By Dean Attewell*
Since the 1980s, central banks worldwide have relied on interest rates to control consumer inflation, the rising costs of goods and services that can affect families' everyday lives in the short term.
When prices go up quickly, the impact is immediate and felt by consumers, who struggle to manage the increased cost of living. However, while controlling consumer inflation is critical, there is another long-term issue that requires attention: Capital inflation, especially within the housing market.
Capital inflation, which often occurs over many years, is just as detrimental to society as consumer inflation. A prime example of capital inflation is the housing market, where property prices continually rise. This trend has made homeownership increasingly out of reach for many people, with young families, first-time buyers, and retirees suffering the most.
The longer-term effects of capital inflation, such as the growing number of people who retire without homes or adequate retirement funds, could lead to widespread financial insecurity, with more people relying on government support or social housing.
In light of these concerns, governments worldwide must set clear goals to ensure citizens have high rates of homeownership and strong retirement savings. A society where citizens can retire without relying on social welfare or government housing would not only be more financially secure but would also have a better quality of life overall.
The role of interest rates in controlling house price inflation
It's well-established that interest rates set by central banks can directly impact house prices. When interest rates are low, borrowing becomes cheaper, encouraging more people to take out mortgages. This surge in demand drives up house prices, creating housing bubbles that are followed by inevitable crashes when the market corrects itself.
Conversely, when interest rates rise, borrowing becomes more expensive, slowing down demand and stabilizing prices. By using interest rates to control house price inflation, central banks can help reduce market volatility and ensure a more balanced housing market.
If central banks adopted this approach, we would likely see a more stable housing market, with fewer boom-and-bust cycles that cause construction booms followed by industry layoffs. A consistent housing market would help keep the building sector steady and reduce unemployment, as construction companies and related industries would experience more reliable demand.
A new tool: Mandatory retirement deductions for wage earners
To control consumer inflation more effectively, an additional tool could be implemented: Mandatory retirement savings deductions for all wage and salary earners (excluding students, retirees, and people on social welfare). By adjusting these mandatory contributions in response to inflation, central banks could have an immediate impact on consumer behavior, encouraging people to save more during times of high inflation and reducing disposable income in periods of excessive consumer spending.
This strategy would directly affect all wage earners, not just homeowners or those with mortgages. In contrast, increased mortgage rates take time to impact the broader population due to fixed-rate mortgages. With mandatory retirement savings, the impact would be felt immediately by everyone in the workforce. Importantly, these savings would be directed into people’s personal retirement accounts, rather than flowing into third-party financial institutions like banks or investment firms, ensuring that the funds are used for individuals’ long-term financial security.
Redirecting investment from property to productive business
Currently, many people invest in property primarily for capital gains, the profit made from selling a home for more than its purchase price. While this practice has contributed to skyrocketing property prices over the years, it has also led to less investment in productive businesses. If people were no longer incentivized to invest in real estate solely for capital gains, they might turn their attention to more productive businesses, which would help drive innovation, create jobs, and contribute to a stronger economy.
Such a shift would not only relieve pressure on the housing market, but it could also reduce the need for governments to introduce capital gains taxes to curb excessive property investment. Instead, people could focus on building businesses that benefit society, from technology startups to sustainable energy solutions, fostering long-term economic growth.
Managing immigration levels to align with housing supply
A stable housing market also depends on balancing immigration levels with the rate of housing construction. In many countries, high levels of immigration have placed additional pressure on housing markets, driving up demand and causing rents and property prices to soar. If governments implement policies that ensure immigration levels match housing construction rates, they can prevent such imbalances.
By managing immigration in line with the availability of new housing, governments can help stabilize the market. This would ensure that house prices and rents don't become unaffordable, particularly in areas experiencing rapid population growth. Additionally, it would prevent housing demand from outpacing supply, helping to ensure that citizens can find affordable housing without competing with speculative investors.
New Zealand as a global leader
New Zealand is well-positioned to lead the world by adopting the policies outlined above. As a country that faces both unique housing challenges and an ageing population, New Zealand could set an example by integrating interest rate management, mandatory retirement savings deductions, and immigration policy to create a more balanced and sustainable housing market.
By focusing on long-term solutions for both consumer and capital inflation, New Zealand could offer a model for other countries looking to address the growing housing crisis while securing a better financial future for all citizens. In doing so, the country would ensure that its people retire with homes, financial independence, and a strong retirement fund, without relying on government assistance.
Conclusion
As global economic dynamics continue to shift, the need for governments and central banks to adjust their policies has never been clearer. By adopting a holistic approach to controlling both consumer and capital inflation, with an emphasis on high homeownership rates and strong retirement savings, societies can create more financial stability for their citizens.
