By Lynn Grieveson
Reserve Bank Governor Graeme Wheeler has called for more to be done to remove height restrictions on inner Auckland apartment buildings and has taken a swipe at 'Not In My Backyard' types in the inner suburbs that have blocked new developments.
Wheeler was talking at a Finance and Expenditure Select Committee hearing on the Reserve Bank's annual report and had been asked by Labour Finance Spokesman Grant Robertson about what more could be done to address Auckland's housing shortages.
Wheeler said the Reserve Bank estimated Auckland had a backlog of unbuilt houses of 15,000 to 20,000 and needed to build 10,000 houses a year for the next 30 years to keep up with demand.
"If you look at permits at this point they are running at an annual rate of around 7,500, which is a huge improvement on where they were 2 years ago, but still well short of the 10,000," Wheeler said.
"I think some very good work has been done on opening up new areas but a major challenge there is getting houses built quickly enough, and a lot of those areas are in the periphery of Auckland where people may decide that the transport costs are less attractive for them, or the infrastructure needs might be considerable," he said.
"I think work needs to be done in inner Auckland in addressing the height restrictions and the Not-In-My-Backyard syndrome that's there."
Wheeler said he welcomed the Government's commissoning of work by the Productivity Commission on how issues around zoning decisions, regulatory reform and approval processes.
"I am very interested to see the outcome of that sort of review. But we see it mainly as a supply side problem," he said.
Rents picking up
Wheeler was then asked about rents beginnning to rise in Auckland.
He said they had been picking up, but not as much as they had in Christchurch.
"It's been a little bit of a puzzle to us in a sense that, if there was an acute housing crisis, you might have expected to see rents increase more rapidly. But when you look at the analysis in terms of suburb by suburb, which we have taken a look at, you do see some very substantial increases in rent in some suburbs," he said.
'No mission creep'
ACT MP David Seymour then asked if the Reserve Bank's high LVR speed limit meant the Reserve Bank had become involved in 'mission creep' to influencing the housing market.
Wheeler denied the accusation and said the Reserve Bank had financial stability responsibilities. He defended the bank's high LVR policy and reiterated its determination to watch the exposure of banks to New Zealand's highly valued housing market.
He pointed out New Zealand house price inflation had been the fastest in the OECD from 2003 to 2007 and that Auckland's median house price was now 50% above the 2007 level, and was high relative to disposable incomes.
"And if you look at those ratios in respect to historical trends in NZ then we are significantly out of line with the historic trend and that's analysis that the OECD and the IMF have done," Wheeler said.
New Zealand's household debt to income ratio had risen from 60% in 1990 to 145% now, he said.
"So you put all those factors together and you start to worry about the potential damage that could happen to the financial system and to the broader economy if you were to see a significant adjustment in house prices," he said.
"And what was concerning us was the banks were competing very aggressively to lend to people with low deposits. So putting all those things together, and the fact the supply imbalance looked as if could take a long time to address, that's why we felt we had to move. So it was a combination of reasons," he said.
"We have a mandate in respect of financial stability and a major asset like housing, which is the biggest asset on banks' balance sheets and also on individual balance sheets, is one factor we need to think carefully about when considering risk to financial stability."
Wheeler was not asked directly about any new Macro-Prudential policy tools or the bank's current interest rate policy.
(Updated with fresh picture)
65 Comments
and ........what qualifies a person as a financial stability expert?
Do you really think the FHB's who were wanting to buy a home prior to the LVR implementation are in a better situation now that house prices have escalated upwards while they sat around trying to save the deposit up?
In fact I'd be really pi^&ed off if I was a FHB and some snotty nosed bureaucrat shifted the goal posts costing me in theory another $60 to $100k or whatever the increase happens to be.
These practices hardly come under the category of financial stability as the borrower (the ultimate person who pays off the debt) is now in a worse situation as they have been forced by other market forces to significanty increase their debt to buy a home!
The only good thing about all this debt is that the Reserve Bank is going to struggle to put up interest rates.....
