement. Time has passed for pussy-footing around in fear of upsetting our wealthy neighbors.
Like the age old saying goes "The definition of insanity is doing the same thing over and over again and expecting different results" Time to try something new.
If the Reserve Bank is going to target low inflation, then the index should include all spending, including rent, and house prices. It makes no sense to exclude house prices.
This.
Im married with two grown up kids. My son just purchased a new townhouse off the plans to get into the market - supply issues and lockdowns have stalled the build. waiting waiting waiting. my wife and i have worked all our lives starting from very little to own our own house. it is the biggest asset we own. people in this column would like a revolution to relieve us of our asset. punishing my son and his partner with a DTI is kind of nasty. slapping my wife and i with a CGT..? really. all tax paid mortgage payments, starting way back at 22%. We could not afford to buy our house now on either LVR or DTI standards if we were starting out. even at 3%.
Is it the case that the younger generation would be happier if my wife and i were poor, and could not afford to look after ourselves in retirement? we have worked hard to increase our wealth. No doubt we will want to convert some of that equity to income in our retirement.
The fundamental issue is serviceability. i did some back of the envelope numbers for our serviceability on our original loan on our first house against what our son and his partner will pay now. the properties are very similar - starter town houses with same M2 and small patches of land. No difference in serviceability and relative mortgage cost. But vastly different circumstances. their risk is of course interest rates going up.
We simply must get that median income to house value ratio back down. Im happy with 6 as a medium term goal. Please RBNZ stay out of housing - youve done a superb job at price stabilisation since the crazy 80s and 90s - we need you to keep doing that.
It is a fine mess weve gotten ourselves into. but tinkering with DTIs, LGVs, CGT, all come with other negative consequences and usually dont do what you are intending them to do.
Its a supply issue, land and building. Free up land, reduce regulation choke points, build more houses, innovate. Support innovative access to housing such as long term leases/rentals and socially responsible rent-to-owns (with longer term secure ROIs), bulk house build systems, prefabs, small efficient houses (especially in urban areas). Yes supply chains are a nightmare atm, but that wont always be the case. We have one of the lowest population densities in the OECD, even in our cities, why then do we have this problem at all!
How do you reduce the median income to house value ratio back down to 6, without dropping the value of your house/retirement plan in half?
Yeah nice observation Jonathan... well firstly by not jumping off a cliff. Houses are overvalued in Akl, and NZ. But I'm old enough to remember negative equity, that was horrible for those that were over committed when prices fell. You'll note that i said in the medium term, it's not a simple fix. A sudden correction will affect those we least want to affect. That's why I focused on increasing lower cost alternatives and longer term equity builders so that we increase housing alternatives while we work on supply.
There is plenty I agree with you in your post. I think that DTI's and LVR's are blunt instruments that reduce the ability for first home buyers to get into the market. I also think successive governments have not addressed the supply issue. Serviceability has never been easier, but the deposit to get in has never been harder.
I don't think anyone wants you to be poor but your comment "we have worked hard to increase our wealth" is simplistic if you include home ownership in that equation. I commend you or anyone who has earned well, invested shrewdly and gained wealth in preparation for retirement but are you in a position to retire in comfort without converting any equity to income and the huge tax-free benefit you gain in doing so. I would imagine very very few in New Zealand are.
Simply owning your own home in this country has made you (and me) so so wealthy over the last twenty years that some sort of rebalance is overdue. Would it worry me if house prices fell 20% (back to where they were a year ago) not at all as I am still wealthy beyond what I ever imagined even 10 years ago. I have done less work (including being unemployed for a while) over the last year yet am so much richer than I was 12 months ago.
Thank you for that eloquent response Grant. And that's all the 'disadvantaged' (who do not own a house) want. A fairer playing ground where we can be optimistic about our futures here in NZ and not dread the thought of shifting all we have ever known to foreign shores in hope of 'getting ahead'.
And If that means we tax housing to flatten the equity rises or perhaps even brings the median price down as you said then this is a positive thing for the wider community along with every other NZ after us. Housing gains are not something to be proud of anymore and we need to change that stigma.
As Bernard says NZ doesn't have an economy it has a housing market and that market is getting so fat it's making people sick. Time for change.
Agree Danny, maybe not so much on the taxing housing bit - prefer carrots to sticks
Thankyou David and Danny for a spirited and reasoned discussion that steered clear of the toxicity we see on other sites. Much appreciated.
I agree Grant. Another discussion re using houses as our key investment. I love that sharsies and the like are providing options and I would love it if our kwisaver pot overtakes the Superfund. Tjese are good signs..