Managing interest rates, mandatory retirement deductions, and immigration policies in tandem can create a future where homeownership is attainable, retirement is secure, and the housing market is stable and resilient. New Zealand has the opportunity to be a global leader in this approach, paving the way for others to follow.
*Dean Attewell is an occasional contributor to interest.co.nz focusing on government, society and business at a macro level.
81 Comments
Some good ‘common sense’ policies outlined.
There is no doubt that our over valued housing market has had a detrimental effect on the wider health of our economy - we’re in the poo because of it. Let us never repeat the ridiculously low interest rate environment that encouraged speculation in the housing market. Absolute nuts from the central bank/s.
I think many of the ideas would also have unintended consequences.
I’m not convinced rising house prices are that bad if it is due to low interest rates and the repayments stay the same. And we may never go back to those crazy low interest rates anyway.
Bit like saying I can drink 12 beers if they are only 2% but will fall off my chair if somebody swaps them out for 5% strong beers and I don’t have any control of this. But I don’t think it’s the alcohol level that is the problem and being able to drink 12 beers is a nice to do even if it might be the end of me.
Having insanely high house prices relative to incomes due to record low interest rates just introduces massive wide ranging systemic risk to our whole economy. Any rise in interest rates (that we can’t control) risks toppling the whole system and yet we encouraged people to take in as much debt as possible a few years ago (remember Orr encouraging banks to lend, lend lend to save the economy via FLP super low rates, just before he ramped up rates in one of the most aggressive rate hiking cycles ever seen! - sending many of the people who he encouraged to borrow into negative equity or even liquidation) - in hindsight it’s astonishingly crazy stuff with almost zero financial prudence - ie the exact opposite of what the RBNZ is supposed to encourage
The RBNZ is only focused on short term continuity.
You'd need a government to enact longer term change.
Agreed.
Every time the RBNZ does something to help 'financial stability' in the short term, they end up ratcheting up the potential for financial instability in the long term. Their solution to a debt induced crisis is yet more debt.
In fairness, more debt is deemed the answer to all of our problems.
If you think about the underlying issue we've had for the last three decades it's that we are completely unwilling to restructure our economy to improve productivity. We could get away with that for a long time because we had more people entering the workforce then exiting (women, immigrants, two large generations etc.)
The risk can be mitigated a lot. All low equity lending should be 50% or more fixed for 5 years. After 5 years people are normally in a better position.
It’s distortionary because not everyone wants to buy a house at any given time, but you have to play the game, because you get priced out if you stay out of the market for too long.
"There is no doubt that our over valued housing market has had a detrimental effect on the wider health of our economy - we’re in the poo because of it. "
This is the effect of one of the largest asset bubbles that NZ has faced. The loss in wealth from peak house prices to bottom was over 70% of GDP. Policymakers kicked the can down to successive policymakers due to their own political interests until it reached its limits.
The bigger the party, the bigger the hangover. This is the same as seen in other residential real estate manias such as Japan 1990's, US GFC 2008, Ireland 2006, Asian Financial Crisis in 1997, and many others throughout history.
In a market based capitalist system, there are business failures and bankruptcies. Capitalism without bankruptcy is akin to Catholicism without hell.
There are unintended consequences to the RBNZ's remit of financial stability and price stability. The RBNZ does not have any remit on consumer protection.
https://www.stuff.co.nz/business/99408539/reserve-bank-warns-its-not-ou…
The size of the asset mania could have been reduced back in 2016 with this one policy decision.
https://www.interest.co.nz/property/85201/reserve-bank-confirms-meeting…
Had this been approved and implemented by 2019, there may have been constraints on high debt to income lending and prices of residential dwellings would have less likely reached the levels reached in late 2021.
The bigger the party, the bigger the hangover.
Was the party worth having for the current hangover?
Capital inflation, which often occurs over many years, is just as detrimental to society as consumer inflation.
Perhaps a better way to describe this 'capital inflation' is the conversion of base into broad money through mortgage issuance. That's essentially what it is. As Richard Werner suggests, this type of credit creation only leads to booms / busts, financial instability, and higher price inflation in goods and services.
So how will money creation work if not backed by property?
Indeed. Vapor money lended in existance from further escalation and exploitation of shelter. Could be the greatest con of the last 100 years.
Money hasn't existed since the removal of the gold standard. It is fiat currency which is backed by govt promises alone - and many countries promises are getting more and more hollow by the day.