Wheeler is wading into dangerous territory here , he may be right , but he clearly does not understand the overall dynamic of bringing 1000 new people into NZ each and every week over and over again , when we are already so short of housing............ and then expecting a different outcome .
Especailly when those we are attracting here are not Asia's huddled masses , but well to do types with either money or skills (or both) who want to own their own home
I would say someone who is schooled in the impact of high asset prices and debt levels while having the chops to model and quantify the impacts can be considered a financial stability expert.. Wheeler is not a local or central govt power broker so he does not have the ability to influence stability through structual change in the institutions.
More expert than any here notaneconomist - he has had more experience of it through his IMF experiences, and more resources than anyone else to study and analysis it. Who would I have more trust in that regard in this country, none, the majority are only "experts" in the NZ property market and somethimes its those closest to it are those that are the least likely to see it coming. Only time will actually tell you if those FHBs you quote were lucky or unlucky that they wer delayed into the market - right now, noone knows.
The IMF that illustrious organisation that couldn't predict a GFC meltdown.....even its own watchdog had issues........
"TONY EASTLEY: The International Monetary Fund has been slammed by its own watchdog for failing to predict the global financial crisis.
The fund's Independent Evaluation Office says the IMF provided few clear warnings about the risk of the GFC, instead sending a message of continued optimism and it ignored a 2005 warning from its chief economist."
http://www.abc.net.au/am/content/2011/s3134831.htm
Nothing gives experience like having your own money on the line.!!!
Notaneconmist, there no experts on financial/economic forecasting (weather is easier) and this forum is a great example of it - anyone who expects there is, and disparages others, clearly does not understand the obvious that history consistently proves over and over again no one does. All you can do is try to understand the issues and risks etc, and then manage those risks accordingly - those that think they know better (e. g. those that forecast the NZ OCR at 2% 3yrs ago) and still repeatedly dont listen to other opinions or risks, are the biggest worries.
Well lets examine that. Lets take the Keynesians like Paul Krugman and Minskites (is that right?) like Steve Keen, pretty reasonable accuracy leading up to and since 2008. They predicted the trends since then, ie no inflation pretty accurately ie extremely low. Who would you care to pick on the right/austrian side? (Peter Schiff? OMG I hope not) Most if not all predicting significant inflation and gold going way high. Way, way off in the predictions as a comparison.
Now the 2% OCR, yes lets look at that. It got raised because of the over-heated auckland housing market any other reason? As a result the slow trend up in inflation has reversed. So with a CPI (not my fav measure) in the doldrums ie below the RB's target why isnt the OCR dropping?
Look at the tradeables sector, around -1% for 2? 3? years? Who needs to borrow as cheaply as possible right now? why surely the tradeables sector ie private businesses? but no the OCR is amongst the highest in the OECD?
What about the screams for austerity? (IMF, EU) throughout the world that went well didnt it? um no, think Greece, GDP collapsed. UK? a right wing Govn, um not so hot either.
What about countries that raised their OCR say Sweden? that went well? um no.
So given the state of play, the fundimentals if you will, personally the OCR is way to high IMHO.
What exactly are the risks in dropping it? mortgages get a bit cheaper? so we pork the market some more? are there other tools can we use to fix that? I'd suggest yes. a) 1/2 immigration, b) ban foreign ownership of housing.
So does National really care about the tradables sector? appears not.
Didnt JK say a while back given the "stimulus" in the economy he didnt understand why we were not growing at 6%? oh wait a right wing banker.....hmmmm, financial type.
Is it possible that the right side / so called financial typs are so drastically wrong that they will steer us over a cliff?
Yes I do wonder.
So will the OCR see 2% or 5% first?
I think 2%, mostly because the world is still falling apart, if surprisingly slowly.
which is what I am asking, why?
I can see/understand it is a balanving act, but I cant see the parts justifying raise it/ keep it high side, and that is what is bugging me no end.
So what reasons do we have?
In-action by our Govn to stem the demand forcing the RB to act as a last resort?
Yes for me there should be some of that.
Have it too low and foreign investors wont lend to us? no I odnt think so.
brb, have to finish re-building a server.
