The consideration given by the Reserve Bank to controlling the bias in its policies that favour housing over all other lending types is most welcome.
It is 20 years late but until they deal to this, New Zealand’s economic growth will suffer, capital will be misallocated and incomes and job numbers lower than they would otherwise be.
Whether the Bank does it by addressing risk weightings or via equity to loan ratios is a second order issue but the important thing is it stops pussyfooting about and gets on with it.
The damage already done through years and years of neglect on this issue is immeasurable and it will just persist until we get some sort of responsible policy from the RB.
What’s important for the Bank to come to terms with, is that this is not about averting yet another financial crisis in the banking sector, the issue is far more insidious than that – it’s about the economic potential of NZ being needlessly held back by an aversion by policymakers to address the two main drivers of the distortion in the housing market – RB prudential policy and the tax loophole housing ownership offers.
The tax issue is the responsibility of the politicians so don’t get your expectations too high, our book 'The Big Kahuna' outlines what to do, most politicians privately agree with it but don’t have the guts to provide leadership on it.
But getting one of these reforms away is better than none so Deputy Governor Grant Spencer is to be congratulated for at least stepping up and highlighting the bad mistake that the previous two Governors have stubbornly resisted addressing.
Any system that made these policymakers actually accountable would have forced those men to have acted during their watch.
That neither did is an indictment on the accountability Reserve Bank operates to.
Of course there have been “discussion papers” from the RB on this before but the limited perspective both Governors had which led them to the conclusion that unless the financial system was at risk then it has been okay for the RB to tell banks to lend on mortgage in preference to all other forms of lending, saw the Bank come to the conclusion that there wasn’t a problem.
That conclusion was naïve in the extreme and New Zealand has paid the price in lost jobs, incomes and exacerbated wealth disparities as a result.
Against that backdrop I won’t believe that the RB has actually mended its ways until it actually does something.
Until then I will continue, as most investors do, to prefer housing over all other forms of investment and in so doing push the price of it up further and further beyond the reach of more and more New Zealanders.
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Gareth Morgan is a businessman, economist, investment manager, motor cycle adventurer, public commentator and philanthropist. This opinion piece was first published on his new blog garethsworld.com and is reprinted here with permission.
17 Comments
First we need to stop foreigners being able to buy land in NZ. Until then I would rather NZers be able to buy property in NZ via 95% lending, than see it even cheaper for foreigners to buy.
Once the land is only available to NZers, then I would agree to LVR limits.
OK. a thought experiment (the best sort).
I'm in Whogivsatossistan, a petro-dollar rich feudal estate.
I'd like to buy a 25th offshore house, and in NZ because it is a safe haven and cos feudalism tends to periodically overturn its ruling orders, generally accompanied by displeasure expressed personally.
Money is no object.
Blast! Some xenophobe in NZ won't let me Buy Any Land! Wot wiv me being a Nasty Furrener and all.
Idea! I'll buy into some leetle Company and use it as a Trojan Horse. I'll set up 50 companies under this, it's soooo easy wot wiv it being online and all. I'll inject a leetle bag of Pacific Pesos inter each one, buy a bunch of Staff, and then set about Bidding for Premises.
Hey, dose Staff are gonna need Houses!
So each Company will, in the Best Interests of its DownTrodden Staff, buy each and every one a dem a House! (Oh, and one a dese Houses will be large, wiv a Nice Sea View, and luxury appurtenances as dey say in the trade).
It's a NZ registered company.
They are NZ Houses.
Common taters, spot the problems for me, cos I cannae exactly see why dis wouldn't work....or wot the RBNZ could do aboot it?
Um, BR, yer may have missed my point in amongst all my intentionally florid language.
Block furreners from owning -
- houses?
- Land?
- Leashold Premises?
- Cars?
- Personal property?
- Shares in NZ companies? (the route taken by my Thought Hexperiment)
- NZ Govt Bonds (whoa, that Definitely be a Step Too Far!)
'Owning' versus 'having a blocking or controlling Interest in'?
Devil's in the details.....and Folks wiv Munny also have access to Legal Eagles and other Birds of Prey....