These interesting ideas will have no effect while the economists within the Treasury continue to maintain their woeful neoclassical models of the economy (such as the ludicrous DSGE models). Those models take no account of the effects of misdirected credit on housing prices and inequality and "see" any direction of credit as an inefficient interference in the market. The only comfort is that when we are carving the epitaph on the tombstone of the economy we can write "died of a theory".
Sorry but what influence does Treasury have on private credit markets? I'm not sure that they have control or influence, but I might be missing something.
Their key influence is in advising and quantifying benefits in financial regulation and law governing the Reserve Bank. Politicians are unlikely to put in place law or regulation that is contra to ideology of the Treasury's models.
Gotcha. In Aussie, the Treasury collaborates with the Australian Prudential Regulation Authority (APRA) in developing financial system laws and policies. However, in Aotearoa, the RBNZ acts as both a central bank and prudential regulator.
Hi Dean - I used to think that a mandatory retirement contribution would work but there is a huge problem with its approach due to our debt being so much higher then savings. Banks make a net interest margin between funding costs and mortgage rates. While it may seem like a nice idea to slow the economy by having a higher effect OCR for mortgage holders, there is a glaring problem
The cost of money offshore would go up with that magic retirement rate (as we are normally in sync with global inflation).
If we had savings to match mortgage demand it would work, although I suggest term deposit money would flee NZ for higher term deposit rates offshore?
Sorry to burst your bubble, on the surface it looks like a great idea. It may work at some points in time, but I suggest when you really need it, it would add to the base cost of lending not divert some of that cost to your own retirement acc.
The real culprit is the low RBNZ reserves required for residential loans, bang them up and instantly they would become more expensive, still see below does not mean banks want to invest in riskier things.
The capital gains tax is a good idea, but its not a safe assumption that this would push people towards high risk startups and business, as the housing money is borrowed, and banks are not as likely to lend to people for this risker purpose (to verify this for yourself look at the typical Spruiker on this site, do you think they are smart enough to start a green energy or biomass alternate fuel startup?).
Business is ruthless and today it requires STEM skills , most ma and pa investors in property only have equity (and an investment pooperty) because they purchased their original home some time ago, do not mistake historic luck for technical business ability... or do so, at your own peril
typical Spruiker on this site, do you think they are smart enough to start a green energy or biomass alternate fuel startup?
Would literally anyone here be able to? The DGM crowd don't sound like they could run a Mr Whippy, let alone any decent business.
The biggest issue with any retirement savings vehicle is that the asset value is tied to the future economic health. Almost all investment classes are priced for future growth/inflation. If we reverted to the tangible net returns of an asset, the repricing would destroy a shitload of retirement vehicles.
So it'll become self fulfilling, too many costs have been deferred, so they'll come due, and the "savings" by not making a resilient economy and society will negated.
Ah these DGM and spruiker arguments are so boring and often ends up with poor strawman conclusions being raised.
Eg ‘every person who is bearish on housing is a doom gloom merchant who wouldn’t be capable of running a mr Whippy’. There is no way of verifying this to be true. It’s an allegation or a fallacy without any legitimate proof - it’s jut mud slinging.
Same is true about what IT Guy says about spruikers. There could be elements of truth in each but it isn’t a fact of matter - it’s an allegation that you can never prove to be true. (If you can prove it to be true I’ll be happily corrected eg have meet somebody in person who failed at running a Mr Whippy because they were bearish on housing? It’s a quite ridiculous proposition).
They're here whether I ever mention it or not. From my first few posts I was being labelled as a spruiker. The only thing I'd encourage people to do is life as full a life as possible and be a net positive contributor to the people around them.
Edit to the edit:
Eg ‘every person who is bearish on housing is a doom gloom merchant who wouldn’t be capable of running a mr Whippy’. There is no way of verifying this to be true. It’s an allegation or a fallacy without any legitimate proof - it’s jut mud slinging.
Generalisations are generally true, and the sort of mindset that's constantly dgming, is not going to be very conducive to active commercial enterprise. In fact, being super smart, is also not necessarily beneficial, the most successful mindset is one that doesn't overthink things too much, allowing them to engage in the risk aspect that capitalism can reward - a smarter person will often talk themselves out of doing anything.
Too many people here think it's just a case of paint by numbers. You for instance, put too much weight on housing affordability, at the neglect of far greater issues.
Consider yourself a cheerleader P. Not a spruiker. Front row at the Ashley Church seminars and avid reader of Granny.
Why would I adopt one of your delusions?
Much of your views involves envisaging stereotypes of an adversary and then working your argument backwards from there - it's way easier for you to throw in a Herald Reader or Ainsley Church observation than it is to actually objectively appraise what someone else is saying to you.