From my perspective as an engineer this is a controller / control valve problem in terms of OCR controls inflation. The hard part is the time delay, though right now it isnt big.
If the set point is 2% and the tolerance +/- 1% plus it isnt reducing then there needs to be more valve opening.
Since this isnt happening there has to be something else. The only things I can see is stability worries, he has to be very concerned over the housing bubble. Or something else? dogma? yes could be some of that. Loss of face from a reversal? If we still had Brash, yes on those 2, we dont though.
So enlighten us Grant explain why you think the OCR shouldnt go lower.
Steven, in no specific order:
* a hugely overheated Auckland property market which is the major financial risk in this country
* 2.5% - 3.0% growth rates in 2015
* fixed mortgages rates at levels prior to the RBNZ's hikes
* NZD/USD 13 big figures below its highs
* exporters, barring dairy, generally doing very well (and with a 50% fall in the USD price, lower interest rates and lower currency has little hope to fix the pay-out - it will take higher USD prices which is market driven)
* a tourism boom underway
* business and consumer confidence still at high levels
* much lower fuel prices adding more cash to consumers pockets
* positive real wage growth
We can name others. The big question then is who's not doing reasonably well outside of dairy and the low skilled that we need to further penalise others (fixed interest retirees for instance) just to bail out outspoken over-leveraged borrowers. Businesses I speak to are very comforable with current interest rate levels, indeed many have been locking them in very long-term since Christmas.
So the answer, things are generally pretty good, and no good will come from lower floating interest rates (they're already low fixed rate ones) that will pump up the Auckland housing market bubble even further.
If/when most of the above changes (drought extends, dairy doesnt recover, europe blows up) then yes, things have changed and a cut may be warranted, but until then certainly not....a long period of no changes 12-18 months is most likely scenario.
A 20% deposit reduces your repayments, so the borrower is in a better position. Nobody is forcing anyone to do anything, still a free market.
Going with your logic, reducing deposits down to 2% would put the borrower in a better situation. What do you think the result of that would actually be?
We are talking about a roof over one's head, shelter is a basic human requirement and under the rules and regulations that are across our system one is forced to pay what is a controlled market price for this shelter at any one given time........you do know what a FREE MARKET is meant to look like?
Next thing you 'll have people renting food while saving for a deposit to buy the underlying asset that supplies it !!!
Simple answer......it all comes down to supply and demand.......People demand a POWER to be in control......and.....other people supply the POWER and make sure they have control.
Interesting that you mention Darwin....most people think of evolution in physical changes to anatomy...I guess that some things that grow take a long time for most people to comprehend what changed. Natural selection by the fittest minds.....guarantees a couple of things.
You don't need to own a house, let alone own one in Orcs (sic). If you choose to own a house you can find them in other parts of the country as well, for less then half the price.
What makes you think the price is being controlled? If it were being controlled, the preffered direction is down if you are still talking about Wheeler. That was his goal with raising the LVR.
I'd rather see people grow their own food, or form clubs that produce local food that can be eaten fresh, and tastes delicious.
I agree that Wheeler has made those comments on houses being over-valued........but what do you think Wheeler is going to do if inflation declines to below his bottom point? Lowering the OCR, remove the LVR's???? then what? You can bet your bottom dollar Wheeler doesn't want deflation...one moment he tightens and then complains about the effects...it's all very fine Wheeler whinging about land release contraints.....but that is only one of the constraints which is seeing prices distort further to the upside......and the RBNZ is a contributor to price rises.
The LVR is pushing prices higher!!! It is where Wheeler is getting some of his house price inflation from....on the one hand he is dribbling on about price increases while directly contributing to those increases.....take the LVR off and allow 100% loans because at the moment the LVR's are the most damaging issue to financial stability that NZ has!!
Where do you think that 20% deposit ends up flowing too?? You seem to only be looking at one leg of a transaction and that is the mortgage holders balance. That 20% deposit is not sitting in a bank while it is being saved up.....the bank has to do something with it and get it working.....so the 20% is well and truly at work in the system by the time the FHB goes to use it....this pushes prices higher and further away from the FHB.
still have to pay increeasing rent while trying to get deposit.
fish in barrel.