Firstly are you the NZFirst, Whangerei candidate - Dr David Wilson?
Secondly, No, we "The younger generation" would not in fact be happier if you and your wife were poor although we would indeed like to use some of that 'retirement equity' that your house earned (Not You) to ensuring a more fair playing field for future generations of Aotearoa NZ. What I'm of course referring to is the fact that NZ needs (and I mean NEEDS) some form of Land/Housing Tax. Weather this be a CGT or a blanket land/housing tax of say 1-2%, something needs to be done. This tax will then be directly used to support housing infrastructure and supply (among many other general population housing related costs).
I'm assuming you bought your house in the mid 80's (given the "22%" interest you stated)? Let's say your house cost $80,000 to buy in 1985 and at today's value is worth $1M (i know, I'm being conservative here) - that's a whopping $920,000 or (1150% increase) in capital gains that you did next to nothing for - keep in mind that housing is a right and should Never be used as an investment.
So yes, I, along with many other 'younger generationals' think you should most definitely have to contribute some (a tiny portion) of those 'non-earned' capital gains (upon selling your house) into ensuring this country is well set-up for the generations long after your gone.
By the same token Danny if Id invested in Kiwisaver growth fund over the same period it would've beaten that increase... Secondly would you return my so called unearned equity tax if my house dropped by 20%? I know this is hard to believe but because housing has lost touch with the real value of land plus buildings - that is a bubble. I am happy for a correction to bring it back to some kind of reality. But remember those, like my son and his partner, might find their equity gone. So be careful what you wish for.
I wish we had the likes of Simplicity Kiwisaver when i was looking to settle down and build wealth. Those selling shares in the 80s and 90s were akin to snake oil salesmen, and yes there were a couple of crashes back then too. Not to mention the GFC 2008 which hurt homeowners. Watch this https://youtu.be/5FKWy5m11q4 - Sam Stubbs explaining the power of compound interest and a diversified portfolio.
I think you've got the wrong target if you want to reduce inequality. And trust me you do not want a crew of Baby Boomers relying on the working age population to support them.
David, You're missing a vital point here, and that is; Property (residential) investment is a NON-PRODUCTIVE asset. It's a dead asset that should only be used to house the population - as a home! where all nz'ers can be safe, warm and dry.
Before you contest this, let's look at the definition of 'productivity'. "Productivity is a measure of output from a production process, per unit of input. A productive capital investment therefore enables more future goods and services to be produced per unit of input" - Housing does nothing of the sort.
Therefore, even if ones Kiwisaver growth fund has increased in line with housing over the years - it is a moot point as growth funds invest in PRODUCTIVE ASSETS. For example my KS fund with Milford Assets invests my hard earned savings heavily into Fisher & Paykel Healthcare which I'm chuffed about as this is a productive asset - producing products (i.e respirators) that benefit many others.
See the difference.
As for your son and his partner (along with many of my friends), let's say there was a 20% drop in house prices (so prices went back to where they were mid last year) and they continued to earn as they are now. Would they be able to cover mortgage payments? Of course they would, the banks have stress tested their incomes. So yes their 'asset' has dropped in value on paper -But that doesn't matter to them as they bought the house to live in, right? Not a get rich quick scheme to flick off in hopes of gaining some unearned capital?
The markets will eventually get back to where they were when they bought the house - although this time in 5-10 years (Not 5-10 months).
House prices Must drop in order for wages to have any chance of catching up (or indeed narrowing the grand canyon of a gap).
But lets be real, Buying property during a bubble is always going to be a risk. And yes, there may well be some who will be negatively impacted if house prices dropped but we must broaden our focus if we are going to get this country back onto more stable grounds for all, It's time for older generations (and many young) to take their blinkers off and think about issues/solutions that don't just benefit themselves and their brood. We as NZers have lost sight of doing whats best for the future community as a whole.
We keep borrowing from future generations to line our pockets and leave them with all our debts. It's got to stop.
I pretty much agree with everything you've said. My point was to illustrate that I'd rather investment was in productive activities and that you at least now have better options, than we did. And unfortunately housing has been many kiwis go-to for lack of better options. That's what needs to change and I see good signs there. My original post listed some positive alternatives to address the housing crisis. This is where you and I disagree I think.
Hey Bernard,
Was wondering what your take is on the Chinese real estate developer 'EverGrande'.
It's estimated that they've now managed to rack up more than $300B USD in debt. Rumors are swirling that Evergrande may not even have enough remaining capital to service the interest payments on their loans nevermind paying down their principals. Right now, Evergrande has $200B~ in assets, and $300B in unserviced debt.