It's how you consider yourself possessor of objectively superior views, that don't translate into real world financial performance - why you don't own the water-cooler you congregate around, in someone else's office.
Much of your views involves envisaging stereotypes of an adversary and then working your argument backwards from there
Not at all P. I'm very much an agnostic and prescribe to Socratic method as much as I can. I don't consider people to be adversaries, more a product of their own motivations and biases. Given that groupthink is very much a part of modern society, you can see similar patterns of thought.
And personally I have nothing against AC and Granny. They talk their own shop with an aim to be heard as frequently and widely as possible - that's the fundamental reason-to-be for media. Doesn't mean I necessarily have to agree / disagree with their narratives.
Not at all P
In your view, but not in reality, because you fairly talk to all manner of stereotypes in your arguments. I've already told you I don't read the herald or know Ashley Church, but you keep needing to bring them up. So you're either not a good listener, or you feel the need to enter character assassination by stereotyping. That's the polar opposite of the Socratic method, knowing the term doesn't mean you're actually capable of it.
If I was taking a punt, you're socially awkward, and rather than make adjustments in how you relate to people, you need to cast them as inferior to yourself, and you the possessor of real truths. This leads to some fairly poor opinion formation.
Do what I do and don't always read everyone's comments. I'm just tired of reading "Kiwi peso", "water cooler" or "ponzi" over and over again. Similar to Independent Observer with DGM and spruiker I guess.
I'm also not interested in DGM and spruiker battles, but if people want to use the label, I'll highlight the flaws.
It's human nature to gravitate towards tribalism, and accompanying phrases and terms. But then objectivity gets clouded by issues like groupthink, and adopting very polar views on things, when everything's a lot greyer - case in point JCs inability to view something like corruption on a spectrum where two locales can have corruption, but one can be greatly more corrupt than another.
I'm just tired of reading "Kiwi peso", "water cooler" or "ponzi" over and over again.
Also my apologies. These are just fun monikers to express the following:
Kiwi peso - the NZD that is susceptible to movements relative to USD, JPY, gold in particular given that it has long need a 'risk on' currency
Water cooler - Informal banter with peers where the peer group has an influence of what people say and expresss
Ponzi - The housing market given and its oversized influence on the Aotearoa economy. The world Ponzi is of course not entirely accurate and Ponzinomics is better. Ponzonimics is often described as sharing certain characteristics:
1. Promise of High Returns / Expectations: Schemes employing Ponzinomics often lure investors with promises of better returns and ideas like house prices double every 7-10 years
2. Dependency on New Participants: A system relies heavily on the marginal buyer to pay ever higher prices
3. Lack of Genuine Value Creation: Unlike productive and innovative businesses, Ponzinomic systems don't necessarily produce anything meaningful for an economy
4. Unsustainable Growth: These schemes require exponential growth to maintain the illusion of profitability, which is ultimately unsustainable
These are just fun monikers
You think they're fun. To everyone else, they dilute whatever point you're trying to make.
Well I have sketched them out for your understanding.
Perhaps it'd be a lot more useful to omit them altogether.
1. The property market has consistently provided decent returns. This is simply a valid observation and a very high percentage of participants have consistently enjoyed returns.
2. Populations have been growing and keep growing, whether naturally or through immigration, and all people need accommodation and places of business.
3. A lot of value in the property industry. 200K jobs and many related industries. Technical development. Retirement income. Inheritance wealth. 15% of GDP. It's something we all need and all want and thus has value. Where would we be without property? Sleeping out in the bush?
4. The occasional bubble, which may look like exponential growth to simpletons, often experiences market corrections, as we have seen recently. Over the long term property market growth has been observed to be very sustainable. Bank lending and profits regulate unsustainable growth.
In summary, there is no justification for using the term ponzi or any related term, in regard to the property market and related industries. The word ponzi describes something that is fraudulent. The property market is not fraudulent, it is perfectly legitimate.
"In summary, there is no justification for using the term ponzi or any related term, in regard to the property market and related industries. The word ponzi describes something that is fraudulent. The property market is not fraudulent, it is perfectly legitimate."
The term ponzi is used in context of the phrase "ponzi financing" as defined by the economist Minsky.
The term ponzi is not used in context of the more commonly used phrase "ponzi scheme"
Bravo. In Minsky's framework, "Ponzi" refers to the riskiest stage of lending and borrowing in an economic cycle. It is characterized by the following:
-
Insufficient Cash Flow: Borrowers in the Ponzi stage cannot cover either the principal or interest payments on their debts from their current cash flows.
