NZ 1st homebuyers are ScReWeD...

[SBQ]

A crazy situation brought about by central banks and governments. The disease of QE and ultra-low interest rates started in the US with the Fed after the GFC, and we’ve just followed them as all nations must do since the USD is the global reserve currency. And now all the chickens are coming home to roost.

The massive QE and low interest rates did not matter to countries who's tax policies and gov't budgets were more in aligned with each other. Just look at how much McMansions cost in America or in Australia; they're significantly a lot less than NZ houses. That tells me the differences must lie in how different NZ treated houses as an investment (the absence of CGT, the Wall Street style of turning NZ houses into a gambling parlour, etc). Anotherwords the rise in interest rates abroad won't be as so pronounced as the rise in interest rates in NZ because people here spend more $ in owning houses (as a portion of their disposable income).

[Bjauck]

A crazy situation brought about by central banks and governments. The disease of QE and ultra-low interest rates started in the US with the Fed after the GFC, and we’ve just followed them as all nations must do since the USD is the global reserve currency. And now all the chickens are coming home to roost.
NZ interest rates followed international rates. However as SBQ put well, our other policies did not follow international norms, helping to create the investment imbalance weighted towards substantially unchecked residential property/inflated land prices.

[JBmurc]

The massive QE and low interest rates did not matter to countries who's tax policies and gov't budgets were more in aligned with each other. Just look at how much McMansions cost in America or in Australia; they're significantly a lot less than NZ houses. That tells me the differences must lie in how different NZ treated houses as an investment (the absence of CGT, the Wall Street style of turning NZ houses into a gambling parlour, etc). Anotherwords the rise in interest rates abroad won't be as so pronounced as the rise in interest rates in NZ because people here spend more $ in owning houses (as a portion of their disposable income).

A good reason why homes are cheaper in the likes of Aus and US is much cheaper build costs .. NZ like it is for most things is very expensive Vs average incomes

[Sideshow Bob]

A period of rapid house price increases coming.......

Tony Alexander predicts - Landlords.co.nz (https://www.landlords.co.nz/article/976521870/tony-alexander-predicts?utm_source=ST&utm_medium=email&utm_campaign=ShareTrader+AM+Update+for+Tuesday+20+ June+2023)

[SBQ]

Meanwhile across the ocean, NY Times reports house prices are still crashing in NZ:

https://www.nytimes.com/2023/06/19/business/new-zealand-housing-prices.html

[Logen Ninefingers]

So far this latest data has not been reported in The New Zealand OneRoof Herald (=OneRoof); it directly contradicts what their main property spruiker Tony Alexander has been saying.

—————

https://i.stuff.co.nz/business/132474909/rate-of-house-prices-falls-nearly-doubles-from-may-to-june-corelogic-data-shows

‘The rate of house prices falls almost doubled in June compared to the month before, CoreLogic data shows.

The property data firm’s House Price Index (HPI) showed June was the third month in a row that house price falls gained momentum, with prices falling an average 0.7% in May, 0.6% in April and then 1.2% in June.

The findings may call into question growing claims that the housing market had reached the bottom.’

[RTM]

https://seekingalpha.com/article/4625554-royal-bank-canada-and-the-residential-real-estate-monster

Sounds like its more countries than NZ that have screwed up the housing equation.

SQB....if you stumble on this thread...

"I think there are a few reasons why residential real estate has risen so dramatically in price here. Capital gains on residential real estate are exempt from tax. Thus, I think it’s been seen as a great way for a non-business owner to accumulate capital. "

Sound familiar ?

[SBQ]

https://seekingalpha.com/article/4625554-royal-bank-canada-and-the-residential-real-estate-monster

Sounds like its more countries than NZ that have screwed up the housing equation.

SQB....if you stumble on this thread...

"I think there are a few reasons why residential real estate has risen so dramatically in price here. Capital gains on residential real estate are exempt from tax. Thus, I think it’s been seen as a great way for a non-business owner to accumulate capital. "

Sound familiar ?
In Canada exemption from CGT only, and ONLY applies if the residential dwelling is owned as a "principal residence'. There is no silly 'Bright Line Test' that we have in NZ on multiple ownership of houses. But the article makes no mention of the NZ residential market because in the past i've posted this before:

https://i.imgur.com/4GMUvHT.jpg

There's high housing prices in Canada... and then there's silly stupid, out of this world, high housing prices in New Zealand where it's many multiples of disposable income. Look closely at the chart and you will see Canadian house prices are really not that different to other OECD nations. But somehow the NZ line is excessively high at the top. I do not see this changing much as the vast majority of NZ's wealth by individuals, is locked into owning real estate.