(otherwise if 20% good, then 60% would be better. but it isnt. the sooner they can start paying down their own loan, even if the first few thousand are expensive the better. atm they're paying % interest (aka "rent") on what little they can save.
Have you worked all that out? If rent was more expensive then the mortgage interest+rates+insurance then I would agree, but I doubt that is the case in Auckland. In some places it is better to buy as soon as possible, but in those places getting a 20% deposit is easier then getting a 10% deposit in Auckland. According the affordability figures.
A ballpark figure, if you can rent for less then 26k pa that is cheaper then a 480k home with 20% deposit, without including principal repayments. I figure a rental has to have a gross yeild over 8% to be even slightly interesting, but I never include capital gains in my plan because you don't know what they will be until you sell, and if you aren't planning on selling then they are meaningless, if you are planning to sell and buy again they are still meaningless because your new property will have repriced as well.
Yes I did work it out and tested it.
I used to think it was better to pay rent until the cost of rent etc was more than cost of mortgage..... but it never happened.
So I took the plunge got a really cheap house paid 50% more than rent, and staighted making in-roads and building my equity, that was when I realised after 5 years, that getting my own equity building ASAP was the best thing. Interest only is no good - that fits you're description and rates. But if I have ownership I can start reducing the outstanding principal, which starts reducing my interest etc. The money I was paying as house owner, was the price of that equity.
Somewhat it depends on the ratios to income - and whether or not, like in my instance where my wife was spending everything behind my back...
Wow , I thought he was Governor of the Reserve Bank , not Auckland's Chief Town Planner .
Wheeler clearly does not have a clue about Town Planning processes , which are an absolute nightmare in Auckland , and the horrendous costs of doing something as simple as rezoning from single dwelling to multiple units .
Changing Zonings to allow for high rise could take 10 to 25 years ( and 25 years is a Generation) . Pak n Save took 20 YEARS to get a SIMPLE rezoning in Wairau Park and that was just one objector stopping the process .
Wheelers comments smack of total desperation , clearly LTVR are not working at all .
THE ONLY WAY YO FIX THIS MESS IS A MULTI -FACETED PLAN AND TO DO THE FOLLOWING :-
- SLOW DOWN THE ALARMING RECORD RATE OF IMMIGRATION OF 55,000 PER ANNUM UNTIL WE HAVE GOT ON TOP OF THE HOUSING BACKLOG
- SORT OUT AUCKLANDS BOUNDARIES TO ALLOW FOR ORDERLY DEVELOPMENT
- SIMPIFY THE SUBDIVIISON PROCESS TO ALLOW ME TO SUBDIVIDE MY ACERAGE LAND IN GREENHITHE .
- GET AUCKLAND COUNCIL TO STOP THE RORT OF CHARGING $100,000 TO $250,000 IN FEES AND TAXES AND LEVIES TO SUBDIVIDE LAND SECTIONS INSIDE THE CITY LIMITS
Wheeler clearly doesn't understand the property market...
The reason why developments aren't happening is not just the zoning, it is because with the development costs most proposals for apartment blocks are simply uneconomic. Even infill development is barely economic with the high prices being achieved for homes that have decent size gardens...
Solutions??
Cut development contributions!
But that still won't fix the problem. Everyone in Auckland wants a detached house with a north facing flat lawn within 15 minutes drive of the CBD (not via a motorway), and they are prepared to pay $1m for something fit for a demo or $2m for something ok.
The only real fix for Auckland is slowing migration especially all of these unskilled non English speakers without financial resources who somehow manage to migrate then drag out their hangers-on, then wangle our benefit system...
The second fix is to free up the fringe of state houses surrounding central Auckland, the third is to de-centralise Auckland ... Albany and Manakau were unsuccessful, Takapuna is moderately successful, but realistically they need to have a beautiful location and then create a beautiful urban hub with an excellent connection to the CBD - easier said than done though...
