Reserve Bank says tide turning for housing's 'one way bet'; I doubt that; Kiwifruit, fish & honey exporters win big in trade deal with EU, but dairy & meat exporters unhappy; BNZ sees recession
excellent stuff. the evidence between what they say and what they do is undeniable. And all around the 🌎, the facade largely built on the bullshit narratives, interventions and jawboning of Central Bankers over the last 15 years, may finally be exposed as the house of cards it is. Bring it on.
15 years ago they (central banks/bankers/governments/financial grifters) kicked the can down the road, we've now caught up with the can. I think you're right, the house of cards is going to fall and the sooner the better. Although some planning for a softer landing would be nice. But like preventing climate change, planning isn't exactly something we're good at sadly.
> The last time expectations about prices (CPI inflation) were out of control was in the 1970s and 1980s. The collective response then was to rewrite the Reserve Bank Act, give it independence and allow it to create a brutal recession to drive expectations lower.
You have to give credit to the 4th Labour Government for having the stomach to weather political storms after they’d committed to a course of action.
Imagine a modern government making a decision to do something like take the training wheels off the ETS and just letting the price of petrol go over $6 or something. It would be mind boggling!
I have trouble believing asset owners will be swayed by the predicament of their children when they've happily leveraged the situation on their tenants without any sort of meaningful sympathy.
Thanks for this Bernard, it is somewhat hysteric in how much this rhymes with past.
One thing missing from your analysis is how we are now in a more unpredictable global environment with large irrational actors. How this impacts New Zealand is a large topic of discussion which I haven't seen anyone outside of the wonky foreign policy circles attempt to discuss. Even then, there still is a lack of nuance in discussion.
The PM's NATO speech was largely the same panic for the rules based order which our largest partners and markets have since long been undermining and thrown away. Uncomfortable as it is, it really is coming to a point where our politicans need to do some actual introspection in what they want for New Zealand.
Just had the awful realisation that higher house prices are an effective way to combat climate change thanks to this quote:
"younger people and future generations, who have to spend more to buy land. This means that they save less, reducing the amount of alternative capital they own and possibly lowering lifetime consumption"
Lowing lifetime consumption is exactly what's needed to reduce emission & planetary destruction. Not exactly the thought I want to be having as someone in their mid-30s who doesn't own a home. Nor do I think its the healthiest way to reduce consumption / emissions. But just a thought.
"For example, a cut of $1t in household net wealth (which would equal the rise seen since Covid) would see a $50b reduction in consumption, equivalent to a 15% cut in GDP, which would be the equivalent of a depression;"
Yeah, nah.
Can we actually cut our consumption by $50b? Is there that much 'fat' in the economy?
Where did the $25b in extra consumption go from the $1t in wealth growth? A fair whack of it probably went into buying more housing at higher prices. It certainly didn't go into overseas holidays.
The banks(boards/management/shareholders) rapidly increasing mortgage interest rates and the rapidly increasing cost/price of fuel(diesel/oil/petrol) are driving/forcing/plunging New Zealand to a recession.
Most leafy low population density NIMBY Auckland suburbs (such as Devonport) are disinclined to share access to natural resources, shopping villages, free parking and other public amenities including proximity to the CBD. Their residents often offer spurious arguements about protecting the environment ignoring the fact that low density areas are already well endowed with facilities such as parks and open spaces that provide that protection. Often they facitiously argue for heritage status, on the basis of the existance of a few older run down building when it is clear that many of the distinctive heritage homes have long been replaced by modern buildings. Perhaps the solution lies in amending the city’s rating system so that low population density privileges are properly reflected in the costs that others have to bear when when they are forced to live in concentrated housing developments in inconveniant locations. In Auckland the increased rate charge could be easily implemented through an appropriate definition of the assessed “Natural Environment – Non Business” rate to reflect an accurate valuation of the advantages of being a NIMBY
a) perhaps the council should calculate the income they want from the land value of residential land and convert that to a square metre value. So a tall apartment block is going to have a small land area per apartment whereas that quarter acre section ... Although it may see some big rates bill increases in poorer neighbourhoods where you have 4 bedroom former state houses on big 1950's sections.
b) require at least 90% of houses in these character areas to comply with the Healthy Homes rules, regardless of whether they are owner-occupied or rented out.