Seeing as Chinese holds 15% of all global debt, weak economic involvement over the past 18 months and yet all time high stocks, huge inflation and disconnected markets.. What could this mean on the global economy? Is this maybe the tipping point of a recession?
Cheers
Thanks Adrian. Definitely worth watching. But I'm wary of predicting collapse in China. The Government can knock heads together and force various parties to take the haircuts needed to start again. Except for the party boss(es). There's no accountability for them and ultimately it's the poor Chinese consumer/saver who pays the price with low returns on bank savings accounts.
Bernard..😂money is and always has been a social construct to keep wealth in the wealthy hands and lock out the peasants and proletariat particularly women. It is made up of nothing and we all continue to let this occur despite the consequences upon ourselves our loved ones and countries. We have all been conditioned into believing it’s a scientific fact of nature which it absolutely is not and has and can be redesigned and reallocated to work for us rather than only a few who wish to hoard and abuse us all with this imaginary thing that gives them power over the rest of us.It simply takes the will to do so which none of our major political parties have. It is possibly the biggest con ever perpetuated on humankind which some American leaders were warning about as early as early last century and possibly explains why of late bankers have disappeared from politics or jumped out windows. It has no relationship to inputs or outputs or reality it is simply handed out to the richest amongst us and they do not even have to pay tax on it for the privilege but we (the poor)of course have to pay these vast sums back via our taxes of course to legitimise the vast continuous wealth transfer to them on a never ending money go round as rational to rely upon for public good or well-being and human and legal rights for all as visiting a circus and going on the ride as a guarantee.😂
Oh and they will keep charging interest on these made up computer generated figures in order to continue the facade that it is in any way real while in reality if things are made tough for us we remain exhausted and distracted by the magicians tricks.
"Do young renters and their parents, who are now the first resort for help with deposits and guarantees, not understand this upward spiral is politically, economically and socially unsustainable in the long run?"...
But is it?
I wonder if NZ is slowly going in the direction of the massive wealth concentration that we see in the US. Maybe "ideology" will allow the young renters to accept their fate?. Watching the movie "Nomadland" (US, 2020), I thought that can it be that that's the future and most will accept it, as it happens currently in the US where hundreds of thousands live in tents in the streets of cities like Philadelphia and Los Angeles. Or as in the movie, thousands live in trailers and campervans all over camps in America, with even the poor retirees working at places like "Amazon CamperForce".
I wondered Bernard, if you had the power to completely overhaul the system, in order to design a better outcome for MOST of New Zealanders (and not only the few), what would you do? What would you consider the correct measures to take?
As a parent I don't regret having children but I regret having children for the world they might inherit. I too see the insidious creep of the inequality in N.Z. I hadn't been down to the South Island for a road trip in more than 20 years and on this occasion I did notice from the motorway passing by some permanency in camp grounds dwellers as they had don decks with fairy lights and flower pots.
I'd get a political party to propose the following at the next election and hope they got enough votes to convince both major parties to sign up to it:
Here it is:
That's why I'm a fan of a 0.3% annual land tax on unimproved value of all non-iwi land to fund at least $200b of investment in affordable medium-density housing and public transport/cycling/walking infrastructure inside the cities' current envelope over 20 years. Make the tax 3% for residential-zoned land without houses on it.
Ensure the $3b a year of revenues (plus the eventually forgone $4b/year spending on accommodation supplements and rent subsidies) is used to service $300b of debt maturing from 2050 that is issued, managed and spent by an independently legislated-for Affordable Housing and Climate Infrastructure Commission. It would replace Waka Kotahi/Kainga Ora/Infrastructure Commission and Climate Commission.
Set it targets in law of zero net carbon emissions from housing and transport by 2050 and housing costs of three times income to buy and less than 30% of disposable income to rent by 2050. Make it a Reserve Bank/Public Finance Act/RMA Act style cross-party deal legislated for decades to come. And then let the Commission get on with it, with oversight and the ability to sack the Commissioner who fails to get on target. Job done...
Thoughts?
Magnificent.
On the [undeveloped] land tax issue, it hurts me deeply to see sections of beautiful land in the area where I live (Bay of Islands, around Kerikeri), mostly around 3,000 sqm, which is used to put ONE HOUSE on it. Just One house on 3,000 sqm. A real pity.
Dozens of sections being sold recently with those characteristics.
Who wins doing this...? Not sure.