But we see it mainly as a supply side problem," he said
A housing stock or a money stock supply problem? The global money stock growth issue is more than problematic when it comes to unfathomable asset price appreciation - particularly so when one of the constituent assets is desirable housing on well located land.
The spillover into other spheres has not gone unnoticed either.
Canon Inc., Japan Post Holdings Co. and Itochu Corp. have led $28 billion of purchases abroad so far this year, the fastest start on record for Japanese acquirers, according to data compiled by Bloomberg going back to at least 2006. They’re paying up, too, with takeover premiums that are about double the global average, the data show. The trend is set to continue. Read more
Cashed up sellers will no doubt be seeking a safe bolthole in the Southern Hemishere if John Key doesn't draw international approbrium by following our "family friends" into the Ukraine. Read more
Interesting. All those Japanese companies were sitting on masive cash reserves before Japan started the massive money printing under Abe. I'm sure this has diluted the purchasing power of Canon. Itochu, etc, unless they're funding overseas expansion with bank funding. Is my thinking wrong?
You've got factories in NZ now able to produce 140 sqm 3 bed 2 bathroom houses for 195k.
Make hubs of rezoned land with good transport links into the city (and look at sat maps, there is tons of it around), at 200k per section there is massive money to be made developing this land, and dropping 140 sq m brand new properties on it for FHB's to buy for under 500k using all the FHB grants for new homes, 100% kiwisaver withdrawal etc.
http://www.metricon.com.au/home-and-land/melbourne/estates/14745-(grandvue)
Here's how it's done in melbourne... not rocket science. New 4 bedders for 400k AU/NZ in outer sprawling suburbs. Work from home trend becoming more common, 2 days in the office a week make this even more attractive.
Why is Seymour trying to harm New Zealands government? or is it his National masters telling him to ask the stupid questions.
Seymour before flapping your gums in front of your betters learn to understand what this quoted sentence MEANS:
"New Zealand's household debt to income ratio had risen from 60% in 1990 to 145% now, he said."
REMEMBER :
"He pointed out New Zealand house price inflation had been the fastest in the OECD from 2003 to 2007 and that Auckland's median house price was now 50% above the 2007 level, and was high relative to disposable incomes."
Cheap created financial (vs labour / standard bank contracted munny) equity created from the sudden devaluation of NZD as house prices soared especially in Auckland ...means what when that borrowed equity is injected through the backdoor into the NZ (especially Auckland) economy..... that's called basic inflation... whose job is it to control inflation. ...not yours Mr SeyLESS
Heck - lets just throw this wee idea out there for the followers of Interet.co
What effect on the existing pool of NZ munny value, does magically increasing the available munny via financial equity increase of supply of 25% via property debt capacity.
(ie introducing 25% more private credit cash supply)
"And what was concerning us was the banks were competing very aggressively to lend to people with low deposits. So putting all those things together, and the fact the supply imbalance looked as if could take a long time to address, that's why we felt we had to move.'
The finance industry likes to put it out there that they are an organisation of calm, thoughtful, prudent, risk adverse professionals, when it reality they are more like pit bulls savaging the poor FHB and need their master the RB to put them on a short leash, not for the benefit of the FHB, but if the banks start fighting amongst themselves, then they may have to be put down, and their master with them. Such a bad look.
IT’s ALL ABOUT SUPPPORTING THE FINANCE INDUSTRY, which is now about defending the indefensible.
The fact he wants more density, without loosening up fringe supply shows this, as this will only result in smaller housing at a higher $M2 rate. This allows you to put a roof over your head but keeps the price up to underpin the present over priced housing.
What a joke, he would not want it either if they suddenly leveled the north facing place across the road and built a high rise. Fact is we never planned years ago for a "City" its wrong from every perspective, the Auckland CBD is jammed on the coast as a left over from the old shipping days and there is no ring road. The land is all gone within 30 minutes of the CBD so the only option is to move way out and create massive high rise appartments like you see in asian countries, problem is we keep building stand alone houses, even in Silverdale and when we do build high rises they are crappy small things that leak and turn into a slum with hookers above you and a P lab below you, seriously who wants to live in that ?
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