Then there's an issue of banking quality that the article mentions, but unlike NZ, banks in Canada are regulated differently and have strong stress testing measures. When there's an alarm, then you get articles like this to warn share holders and the gov'ts in a case of insolvency. However, Canada does not have much of a record of bank bankruptcies like you see in the US, all due to strict gov't regulations and limits to how they and issue mortgages (along with restrictions on how foreign banks can conduct business in Canada vs NZ most of our banks here are foreign owned). You have mandatory CDIC deposit insurance in Canada, while there's none in NZ.

I'll repeat again, it's often healthy to have losses by those to leverage too much. But in NZ, there's a different kind of leverage as the banks here know that NZ houses don't collapse like they do in America. The continual, gradual, rising of NZ houses only makes the top 1% attain more wealth, while the general population OVERALL ; ends up OVER paying for a house. By all means, please look over in Canada and compare. In a new suburb big city, what a $2M house in Auckland say North Shore buys you compared to say the same $2M house in Surrey Vancouver. Not only the Canadian house is 1.5 - 2 times LARGER, but the streets are wider, more parking spots, safer against children riding their bicycles up and down the street, more efficient urban planning by use of alley ways (for future 'Lane House - 2nd dwelling' development). But the minute a person looks to buy their 2nd house as an investment, well i'm afraid the tax book is thrown at you. If you're rich and wealthy, your vacation home in Vancouver will be slapped with a Vacancy Tax. If you're a non-resident buying a house in Canada, how about a 20% tax on the purchase price? (psst. that's $400,000 you pay on a $2M home). The non-resident person buying NZ houses does not see any of these taxes, in fact, NONE at all. But it does not have to be this way ; yet none of the NZ political parties have the guts to balance our housing problem with CGT.

Another thing. Unlike NZ, in Canada you can get a 15 or 20 year mortgage LOCKED in FIXED rate. This means for many if they mortgaged 2 or 3 years ago, they could be leap frogging the recent high mortgage rates we see today.

[Aaron]

I know it is the USA but NZ is following a similar path with financialisaton and govt protection of asset prices. The author also probably just picks data that confirms his thesis. I found it interesting, not much discussion from any political party about this sort of stuff, in the election debates. I guess as it is great news for boomers so like national super, the real causes of house price rises must not be discussed. National in fact going to do well this election ramping up the speculation in houses. Seems to confirm my thesis about NZ and these elections.

Just a bit sad for the younger generation without parental support.

https://www.zerohedge.com/personal-finance/when-shelter-becomes-speculative-asset-society-unravels

[Azz]

In Canada exemption from CGT only, and ONLY applies if the residential dwelling is owned as a "principal residence'. There is no silly 'Bright Line Test' that we have in NZ on multiple ownership of houses. But the article makes no mention of the NZ residential market because in the past i've posted this before:

https://i.imgur.com/4GMUvHT.jpg

There's high housing prices in Canada... and then there's silly stupid, out of this world, high housing prices in New Zealand where it's many multiples of disposable income. Look closely at the chart and you will see Canadian house prices are really not that different to other OECD nations. But somehow the NZ line is excessively high at the top. I do not see this changing much as the vast majority of NZ's wealth by individuals, is locked into owning real estate.

Then there's an issue of banking quality that the article mentions, but unlike NZ, banks in Canada are regulated differently and have strong stress testing measures. When there's an alarm, then you get articles like this to warn share holders and the gov'ts in a case of insolvency. However, Canada does not have much of a record of bank bankruptcies like you see in the US, all due to strict gov't regulations and limits to how they and issue mortgages (along with restrictions on how foreign banks can conduct business in Canada vs NZ most of our banks here are foreign owned). You have mandatory CDIC deposit insurance in Canada, while there's none in NZ.

I'll repeat again, it's often healthy to have losses by those to leverage too much. But in NZ, there's a different kind of leverage as the banks here know that NZ houses don't collapse like they do in America. The continual, gradual, rising of NZ houses only makes the top 1% attain more wealth, while the general population OVERALL ; ends up OVER paying for a house. By all means, please look over in Canada and compare. In a new suburb big city, what a $2M house in Auckland say North Shore buys you compared to say the same $2M house in Surrey Vancouver. Not only the Canadian house is 1.5 - 2 times LARGER, but the streets are wider, more parking spots, safer against children riding their bicycles up and down the street, more efficient urban planning by use of alley ways (for future 'Lane House - 2nd dwelling' development). But the minute a person looks to buy their 2nd house as an investment, well i'm afraid the tax book is thrown at you. If you're rich and wealthy, your vacation home in Vancouver will be slapped with a Vacancy Tax. If you're a non-resident buying a house in Canada, how about a 20% tax on the purchase price? (psst. that's $400,000 you pay on a $2M home). The non-resident person buying NZ houses does not see any of these taxes, in fact, NONE at all. But it does not have to be this way ; yet none of the NZ political parties have the guts to balance our housing problem with CGT.