I have been listening your analysis and reading articles since last couples years, and i am noticing that even you've lost hope since last 3-4 months and started agreeing that this housing market is too big fail. That is really sad! Just like other readers and listeners, i have paid close to $30k rent in last year which is probably less than my landlord's mortgage commitments. I have one kid and my wife is pregnant with another one. We are seriously thinking of selling my wife's well set business and quitting my job to move overseas even we can afford one but cannot justify it.
However, i do think that there is no way prices going to double in next 7-10 years from current level if the wages don't go up significantly.
I feel for you and your family. I too am in a similar boat. This insane pyramid scheme we call housing has to change. Please. Take hope that all others in the same boat are near breaking point and are tiring of seeing zero responsibility from government (along with the wider predominant voting population) and are ready to revolt.
I think mass protests up and down the country are required (and just a start) to illicit positive change before we all throw in the towel and migrate to 'brighter' shores - this should always be a last result not a means to an end.
You and your children should not be ejected from NZ society because of the naive misdeeds of a single generation.
Thanks Danny. Agree with you, mass protests up and down the country are required to encourage positive change. We have to try otherwise nothing will change.
Normally I thought low salaries will be a natural obstacle to a run-away market prices in housing, but I am astonished at what is happening.
As Bernard pointed out, neither Labour, nor National will hurt their middle-class (old) housing base by causing a price crash. Their votes will suffer. And a huge proportion of NZlanders own their home, seems to me --I might be wrong. More importantly, they are the voters and have more access to centers of powers. The poor do not vote.
COVID19, "quantitative easing", and policies taken by the last governments ended up in this catastrophe. Seen people around with not too fancy jobs, getting credits for 700K, 800K... or close to 1 million which astonishes me.
If and when interest rates go up people will find their mortgage payments are too much for them to manage through their rental income. If they try to sell their expected price will not be realised and might not cover their mortgage, In NZ you cannot hand in the keys to your house back to the Bank. That debt remains on the Banks books. Even if they don’t want to sell but end up with no equity in their home the Banks can ask the mortgagee to pay them more money so that the debt to equity ratio is maintained. All this cannot last but as the Banks have been declared to be too big too fail I would expect that in such circumstances the Government will guarantee 50% of all Mortgages. A sort of debt jubilee. The only other way the young may possibly be able to buy a house is say three or more friends buy a house together. Three incomes might be able to service it. Yes, they might fall out but each interest could be sold. Messy I know but possible.
Bernard, I've pinched some of your ideas & added some of my own:
1) All the neo lib economic policies of the last 36 years are redundant in our COVID & climate change environment.
2) The government needs to take back control of the Reserve Bank & once again make it the arm of government's monetary policy, as it was for the 55 years from 1934.
3) For future QE, the government bypasses the trading banks & fund managers & instructs the RBNZ to create new money & put it straight into the government's a/c with the RBNZ. That way, the government controls where the new money is spent, eg. COVID wage subsidies, state housing, infrastructure, etc. That creates valuable new assets without a house price explosion.
4) The Ministry of Works is reformed & becomes the government's lead contractor for all infrastructure projects.
5) Government embarks on an industrial scale state house building programme, using prefab construction, tiny houses & any other creative measure required to build at scale & at pace. Rent to buy schemes agressively pursued.
6) The family benefit is reinstated, along with the State Advances Corporation so that working families can raise a house deposit through capitalisation & plug into affordable mortgages.
7) The government amends/ignores Douglas's Public Finance Act & borrows at an effective zero interest rate, whatever is required to turbo charge the huge infrastructure deficit which has arisen because of 36 years of neo lib economics. Any increased debt on the government's balance sheet is offset by the new assets created by the debt/QE money created.
All of the above ideas were successfully implemented during our post WW2 years.
The Don Brash invented inflation targeting should be seriously reviewed as it appears to be very outdated in world with significant disintermediation (Online Stores), Globalisation (Cheap offshore manufacturing) the Gig economy (cheap Labour) etc. To run most major global economies with the key objective to keep CPI in 0-2% or 1-3% band is insane. Why not accept that there is not inflation and allow small amounts of deflation, this should not cause debt defaults.
House prices are essentially a Bond as they have become an investment asset class rather than a home to live in.
The key issue is that we don't have recessions any more, if there looks like one then we just follow what Greenspan did and print money or lower cash rates. The average 40 year old has not seen a true recession, so we all just keep leveraging.
If you have put this question directly to Grant Robertson, what was his response? "How can an economy and society be sustainable in the long run when its Government settings are actively driving wealth and passive income to a consistently smaller and smaller group of consumers and voters? " Please and thank you. JG