REINZ index down 1.5% in Jan and 2.7% below peak; Biggest falls in Auckland City, Papakura, Porirua, Wellington; Most home-owning voters oppose falls; Govt set to reopen credit taps
In January 2021 our lending was approved for a mortgage on an off plan investment property in Hamilton. At that point, the approval took us a reasonable period past the estimated October completion date. When the completion date moved to late February (our build was hit by COVID and supply problems like everywhere else) the bank waved through an extension. This was November 25th, just before the CCCFA. Now that completion has been further delayed to the end of March, CCCFA rules mean we need to make a completely new application at a bank we have been working with for many years - despite Code of Compliance being issued and the only hold up being the time required to issue title.
I am confident, but not positive that we will be approved. If we are not approved, we will need to hope our builder is benevolent enough to come up with a reasonable arrangement for returning our deposit! At the same time, there is a very real prospect that we will move bank. If we need to completely restart our application then we might as well look for the best deal!
Very interesting. You should know that the Reserve Bank has lent ASB over $4b and other banks around $3.3b through its 'Funding for Lending' facility at the Official Cash Rate (currently 0.75%). ASB pledged to cordon off that cheap funding for 'Back my Build' lending for new builds and other "productive lending that benefits all New Zealanders." Its current rate is 2.29%. So far it's lent $2.5b of that $4b for new homes, and the rest to businesses and farms for "infrastructure and sustainability projects." The other bank offering a low rate 'Blueprint to build' is ANZ, which reported borrowing $1b as at Sept 30 last year. The RBNZ hasn't reported who the other banks are, and they haven't disclosed who they are. But if my bank was one of those and they were playing silly buggers while borrowing from the RBNZ at 0.75% and talking about increasing housing supply...I'd be a little grumpy... :)
To change the topic back to the protest, why do the police not seal it off to stop anyone returning or arriving at the site? It may be a bit leaky in that determined people can probably find a way in, but this would seem to be the way to stop food arriving at the site, stop those who pop over to their cars at whim and those who swell the protest at weekends. It would seem to have little downside, apart from the number of police required. No one would be stopped from leaving the site.
Bill of Rights, and Council bylaws may have an reason for the decision on public spaces and not restricting access in or out. Hard to distinguish genuine reasons for travel be it for work or leisure.
Suppose an orderly protest would be better. Camp elsewhere where it is possible, and march every day when applying for permits for protesting. Completely legal, and law abiding. No harm no foul.
To what extent is tweaking the CCCFA actually going to turn the tap back on though? Isn't a much bigger constraint the combination of: the hugely elevated price levels we currently have; increased interested rates; and most peoples' (I imagine) expectation that interest rates will increase further. Chuck in the huge amount of supply coming online and you have the recipe for a correction (however long that may last) - even if the CCCFA is tweaked would banks want to lend into that market to people at the margins.
Hard to differentiate. It did seem that the distinct shift in auction room activity started by early/mid December which is arguably: a) pre-seasonal holiday dip in activity; b) whilst many buyers would have had valid pre-approvals from pre 1 December.
Fair question Nick. Problem is, a lot of people have a lot of equity and income and some won't want to miss out on the next leg up. A lot of dip-buyers around. Understandable given the history of predictions of corrections and the implicit guarantee protecting home-owning voters against the ratchet down, but ensuring they get the tax-free leveraged ratchets up.
So I should go out buy my first home, leverage it up, and when I sell my home, and its worth less, the government picks up the tab? I would in a heart beat buy a house knowing it's not worth the pennies its built on with all risk removed.
Let's say I manage to borrow $500k, and tomorrow it drops to $400k and sold it the day after for $300k, would the government compensate me for the loss in my first home? Now let's add a few zeroes to make a million, and you've got yourself a huge safety net with zero risk.
We all have to lose sometime. Winning comes at a cost. Cost to the many to serve a few. If you bought too high, then that's the risk you take. Property should never be speculated on. But such is life. Can't all be winners yet here we are with a housing catastrophe and not majority of the politicans care enough to help those in need as shown in the polls. "Everyone else but me" behaviour isn't doing the community any favours.
You would get the sale price of $300k plus $200k from the gov't and the two together would repay the loan of $500k.
Now if you were doing this with a mate just so he got a home for only $300k and the $200k was ripped off the gov't then there is that pesky little thing called fraud.
It's an idea written in about a hundred words. The fine print may help to prevent some rorts.
I hear you Steve. Its s safe risk for banks to lend on as well. But the problem to all this, is still the fact that new housing on average to purchase for a small terraced home is $800k in Auckland (give or take guesstimate). And that sets the bar really high for both lent term debt and risk.
