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.
“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?
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.
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!
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!
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?
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.😂
"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?
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.
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.
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?
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.
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!
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!
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
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.😂
"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?
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.
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