I agree. This objective can be achieved either by accepting more four story buildings near parks or beaches or by building high rise buildings with four appartments per story on a group of four sections to achieve large open spaces between each other.
Hi Bernard - genuine question, when you talk about the RBNZ and Govt baulking at the idea of including housing affordability in their mandate, preferring instead, housing sustainability - what does that actually mean for us, the people of NZ?
Hi Bernard. You keep referring to the (unfair?) wealth 'banked' in housing assets and how this gain should be capital gains taxed, but until that asset is actually sold, then the current owner is no more better off from a day to day living and cash perspective. There'll be plenty of older folk who might be 'asset rich', but who still to struggle to pay the bills especially in times of higher inflation and rising mortgage interest rates. As an own home owner and a small sole-trader franchise business (with a few investment rental properties) I don't feel particular rich, especially at tax return time.
Maybe I'm willing to hear this argument from single homeowners, but surely we're all getting tired of the argument that a current asset holder "is no more better off from a day to day living and cash perspective". Saying you can't access the significant increased wealth your investment properties represent is at best disingenuous. You are entirely capable of selling them and realising that gain. You'd just rather continue to extract wealth from tenants and also enjoy that capitol gain.
Why is it disingenuous? Are you arguing that people should be forced to sell up.... because they can? Even more so when this charge (about the unfair gains accruing to property owners) is couched in terms of ALL property owners. So people should be forced to sell their homes, to realise the capital gains.... oh, but they have to go live somewhere else, so they buy and sell in the same market.
With rentals if you don't sell, you have no "income" from capital gains. And if you haven't calculated returns on property purchases (from rent) they are often sub-5%. you can get more than 4% today at Kiwibank, so we are rapidly approaching where the risk-free rate of return will match that from providing a good home to a tenant. Oh, I forgot - extracting wealth from a tenant haha.
You miss my point entirely. As a very good landlord and small business owner, both are service industry ‘jobs’ serving the needs of others - which I do well. Selling up to ‘cash out’ is not an option that would be of benefit to myself, my tenants or my customers. Btw, I don’t “continue to extract wealth from tenants” - I rent my properties at a below market rental level to great tenants who enjoy living in and looking after my healthy home investments.
If you sold your property, that adds supply to the housing market. If you sell to someone who's currently renting, that's one tenant better off as they now have an asset to leverage and you've got some capital gains to invest. Extend that to thousands of landlords, and suddenly people currently forced to rent have affordable housing options. That's the problem Kevin. There is a big chunk of the population with a house + an investment property, and another big chunk of the population with no assets stuck renting
Presuming this 'chunk' of renters have the motivation, the deposit, and the present and future income capacity to buy now. Buying the 'family' home and keeping it as an investment and leveraging into the next-step house is entrenched in the Kiwi culture of getting ahead and underpinning our capability in retirement to live 'reasonably'. As standards of living and life expectancy generally improve there's even more of a need than ever to secure that. I can't see that changing soon (especially as with the housing fix we're now in), we're also likely needing provide for our children currently 'shut out' of affordable homes (especially in the big cities).
Yep, that's exactly what I said. Some people were smart enough to be born earlier, so they deserve to manufacture and benefit from artificial scarcity. #kiwiculture #justworkharder
At election time I’d love to see a hard nosed interviewer ask candidates what they see as affordable housing as a DTI ratio and not wriggle away. Then push for how they propose achieving this. The media is largely sycophantic to politicians of both sides. Except Hosking and Du Plessis who I respect for getting into the dirt with interviewees.
As international politics continues to focus on China, I've wondered how much of the problem Sri Lanka is facing, can be sheeted home to China's loans. Here's an interesting article. https://economictimes.indiatimes.com/news/international/world-news/sri-lanka-crisis-gives-india-chance-to-gain-sway-vs-china/articleshow/92562347.cms
Should this be instructive for Pacific Island nations?
excellent stuff. the evidence between what they say and what they do is undeniable. And all around the 🌎, the facade largely built on the bullshit narratives, interventions and jawboning of Central Bankers over the last 15 years, may finally be exposed as the house of cards it is. Bring it on.