If you set a price template on housing. And capped costs on what's affordable say maximum price on a 2 bedroom unit being say $200k, and provided a guarantee on the underwriting of costs by the government and the on sell value, (loss or gains by the government, meaning you don't keep the capital gains but you don't absorb the losses) then this could possibly work. The government essentially could own the home, as if it was building it themselves yet leave it for the homeowner to organise with the developer with set costs that are all transparent in the process. I think this is fair and reasonable, and could be critiqued.
Yeah, I saw that $200k cost to build somewhere recently. Makes you wonder just what the all up cost is for a new build.
If a couple bought a home two years ago and have seen the 40% gains since then are not going to be worse off if prices drop back to that purchase price.
The banks may not be happy as they will not be able to lend as much.
Overton Window thinking makes for gloomy reading about getting Big Issues resolved but the exceptions names demonstrate that apparently stuck windows can be moved.
Feb 16, 2022·edited Feb 16, 2022Liked by Bernard Hickey
I don't think people oppose price falls at all. It depends on the way the question is asked clearly. The true question, the one that hasn't been asked is:
"Would you like all house prices to fall, yours included"
The first survey seemed to leave out the second clause, and this latest survey has left out the first clause.
The point is that people don't want a drop in their own homes RELATIVE value, but they do want the whole damn lot to go down together.
Feb 16, 2022·edited Feb 16, 2022Liked by Bernard Hickey
On the lighterside of life...
If it's a Wellington sash window, there is hope. When you listen closely enough, on a typical Wellington day, you can hear the faint howling and feel the draft of the wind. No matter how air tight the homeowner has tried to make the windows, the wind will find a way. Relentless the wind is. Determined.
Bernard, you are the howling wind metaphorically. Keep that gale force rolling.
While not directly affecting the window, are the moves for 'off balance sheet' activities creating a de facto opening? Three waters reform will allow a much higher leverage as well as requiring cross subsidies to provide affordable services and meeting quality, community and environmental outcomes. Special Purpose Vehicles can levy home owners for infrastructure funding and financing - effectively increasing revenues off balance sheet. Value capture mechanisms could enable an effective wealth tax. The review of spatial planning etc could enable growth to be funded from the ratepayer base rather than the developer - who will pass this on to new home buyers.
Start adding in a social discount rate for public investment and the frame could move rather quickly.
Hi Bernard, you've mentioned that governments/central banks would likely step in to prevent a major stock market crash. However, some would say this time is different due to historically low OCR and record inflation levels. The focus would have to be on addressing inflation in the real economy.
Outside of REITs, etc. where would NZ housing sit in this scenario?
It won't be hard for the central banks to forecast low inflation if unemployment is rising and there has been a financial shock from a stock market crash. Often banks (usually overseas) get caught up in something like that and pull their lending heads in, which amplifies the downward spiral. Rinse and repeat.
Why on earth would a responsible Government prioritise the profits on banks (particularly offshore banks) over the well-being of its people when it all money is issued as debt and private banks use our dollar and currency to to do it out of nothing and for nothing by our own Treasury and Reserve Bank. They’ve certainly conned us all into believing this is all they can do despite what’s been historically successfully done here before and makes better sense for the country to fulfil its duty of care and obligations to uphold the law and rights,haven’t they? Not very “kind” is it?
And now they’re hair splitting and distracting to distract us all from that systemic and structural FAIL.
The people who don’t mind if their house falls in value are those who see it as a place to live. If they had to move they recognise they would buy on the same market or even a falling one. Those who see houses as devices for accumulating unearned profit feel threatened by the prospect of a fall, especially if they have borrowed speculatively to acquire them.
If I’m not available tomorrow, I reckon NZ Inc. COVID response is serious enough to treated like war. With a multi party bi partisan Parliamentary response. And if that makes sense with COVID why not with The Housing Catastrophe and Education and Health?
We could have an internationally unique form of Govt for major, wicked problems.
Here's a fun example of the CCCFA in action.
In January 2021 our lending was approved for a mortgage on an off plan investment property in Hamilton. At that point, the approval took us a reasonable period past the estimated October completion date. When the completion date moved to late February (our build was hit by COVID and supply problems like everywhere else) the bank waved through an extension. This was November 25th, just before the CCCFA. Now that completion has been further delayed to the end of March, CCCFA rules mean we need to make a completely new application at a bank we have been working with for many years - despite Code of Compliance being issued and the only hold up being the time required to issue title.
I am confident, but not positive that we will be approved. If we are not approved, we will need to hope our builder is benevolent enough to come up with a reasonable arrangement for returning our deposit! At the same time, there is a very real prospect that we will move bank. If we need to completely restart our application then we might as well look for the best deal!
code compliance/code compliance certificate (no "of") regards/sincerely
Second Robert L Taylor on CCC. Common mistake similar to referring to drywall and plasterboard as JIBB.