Another thing. Unlike NZ, in Canada you can get a 15 or 20 year mortgage LOCKED in FIXED rate. This means for many if they mortgaged 2 or 3 years ago, they could be leap frogging the recent high mortgage rates we see today.

How will taxing the sale of housing make it cheaper?

[Valuegrowth]

https://www.youtube.com/watch?v=NSIjtk4RmCY&t=2s

[Logen Ninefingers]

How is Jarrod from KiwiBank looking with his prediction that the RBNZ would start cutting rates in February? Egg, meet face.

[Aaron]

I guess the banks will do all they can to talk up the property market, that is the main part of their business model, getting Kiwis to buy houses off each other at ever increasing levels of debt. Same as the newspapers that run the ads and the real estate agents, never a bad time to buy real estate.

Isn't the RBNZ making an announcement sometime this month? Paul (Just accept that you will be poorer) Conjob/Conway making some sort of speech.

I imagine inflation will still be well above target with the RBNZ trying to titillate the markets with promises of future cuts without getting them too excited.

While the people working for devaluing currency paying tax on every dollar earned, with no assets get poorer and find life harder, while asset owners who rely on Adrian and Paul for their outsize capital gains pay no tax on their gains and can't understand why poor people keep moaning rather than working harder.

[Logen Ninefingers]

I guess the banks will do all they can to talk up the property market, that is the main part of their business model, getting Kiwis to buy houses off each other at ever increasing levels of debt. Same as the newspapers that run the ads and the real estate agents, never a bad time to buy real estate.

Isn't the RBNZ making an announcement sometime this month? Paul (Just accept that you will be poorer) Conjob/Conway making some sort of speech.

I imagine inflation will still be well above target with the RBNZ trying to titillate the markets with promises of future cuts without getting them too excited.

While the people working for devaluing currency paying tax on every dollar earned, with no assets get poorer and find life harder, while asset owners who rely on Adrian and Paul for their outsize capital gains pay no tax on their gains and can't understand why poor people keep moaning rather than working harder.

Fair enough to 'talk it up', but when the predictions are so patently wrong then do the people concerned have any fears over the hit to their credibility?

[Aaron]

Fair enough to 'talk it up', but when the predictions are so patently wrong then do the people concerned have any fears over the hit to their credibility?

Prediction is very difficult especially when it is about the future.

We listen too much to economists, they are not scientists, economics is an arts degree. You might have more luck with a soothsayer and goose entrails.

Bank economists are cheerleaders for the property market, much like real estate agents.

Isn't the RBNZ making an announcement tomorrow? I would have thought an early rate cut from the RBNZ would have been a reasonable guess based on recent history.

[fungus pudding]

Prediction is very difficult especially when it is about the future.

.

Quite so. It's much easier to predict the past

[Logen Ninefingers]

Prediction is very difficult especially when it is about the future.

We listen too much to economists, they are not scientists, economics is an arts degree. You might have more luck with a soothsayer and goose entrails.

Bank economists are cheerleaders for the property market, much like real estate agents.

Isn't the RBNZ making an announcement tomorrow? I would have thought an early rate cut from the RBNZ would have been a reasonable guess based on recent history.

With inflation still at 4.7%? So prices still going up at a rate well outside their target band.
You think they'd go earlier than The Fed?
You're not Jarrod Kerr are you? (Joking).
Most commentators say we will see rate cuts later this year, provided that the inflation rate continues to fall - which is not a given.

[Aaron]

The headline was different in the printed paper this morning I think it said there would be price rises due to the changes.

Reading the article, it was a bit vague as to why house prices would be rising but I think it was due to an easing of the LVR ratios and the length of time it would take debt to income limits to actually be implemented.

https://www.nzherald.co.nz/business/impact-of-reserve-bank-debt-to-income-proposal-how-housing-market-could-react/ACOINF4HUNFIZBM7VYXQZP2SRQ/

Another example of bank economists and the real estate funded media getting wealthy boomers salivating at more gains and FOMO millennials taking out even bigger loans. Maybe it was to offset the inflation story from yesterday.

The following quote by the RBNZ deputy governor was laughable.