Sounds a better deal than what we get presently as the 'lettle Company' will be subject to and pay all kinds of taxes - including but not limited to GST, PAYE, ACC and CG on those housing assets - and they'll need a local accountant in addition to all those local workers who need homes. Or did I miss something - as I'm not great at considering all the downside scams these ruddy foreigners are dicking us around with.
Gareth the cat catcher.
Banks lend on property at 5%, owning a rental property might provide a return of 7%, banks lend at 12.95 for things like vehicles and businesses borrow at perhaps 14%.
You will improve your return by 300% if you lend to business instead of lend on property and you will double your return if you lend to business instead of purchasing property.
I suspect you and most everyone else who invests in property does so - as a cat knows, one mouse in a cage is worth two in the forest.
Through property ownership you have ownership and don’t have to rely or trust people so much with your nest egg and this is why property is heavily favored.
Until then I will continue, as most investors do, to prefer housing over all other forms of investment and in so doing push the price of it up further and further beyond the reach of more and more New Zealanders.
I'm with Roadhouse Blues - except I suspect a 7% return on a residential rental property investment (based on today's prices even with the low interest rates) is not easy to find. Most rental investors buying a property at today prices are working on 3-4% - and in their minds, 'banking' on the future capital gain as well - perhaps not to sell/realise, but to use 'on paper' to leverage against the next portfolio purchase.
Mr Gareth Morgan needs to acknowledge something uncomforable. Investors like houses and avoid his favoured financial services sector for very good reason. Because of the way that industry is run, including by people like Mr Morgan. Instead of persecuting small investors for their decisions, he would be better challenging the financial services sector for the environment they create.
Actually, in the medium term both are fooling themselves.
A house exists, the planetary ability to underwrite, also exists. Both are fixed items. Upping the 'value' of the house, changes nothing in the big picture. Sure, some get more at the expense of others, but it is a zero-sum game in terms of existing housing.
So too was Trade-me, any 'money' he made from it, can be traced to existing items, relative to that existing planet. So he must have displaced someone else.
Both approaches run into the same brick wall - ultimate scarcity. As do tenant and bauble-buyers incomes.
Hi Gareth, there is this article about cats killing billions of wildlife in the USA that was on the BBC web site thats worth a read.
http://www.bbc.co.uk/news/science-environment-21236690
Fully agree that the number of cats both feral and domestic need to be better controlled to preseve NZ wild life. As for the housing issue we have a systemic problem that is kind of rigged in NZ with little intervention to do anything about it. It looks like only unexpected events like financial banking crisis, government defaults or big wars overseas control the direction of NZ house prices.
Gareths right. the only people busy right now are developers, biulders etc.. and mortgage managers. and hey guess what most profits are being poured straight back into property. tax receipts will suffer because of the cash deals that occur all over the place, and the capital gains that go staright to the spruikers, and developers. gst will be good for govt coffers but thats about it. and why is it that the rbnz, ird etc leave this section of society alone and yet hammer all other tax payers? total incompetence
"...capital will be misallocated...."
Has anyone bothered to ask whether this is true....surely it is an assumption...wishful thinking...a belief...bit like a religion...or a culterdice!....(spooky belief)
And could it not be argued that export income can result from development of enterprise related directly to said property allocation!....the Germans export kitset houses across Europe...why can't Kiwi companies do the same...with Kiwi product...!
That said, bubble economics is what made us what we are today...a bubble economy
Another week another load of jawboning from the RBNZ...hands up all those who expect this bureaucrat bloated taxpayer funded, private bank manipulated pile in wgtn, will lift one fat finger to strangle the flood of mortgage finance cream flowing into the private banks....hands up....somebody pleeeeas...there must be one Kiwi who believes...just one!
Not a sausage....zip....Seems we are assured of a future....where the banks dictate economic direction and the govt trots along behind spreading manure about their prudent management....and why we should vote for them.
Let's cut through the crap shall we....let's see if the bank controlled media worts have the courage to start publicly reporting on what the banks say will be govt policy. Don't ask Tweak or Fiddle...ask their bosses!
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