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Reliance on Asset Appreciation: These borrowers depend on the continuous appreciation of asset values to meet their financial obligations.
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Refinancing Necessity: To survive, Ponzi borrowers must constantly refinance their debts, either by selling assets or by taking on more debt.
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Speculative Nature: This stage is typically associated with speculative bubbles, where the belief in ever-rising asset prices underpins the entire financial structure.
I'm really pleased we have reached this point in our argument. So, I think we can all agree that NZ Real Estate is not at Minsky's Ponzi Finance stage. Therefore we still cannot refer to it as a ponzi. Ah, game, set and match, nice.
Not saying it cannot happen, it's just that we are not there. One little market correction doth not a Minsky moment make.
"I'm really pleased we have reached this point in our argument"
The use of the word "argument" has a psychological impact that most people are unaware of - it closes the mind of the person to the point that the person defends and rationalises their position. Frequent repetition of their points further entrench their position. The person is focussed on "winning" the argument. This is also influenced by vested self interests (e.g real estate owners, real estate industry insiders, etc) where "winning" benefits their vested self interest. The mindset of the participants is us vs them.
The word "discussion" or "conversation" keeps the dialogue open and minds open of the individuals engaging in the discussion / conversation to really consider and understand the other person's perspective. The individuals are focussed on understanding the facts and reality of the circumstances and different perspectives, and new facts. There is no focus on "winning". The mindset of the participants is us vs the problem / issue.
-
Insufficient Cash Flow: Borrowers in the Ponzi stage cannot cover either the principal or interest payments on their debts from their current cash flows.
For reference:
https://youtu.be/CTQUaowT1Ek?t=266
Note that the negative cashflow shown is cashflow per week. Multiply by 52 to arrive at the top up per year.
i) $200 / week x 52 = $10,400 per year
ii) $400 per week x 52 = $20,800 per year
I've already told you I don't read the herald or know Ashley Church, but you keep needing to bring them up. So you're either not a good listener, or you feel the need to enter character assassination by stereotyping.
Well I apologize if somehow the associations offend you. I'm not sure why: AC has a wide following and his views / narratives are respected and Granny is one of the leading news publishers in Aotearoa.
They don't offend me, they're just a barrier to honest discourse.
You're making them because in your mind, you access more valid information, and the consumers of the alternative (AC fans and herald readers) are "sheeple" or "normies". That's not something someone applying the Socratic method would entertain.
You're making them because in your mind, you access more valid information, and the consumers of the alternative (AC fans and herald readers) are "sheeple" or "normies"
Absolutely not. Why and how would I possess more information than anyone else? Because I have a Bloomie terminal or something? In fact, I would say that Granny and AC have access to sources of info I do not possess.
'Sheeple' is simply a reference to how people blindly accept what the ruling elite and media says. As for 'normies', that is common in the crypto communities to describe attitudes from people who haven't done any serious work understanding the space but have strong opinions about the space. There are many aspects of the crypto space where I still consider myself a 'normie.'
Absolutely not
You repeatedly mock the conversations of water cooler types, as if you're somehow in possession of better knowledge.
Why and how would I possess more information than anyone else?
Not more information, the source of the information. A naive normie reads the herald and goes to Ashley Church seminars, the enlightened hang out at whatever haunts you gleam information from (and happily swallow without much additional inquiry).
'Sheeple' is simply a reference to how people blindly accept what the ruling elite and media says
What, like Tesla are leading in self drive, AI, and robotics? Elon Musk being one of the ruling elite.
You're either oblivious to your own behaviour, or feel the need to try and reinterpret it.
You repeatedly mock the conversations of water cooler types, as if you're somehow in possession of better knowledge.
No I am not in possession of "better knowledge". The fact that I know that 'all I know is that I don't know' may actually give me a more balanced mental disposition. That is part of the Socratic method.
Now, you may say 'house prices double every 7-10 years.' I don't dispute that but nor can I confirm that it is representative of reality.
You need to be able to challenge your own ideas and thinking. If you can't do that or want to do that, I understand. But you shouldn't be defensive about it.
Now, you may say 'house prices double every 7-10 years.' I don't dispute that but nor can I confirm that it is representative of reality.
I didn't say that, but if we wanted to we could check the validity of the claim looking at historic house price data.
You need to be able to challenge your own ideas and thinking. If you can't do that or want to do that, I understand. But you shouldn't be defensive about it.
This is a paragraph more for you than me.
I didn't say that, but if we wanted to we could check the validity of the claim looking at historic house price data.