15 years ago they (central banks/bankers/governments/financial grifters) kicked the can down the road, we've now caught up with the can. I think you're right, the house of cards is going to fall and the sooner the better. Although some planning for a softer landing would be nice. But like preventing climate change, planning isn't exactly something we're good at sadly.
> The last time expectations about prices (CPI inflation) were out of control was in the 1970s and 1980s. The collective response then was to rewrite the Reserve Bank Act, give it independence and allow it to create a brutal recession to drive expectations lower.
You have to give credit to the 4th Labour Government for having the stomach to weather political storms after they’d committed to a course of action.
Imagine a modern government making a decision to do something like take the training wheels off the ETS and just letting the price of petrol go over $6 or something. It would be mind boggling!
I have trouble believing asset owners will be swayed by the predicament of their children when they've happily leveraged the situation on their tenants without any sort of meaningful sympathy.
Full agreement.
Those aging asset owners will say they are defending the size of the kids' inheritance.
At the expense of other people's kids
Thanks for this Bernard, it is somewhat hysteric in how much this rhymes with past.
One thing missing from your analysis is how we are now in a more unpredictable global environment with large irrational actors. How this impacts New Zealand is a large topic of discussion which I haven't seen anyone outside of the wonky foreign policy circles attempt to discuss. Even then, there still is a lack of nuance in discussion.
The PM's NATO speech was largely the same panic for the rules based order which our largest partners and markets have since long been undermining and thrown away. Uncomfortable as it is, it really is coming to a point where our politicans need to do some actual introspection in what they want for New Zealand.
Just had the awful realisation that higher house prices are an effective way to combat climate change thanks to this quote:
"younger people and future generations, who have to spend more to buy land. This means that they save less, reducing the amount of alternative capital they own and possibly lowering lifetime consumption"
Lowing lifetime consumption is exactly what's needed to reduce emission & planetary destruction. Not exactly the thought I want to be having as someone in their mid-30s who doesn't own a home. Nor do I think its the healthiest way to reduce consumption / emissions. But just a thought.
Great insights on the 'back to the future', thanks for digging those old quotes out, and using the percentage shifts alongside this.
Hi Rory
Since September 2017 prices have risen 23.9%.
But there was a 40% increase in the 2 years through to November last year.
Just what the base number is for calculating each percentage might explain this anomaly.
"median-voting homeowners" and "home-owning median voters" ?
These expressions/terms are perplexing. Who are they? Do not correlate
with median income New Zealanders (although some may have median income).
"For example, a cut of $1t in household net wealth (which would equal the rise seen since Covid) would see a $50b reduction in consumption, equivalent to a 15% cut in GDP, which would be the equivalent of a depression;"
Yeah, nah.
Can we actually cut our consumption by $50b? Is there that much 'fat' in the economy?
Where did the $25b in extra consumption go from the $1t in wealth growth? A fair whack of it probably went into buying more housing at higher prices. It certainly didn't go into overseas holidays.
The banks(boards/management/shareholders) rapidly increasing mortgage interest rates and the rapidly increasing cost/price of fuel(diesel/oil/petrol) are driving/forcing/plunging New Zealand to a recession.
Most leafy low population density NIMBY Auckland suburbs (such as Devonport) are disinclined to share access to natural resources, shopping villages, free parking and other public amenities including proximity to the CBD. Their residents often offer spurious arguements about protecting the environment ignoring the fact that low density areas are already well endowed with facilities such as parks and open spaces that provide that protection. Often they facitiously argue for heritage status, on the basis of the existance of a few older run down building when it is clear that many of the distinctive heritage homes have long been replaced by modern buildings. Perhaps the solution lies in amending the city’s rating system so that low population density privileges are properly reflected in the costs that others have to bear when when they are forced to live in concentrated housing developments in inconveniant locations. In Auckland the increased rate charge could be easily implemented through an appropriate definition of the assessed “Natural Environment – Non Business” rate to reflect an accurate valuation of the advantages of being a NIMBY
Hi John, it's me again.