Loving all the attention to detail!
Very interesting. You should know that the Reserve Bank has lent ASB over $4b and other banks around $3.3b through its 'Funding for Lending' facility at the Official Cash Rate (currently 0.75%). ASB pledged to cordon off that cheap funding for 'Back my Build' lending for new builds and other "productive lending that benefits all New Zealanders." Its current rate is 2.29%. So far it's lent $2.5b of that $4b for new homes, and the rest to businesses and farms for "infrastructure and sustainability projects." The other bank offering a low rate 'Blueprint to build' is ANZ, which reported borrowing $1b as at Sept 30 last year. The RBNZ hasn't reported who the other banks are, and they haven't disclosed who they are. But if my bank was one of those and they were playing silly buggers while borrowing from the RBNZ at 0.75% and talking about increasing housing supply...I'd be a little grumpy... :)
Good article on the housing problem Bernard.
To change the topic back to the protest, why do the police not seal it off to stop anyone returning or arriving at the site? It may be a bit leaky in that determined people can probably find a way in, but this would seem to be the way to stop food arriving at the site, stop those who pop over to their cars at whim and those who swell the protest at weekends. It would seem to have little downside, apart from the number of police required. No one would be stopped from leaving the site.
Hi John
And where is Oranga Tamariki when you have children living in such rough conditions?
Bill of Rights, and Council bylaws may have an reason for the decision on public spaces and not restricting access in or out. Hard to distinguish genuine reasons for travel be it for work or leisure.
Suppose an orderly protest would be better. Camp elsewhere where it is possible, and march every day when applying for permits for protesting. Completely legal, and law abiding. No harm no foul.
I have wondered that myself. An awful mess now. And it can be smelled now from around that end of town. Portaloos Kaput.
To what extent is tweaking the CCCFA actually going to turn the tap back on though? Isn't a much bigger constraint the combination of: the hugely elevated price levels we currently have; increased interested rates; and most peoples' (I imagine) expectation that interest rates will increase further. Chuck in the huge amount of supply coming online and you have the recipe for a correction (however long that may last) - even if the CCCFA is tweaked would banks want to lend into that market to people at the margins.
Hard to differentiate. It did seem that the distinct shift in auction room activity started by early/mid December which is arguably: a) pre-seasonal holiday dip in activity; b) whilst many buyers would have had valid pre-approvals from pre 1 December.
Fair question Nick. Problem is, a lot of people have a lot of equity and income and some won't want to miss out on the next leg up. A lot of dip-buyers around. Understandable given the history of predictions of corrections and the implicit guarantee protecting home-owning voters against the ratchet down, but ensuring they get the tax-free leveraged ratchets up.
Hi Bernard.
Try this for a policy if you wanted to change from unelectable to electable.
The government will recompense any home owner for the loss they make when they sell their home. so ...
a) Unless the drop in prices is "Really Big" it will only affect a small number of recent buyers. But many more home owners will feel comforted.
b) In effect this will give the buyer back the deposit they had saved.
c) For property speculators / landlords; sorry, if there is no capital gains tax then there is no capital losses tax deduction.
So I should go out buy my first home, leverage it up, and when I sell my home, and its worth less, the government picks up the tab? I would in a heart beat buy a house knowing it's not worth the pennies its built on with all risk removed.
Let's say I manage to borrow $500k, and tomorrow it drops to $400k and sold it the day after for $300k, would the government compensate me for the loss in my first home? Now let's add a few zeroes to make a million, and you've got yourself a huge safety net with zero risk.
We all have to lose sometime. Winning comes at a cost. Cost to the many to serve a few. If you bought too high, then that's the risk you take. Property should never be speculated on. But such is life. Can't all be winners yet here we are with a housing catastrophe and not majority of the politicans care enough to help those in need as shown in the polls. "Everyone else but me" behaviour isn't doing the community any favours.
Hi Ryan
You would get the sale price of $300k plus $200k from the gov't and the two together would repay the loan of $500k.
Now if you were doing this with a mate just so he got a home for only $300k and the $200k was ripped off the gov't then there is that pesky little thing called fraud.
It's an idea written in about a hundred words. The fine print may help to prevent some rorts.
I hear you Steve. Its s safe risk for banks to lend on as well. But the problem to all this, is still the fact that new housing on average to purchase for a small terraced home is $800k in Auckland (give or take guesstimate). And that sets the bar really high for both lent term debt and risk.