Yes. You could do that. You could also work forward as well. For ex, if I accept your theory, then I can use simple math to forecast future prices. For ex, the idea of doubling of rice grains on a chessboard to illustrate exponential growth. Using a simple Python script to calculate the sum of this geometric series, we find that the total number of rice grains on a chessboard would be approximately:
18,446,744,073,709,551,615 or about 18.45 quintillion grains of rice.
Of course this is entirely applicable to house prices as they're more or less an expression of monetary expansion.
You could do that. You could also work forward as well.
I work forward by making sure I'm maximizing my time relative to the level of energy and enthusiasm I have.
I don't need python scripts. I'm not advocating housing as an investment. But if you need to live in a house, there's cost factors on new supply, and political and economic inventive to keep juicing the population and the economy. You either have to be really good at saving and investing (and most amateur investors struggle to outperform an index fund long term) and hope rents go down, or you probably want to secure lodging for yourself. I'm not really interested which one you choose to do.
Your view rests on your ability to pick future rather than current winners and hoping that outperforms the cost of all the things you need to live off for the rest of your life.
I hear you P. But I'm not so sure that the Ponzi can march to its own beat in an alternate universe like you seem to believe. What you are effectively saying is that the cost of housing can forever grow at a rate greater than the hoi polloi's ability to earn and take increasingly greater share of wallet. It's possible but I don't see how the cost of housing can take an increasing proportion of money supply and economic energy without other sectors of the economy collapsing. It's definitely not indicative of what I consider to be a 'developed economy.'
But if you think can explain how this works, fire away.
You either have to be really good at saving and investing (and most amateur investors struggle to outperform an index fund long term)
Well you have to be alert P. Best I've seen in P12M is MetaPlanet on the TSE. 3,800% gain. These opportunities don't come around that often.
https://www.tradingview.com/symbols/TSE-3350/
You for instance, put too much weight on housing affordability, at the neglect of far greater issues.
Disagree.
Housing is the largest expense/capital capture that people face in NZ. This capture of income/capital means there is less to go to whatever you consider 'far greater issues'. The only far greater issue I can think of is possibly mass immigration that NZ has had over the last few decades. But then even that is a driver of housing affordability problems as it was pleasing to see this author note:
high levels of immigration have placed additional pressure on housing markets, driving up demand and causing rents and property prices to soar
What gets missed is:
- the average person's worth is derived from their labour, and the last hundred years has exponentially increased the number of other workers the average Kiwi has to compete with. So the relative worth of many Kiwis, has decreased and will continue to do so in a global market.
- the nature of capitalism to disadvantage newer entrants. If we're talking about housing for instance, take the leafy green inner Auckland suburb of Epsom. Limited space, there is almost no chance for a young family to buy there, because most of the houses are already owned, and the competition for existing houses is too high. Same goes for new business creation (unless it's in a new field, although even then established players are often making moves into new fields).
I agree with what you've said Pa1nter and it seems consistent with my comments above to me.
Hence why I suggest preserving as much labour value per capita as possible for existing Kiwis efforts by slashing immigration (especially the stay and live here kind) but allowing skills via 50k for 12mth work visas. Yes, many jobs will be offshored, but plenty still require physical presence and cannot be.
As for the housing, this is why I advocate for a land value tax. While those inner suburb houses may be owned, there are plenty who own multiple properties (i.e. more than they ever will need to live in personally). I say let them pay for the privilege of land banking to the point it levels the playing field for newer entrants - that I agree are currently disadvantaged as you state.
No silver bullets on offer, but I think both my suggestions have merit in that NZ would be fairer if implemented.
You are failing to understand that most investors qualify simply, by the fact that they purchased their original home at the right point in history. Banks do not ask for a business plan from them, they simply enter a few numbers into their internal models to access affordability and equity requirements.
IO if you want a business loan in NZ they first try and make you write all the way up to your limit of borrowing against your own house... why because there is less capital required, and they can approve these way way way easier. Maybe your experience is different ? But this is how both ASB and Westpac have approached it when I asked to lend for commercial ventures.
I find it very easy to lend for housing, much much much harder for an existing business, and nearly impossible for a startup.
I have found the key indicator of success in any project is selecting the right people and choosing the right design pattern to solve the business problem at hand.
Bingo
And that's 70% of bank lending in NZ
No business plan required.
Mortgage lending usually involves you having to lay out your liabilities and cashflow, much like you would a business (I've done a decent amount of both). As you've pointed out (and I'm not disputing), the requirements for a business are steeper, due to the fundamental nature of lending for a business vs a house. Shorter repayment time-frames, higher risk, lower ability to liquidate in the instance of a default.