May I add to your comments, which I agree with.
a) perhaps the council should calculate the income they want from the land value of residential land and convert that to a square metre value. So a tall apartment block is going to have a small land area per apartment whereas that quarter acre section ... Although it may see some big rates bill increases in poorer neighbourhoods where you have 4 bedroom former state houses on big 1950's sections.
b) require at least 90% of houses in these character areas to comply with the Healthy Homes rules, regardless of whether they are owner-occupied or rented out.
I agree. This objective can be achieved either by accepting more four story buildings near parks or beaches or by building high rise buildings with four appartments per story on a group of four sections to achieve large open spaces between each other.
Hi Bernard - genuine question, when you talk about the RBNZ and Govt baulking at the idea of including housing affordability in their mandate, preferring instead, housing sustainability - what does that actually mean for us, the people of NZ?
Hi Bernard. You keep referring to the (unfair?) wealth 'banked' in housing assets and how this gain should be capital gains taxed, but until that asset is actually sold, then the current owner is no more better off from a day to day living and cash perspective. There'll be plenty of older folk who might be 'asset rich', but who still to struggle to pay the bills especially in times of higher inflation and rising mortgage interest rates. As an own home owner and a small sole-trader franchise business (with a few investment rental properties) I don't feel particular rich, especially at tax return time.
Maybe I'm willing to hear this argument from single homeowners, but surely we're all getting tired of the argument that a current asset holder "is no more better off from a day to day living and cash perspective". Saying you can't access the significant increased wealth your investment properties represent is at best disingenuous. You are entirely capable of selling them and realising that gain. You'd just rather continue to extract wealth from tenants and also enjoy that capitol gain.
Why is it disingenuous? Are you arguing that people should be forced to sell up.... because they can? Even more so when this charge (about the unfair gains accruing to property owners) is couched in terms of ALL property owners. So people should be forced to sell their homes, to realise the capital gains.... oh, but they have to go live somewhere else, so they buy and sell in the same market.
With rentals if you don't sell, you have no "income" from capital gains. And if you haven't calculated returns on property purchases (from rent) they are often sub-5%. you can get more than 4% today at Kiwibank, so we are rapidly approaching where the risk-free rate of return will match that from providing a good home to a tenant. Oh, I forgot - extracting wealth from a tenant haha.
You miss my point entirely. As a very good landlord and small business owner, both are service industry ‘jobs’ serving the needs of others - which I do well. Selling up to ‘cash out’ is not an option that would be of benefit to myself, my tenants or my customers. Btw, I don’t “continue to extract wealth from tenants” - I rent my properties at a below market rental level to great tenants who enjoy living in and looking after my healthy home investments.
If you sold your property, that adds supply to the housing market. If you sell to someone who's currently renting, that's one tenant better off as they now have an asset to leverage and you've got some capital gains to invest. Extend that to thousands of landlords, and suddenly people currently forced to rent have affordable housing options. That's the problem Kevin. There is a big chunk of the population with a house + an investment property, and another big chunk of the population with no assets stuck renting
Presuming this 'chunk' of renters have the motivation, the deposit, and the present and future income capacity to buy now. Buying the 'family' home and keeping it as an investment and leveraging into the next-step house is entrenched in the Kiwi culture of getting ahead and underpinning our capability in retirement to live 'reasonably'. As standards of living and life expectancy generally improve there's even more of a need than ever to secure that. I can't see that changing soon (especially as with the housing fix we're now in), we're also likely needing provide for our children currently 'shut out' of affordable homes (especially in the big cities).
Yep, that's exactly what I said. Some people were smart enough to be born earlier, so they deserve to manufacture and benefit from artificial scarcity. #kiwiculture #justworkharder
Excellent, Bernard. I'd support this being opened up, it's an important reality check that most of NZ should have.
At election time I’d love to see a hard nosed interviewer ask candidates what they see as affordable housing as a DTI ratio and not wriggle away. Then push for how they propose achieving this. The media is largely sycophantic to politicians of both sides. Except Hosking and Du Plessis who I respect for getting into the dirt with interviewees.