If you set a price template on housing. And capped costs on what's affordable say maximum price on a 2 bedroom unit being say $200k, and provided a guarantee on the underwriting of costs by the government and the on sell value, (loss or gains by the government, meaning you don't keep the capital gains but you don't absorb the losses) then this could possibly work. The government essentially could own the home, as if it was building it themselves yet leave it for the homeowner to organise with the developer with set costs that are all transparent in the process. I think this is fair and reasonable, and could be critiqued.
Yeah, I saw that $200k cost to build somewhere recently. Makes you wonder just what the all up cost is for a new build.
If a couple bought a home two years ago and have seen the 40% gains since then are not going to be worse off if prices drop back to that purchase price.
The banks may not be happy as they will not be able to lend as much.
Steve. Ha! I'm permanently unelectable. So you're suggesting a capital losses tax deduction for owner-occupiers as part of a capital gains tax?
Yes I am. But they are not capital gains / losses. They are normal profits and losses incurred by a business and are taxed as such.
Overton Window thinking makes for gloomy reading about getting Big Issues resolved but the exceptions names demonstrate that apparently stuck windows can be moved.
Yep. It all takes time and a lot of shoving and poking and scraping at the window. That's my job. Can be fun.
I don't think people oppose price falls at all. It depends on the way the question is asked clearly. The true question, the one that hasn't been asked is:
"Would you like all house prices to fall, yours included"
The first survey seemed to leave out the second clause, and this latest survey has left out the first clause.
The point is that people don't want a drop in their own homes RELATIVE value, but they do want the whole damn lot to go down together.
I'm still grieving at the loss of our forests to Malaysia environmental terrorists, and you want to sell of more our assets. There's no hope.
Let's try stretching the "Hickeyton window"
* Really look into with understanding and empathy the number of people with cognitive decline, early dementia in their late 60's.
* Have a tiny eeny weeny bit of empathy for the sick and abandoned, who don't have your income, wit, able body, and connections.
Ha! Hickeyton window! Nice one. Very gentrified community.
On the lighterside of life...
If it's a Wellington sash window, there is hope. When you listen closely enough, on a typical Wellington day, you can hear the faint howling and feel the draft of the wind. No matter how air tight the homeowner has tried to make the windows, the wind will find a way. Relentless the wind is. Determined.
Bernard, you are the howling wind metaphorically. Keep that gale force rolling.
Thanks Ryan. Living in Wellington, I know the feeling.
While not directly affecting the window, are the moves for 'off balance sheet' activities creating a de facto opening? Three waters reform will allow a much higher leverage as well as requiring cross subsidies to provide affordable services and meeting quality, community and environmental outcomes. Special Purpose Vehicles can levy home owners for infrastructure funding and financing - effectively increasing revenues off balance sheet. Value capture mechanisms could enable an effective wealth tax. The review of spatial planning etc could enable growth to be funded from the ratepayer base rather than the developer - who will pass this on to new home buyers.
Start adding in a social discount rate for public investment and the frame could move rather quickly.
Indeed. There are plenty of levers and hooks and special tools around that don't look like the axe everyone is afraid of.
Hi Bernard, you've mentioned that governments/central banks would likely step in to prevent a major stock market crash. However, some would say this time is different due to historically low OCR and record inflation levels. The focus would have to be on addressing inflation in the real economy.
Outside of REITs, etc. where would NZ housing sit in this scenario?
It won't be hard for the central banks to forecast low inflation if unemployment is rising and there has been a financial shock from a stock market crash. Often banks (usually overseas) get caught up in something like that and pull their lending heads in, which amplifies the downward spiral. Rinse and repeat.
Why on earth would a responsible Government prioritise the profits on banks (particularly offshore banks) over the well-being of its people when it all money is issued as debt and private banks use our dollar and currency to to do it out of nothing and for nothing by our own Treasury and Reserve Bank. They’ve certainly conned us all into believing this is all they can do despite what’s been historically successfully done here before and makes better sense for the country to fulfil its duty of care and obligations to uphold the law and rights,haven’t they? Not very “kind” is it?
And now they’re hair splitting and distracting to distract us all from that systemic and structural FAIL.
The people who don’t mind if their house falls in value are those who see it as a place to live. If they had to move they recognise they would buy on the same market or even a falling one. Those who see houses as devices for accumulating unearned profit feel threatened by the prospect of a fall, especially if they have borrowed speculatively to acquire them.
More detail today from David Clark on quickly moving to reopen the taps. https://www.newstalkzb.co.nz/news/business/david-clark-govt-will-move-quickly-on-credit-law-changes/
If I’m not available tomorrow, I reckon NZ Inc. COVID response is serious enough to treated like war. With a multi party bi partisan Parliamentary response. And if that makes sense with COVID why not with The Housing Catastrophe and Education and Health?
We could have an internationally unique form of Govt for major, wicked problems.