You're also right that that's something less people are capable of. So their alternative is to make a guess and invest indirectly in active commerce, usually via a proxy.
So 70%, is about what you'd expect.
Mortgage lending usually involves you having to lay out your liabilities and cashflow, much like you would a business (I've done a decent amount of both). As you've pointed out (and I'm not disputing), the requirements for a business are steeper,
Question to the witness: how much steeper?
I wouldn't know how to determine that, too many variables. Are we borrowing for a new or existing business, is it against recoverable assets or just a line of credit, etc etc.
I can’t think of that many positives to a RBNZ controlled retirement fund. The only real advantage over interest rates is that it applies to everyone, not just mortgage holders. The downsides are:
- it’s very hard to save for retirement when you have no idea how much you will be forced to save in the future.
- a lot of retirement savings will be pumped into NZ businesses during high inflation which may cause more inflation
- what would happen to interest rates? Market controlled or fixed? If market controlled, could that actually end up worse?
- you could be forced to invest in heavily in shares at a time when the market is tanking
Not saying it would necessarily be worse than interest rates, but it definitely could have unintended consequences
The real culprit is chasing capital gains in homes, in anything really. House prices at a lower multiple of income, and a mortgage capable of being repaid in 15 years rather than 30, would enable more savings (assuming you could also encourage people to be less materialistic).
This would also be better for financial stability.
Plenty have started small businesses. It's been the backbone of the NZ economy. Anyone can learn the technical ability. It's the desire, will and purpose that makes the difference. Unfortunately too many chased the easy gains creating a viscous cycle. Now we have probably made it all a little too complex.
Many of these small businesses are ponzi related, foundations, electrical, plumbing, roofer. drain layer, developer, earth mover, finacier, and then on the supply side
doors, windows, framing, roofing materials, concrete, landscaping, architecture, design and engineering, carpet layer, painter, furniture sales and manufcturing, lighting compaines.
How many of our small businesses export vs supply into the ponzi?
Hard to define. Many of our exports are agricultural, which would include farmers, farm supply companies, freight and cartage businesses, manufacturing and processing plants, and all the electricians, plumbers, builders, painters, lawyers, accountants, marketing departments, etc that support those businesses also. And then the regional towns that service them.
Then anywhere dealing with tourists, and the same sorts of industries supporting them.
How about "quite a few".
it makes sense then that this type of lending is 30% of banks lending.
its all about growth brian,
man I am glad farmers can replace property spec... Labour almost killed them
How many of our small businesses export vs supply into the ponzi?
Yet you still bought property, bought into the ponzi, which proves you don't really believe it's a ponzi. Are you not still actively involved in the property industry in some way?
The property industry, while NZ's largest industry, still only makes up 15% of GDP. So, it's not really as dominant as many suggest.
Here is a good report on the NZ property industry for everyone's enlightenment:
New Zealand 2021 Property Industry Impact
The fact that it accounts for 15% of GDP, provides a livlihood for 200K people, provides shelter for everyone and places to do business for companies, would suggest it has very little similarity to a ponzi. Indeed it comes under a lot of professional scrutiny which has, time and again, determined that it is a legitimate business activity.
The income from property currently provides many retirees with reliable, self managed, income and the sale of property provides many with a decent inheritance. Property funds a lot of aged care too. It's a vey odd sort of ponzi isn't it?
Ponzi scheme
/ˈpɒnzɪ skiːm/
noun
a form of fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.
"a classic Ponzi scheme built on treachery and lies"
Houses used be cash flow positive with 10% down on day one after LACQ etc, now some new buyers are topping up by hundreds of dollars a week. Its done ok for the first investors when it was a logical investment, its now not a logical investment with capital gains, which rely on more people entering the Ponzi at a higher price. If the shoe fits.....
Your quote mentions fraud so the shoe doesn't fit. Property exists. Quick returns are not generally a property thing. People have always topped up. Very rare to be cash flow positive from day one. I have never been able to do that. Even if not cash flow positive it is not fraud. Most businesses are not cash flow positive from day one.
You also still bought property. You do not believe it is a ponzi. Just admit it.
When did houses become an investment and not a home? Sometime in the late 90's? That houses need to be cashflow positive is a relatively new concept, and is the product of a narrative. Now everyone is so vested in it, everything must be done to keep it going. Logic would've seen the outcome a long time ago. Logic would've addressed the issue at the first sight of imbalances and unintended consequences.
"Logic would've seen the outcome a long time ago. Logic would've addressed the issue at the first sight of imbalances and unintended consequences."
We live in a system where policy makers and special interest groups have their vested self interests. We live in a system where policy makers need to win popularity contests to become policy makers.
1) Warnings were given in 2015 about Auckland:
a) Feb 2015
https://www.nzherald.co.nz/business/economy/bill-english-skyrocketing-h…
b) July 2015
i) https://www.rnz.co.nz/news/political/279671/english-acknowledges-housin…
ii) https://www.rnz.co.nz/news/political/279353/house-price-rise-increases-…
b) Sept 2015
i) https://www.kiwiblog.co.nz/2015/09/english_on_housing_affordability.html
ii) https://www.beehive.govt.nz/speech/speech-housing-affordability
iii) https://www.stuff.co.nz/business/72548484/property-experts-say-bill-eng…
iv) https://www.nzherald.co.nz/business/bill-english-risk-of-auckland-house…
c) June 2016
https://www.interest.co.nz/news/81970/english-warns-highly-indebted-hom…
2) Dec 2016 - This was a key decision which had potential unintended consequences:
https://www.interest.co.nz/property/85201/reserve-bank-confirms-meeting…
3) Comment in 2024:
As to reflections on his own time in power, English says he wishes he’d pushed more to open up the housing supply.
“The one area I think we could have pushed through harder, but is now happening, is around housing. Because housing affordability is such a significant driver of misallocation of capital [and] poverty for lower-income households.
“It’s like a juggernaut that needs to be turned around. And we got started on that. But perhaps we could have pushed harder. Sometimes these things are a matter of public acceptance. I mean, the current Government’s making decisions in that area which would have caused a riot as recently as 2017.”
https://www.nzherald.co.nz/business/economy/sir-bill-english-on-the-201…
4) Another comment in 2024
Former prime minister Sir Bill English is optimistic that New Zealand’s house prices are going to trend downwards, in real terms at least.
“Our housing is too expensive,” English told delegates to the INFINZ (Institute of Finance Professionals New Zealand Inc) conference at Auckland’s Cordis Hotel on Monday.
“If we successfully deal with housing affordability, your house prices are not going to go up for the next 15 years, much.”
https://www.waikatotimes.co.nz/business/350451961/get-used-it-sir-bill-…
If it's not that big, it should be allowed to fail rather than being subsidised and bailed out at every juncture. Enough is enough, with the welfarism.
Addressing the symptoms not the cause.
Here's an interesting view of productive businesses in the current paradigm
Addressing the symptoms not the cause.
Ayup. We are not very good at chasing the cord back to the wall, fixating on surface issues instead.
I have a JD mower, its crap
I cried when he passed, one of the greatest of ALL TIME. most just don't know it yet.
You don't need to pay a loan back Brian, you just need to service it....
He agree's Brian, they are all around at his play, fierce competition.
that skit has aged well, 14 years
as has this...https://www.youtube.com/watch?v=OTfSZ0D39AI&t=5s
It's only ever happened in the past, lol.
there is nothing like a good distraction
“There's an old saying in Tennessee — I know it's in Texas, probably in Tennessee — that says, fool me once, shame on — shame on you. Fool me — you can't get fooled again.”
― George W. Bush
this growth growth growth stuff, is much the same as a cycle bridge over the Waitematā
it probably will not happen but distracts from the lack of any viable plan. ( the cycle bridge deflected from the lack of kiwibuild etc etc ec..) its a common political strategy to put up a stupid plan but one you are happy to burn in return for deflection from delivery other failures.
meanwhile the planning for asset sales is full steam ahead, as its growth growth growth
it will be embarrassing if no one wants to buy TVNZ
New Zealand government central planning is going to do the right thing and save the day?
Comedy gold.
...an additional tool could be implemented: Mandatory retirement savings deductions for all wage and salary earners (excluding students, retirees, and people on social welfare). By adjusting these mandatory contributions in response to inflation, central banks could have an immediate impact on consumer behavior...
So we are going to tell people struggling to make rent, because inflation has gone up, that they'll need to save more so their landlord can enjoy lower interest rates? We really will go to any lengths to avoid permitting more houses to be built in this country.
If this was such a great idea government would just do it on a national scale by taxing more to repay debt when inflation increased and cutting taxes and assuming debt.
I'm confused - "encouraging people to save more during times of high inflation"... "would be directed into people’s personal retirement accounts, rather than flowing into third-party financial institutions like banks or investment firms"
So people would be forced to lose value of their money? Not allowed to use any tools to combat losing the value of their hard earned resources?
"By managing immigration in line with the availability of new housing, governments can help stabilize the market."
umm seems like an interesting angle given that we have an ageing population, who will build the houses?
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