RBNZ deputy governor Christian Hawkesby said yesterday it was important to have policies in place to manage boom-bust credit cycles.

The article just explained how the RBNZ drives the property market with policy. The only limiting factor for house prices appears to be how much money is available and the interest rate.

Christian is maybe unaware that it was reckless RBNZ policy over the pandemic that created the current boom and these subsequent polices are to try and put a lid on it as it becomes obvious how wrong these polices are and that trickle down economics is BS.

I assume the people at the RBNZ are stupid but maybe after creating the wealth gap they are now ensuring there will be no social mobility between classes. That would assume they are evil, I prefer stupid as it fits better with the NZ as a caring society narrative I prefer.

At the end of the day the greedy boomers and overindebted millennials (risk takers) will be saved by RBNZ created inflation (cost of living crisis) while all those that missed the boat will find life harder and harder.

I am sounding very conspiratorial this morning.

[Aaron]

Newshub with a positive spin on a subdued property market last year.

https://www.msn.com/en-nz/news/national/first-home-buyers-hit-record-high-share-of-property-market/ar-BB1hcsIA?ocid=msedgntp&pc=DCTS&cvid=1c10dd42ff124fb2989fa3146f1d2aa8&ei=30

Always good to get a "record high" in the article.

[Aaron]

Construction costs to inflate less.

https://adviser.loanmarket.co.nz/mark-loheni/blog/construction-costs-minimal-growth/?utm_campaign=the-insider-newsletter-%7C-sending-thursday-25-jan-2024&utm_content=read-more&utm_medium=email&utm_source=activepipe

Mostly due to high immigration keeping a lid on labour costs.

[Logen Ninefingers]

The headline was different in the printed paper this morning I think it said there would be price rises due to the changes.

Reading the article, it was a bit vague as to why house prices would be rising but I think it was due to an easing of the LVR ratios and the length of time it would take debt to income limits to actually be implemented.

https://www.nzherald.co.nz/business/impact-of-reserve-bank-debt-to-income-proposal-how-housing-market-could-react/ACOINF4HUNFIZBM7VYXQZP2SRQ/

Another example of bank economists and the real estate funded media getting wealthy boomers salivating at more gains and FOMO millennials taking out even bigger loans. Maybe it was to offset the inflation story from yesterday.

The following quote by the RBNZ deputy governor was laughable.

RBNZ deputy governor Christian Hawkesby said yesterday it was important to have policies in place to manage boom-bust credit cycles.

The article just explained how the RBNZ drives the property market with policy. The only limiting factor for house prices appears to be how much money is available and the interest rate.

Christian is maybe unaware that it was reckless RBNZ policy over the pandemic that created the current boom and these subsequent polices are to try and put a lid on it as it becomes obvious how wrong these polices are and that trickle down economics is BS.

I assume the people at the RBNZ are stupid but maybe after creating the wealth gap they are now ensuring there will be no social mobility between classes. That would assume they are evil, I prefer stupid as it fits better with the NZ as a caring society narrative I prefer.

At the end of the day the greedy boomers and overindebted millennials (risk takers) will be saved by RBNZ created inflation (cost of living crisis) while all those that missed the boat will find life harder and harder.

I am sounding very conspiratorial this morning.

I was reading your comments with interest and then - apropos to nothing - you came out with this:

and that trickle down economics is BS.

It's surely a truism that the more affluent the society is, the more it is able to support the less forunate members of that society.

Surely it is also a truism that the more successful a business is, the more it will need to hire more workers - creating opportunities for people to accept paid work.

Surely it is a truism that if many businesses in an economy are expanding at the same time, competition for the pool of available workers will increase and wages & salaries will go up.

Surely if everyone feels wealthy and has plenty of disposable cash, then an entrepreneur can capitalise by opening a coffee shop to sell coffees to those who like to buy them.

This is 'trickle down economics'. This is 'a rising tide floating all boats'.

Some out there seems to think that 'trickle down economics' means that if a country is doing well economically then everyone on an unemployment benefit should be rolling around in a vat of money like Scrooge McDuck, or that it means that the worker in the business will be making the same amount as the person who took the risk and started the business. But it doesn't.

[Aaron]

A good example of trickle down economics was when Adrian explained back in 2020 that low interest rates and easy money would create a "wealth effect". People who own assets would feel richer so they would keep spending i.e. the trickle down effect.

I have heard some people suggest things about trickle down on this thread.

According to the older generation who have reaped astronomical gains solely due to central bank policies since the GFC, all young people have to do is not spend so much on coffees and smashed avocado on toast and they will easily be able to buy a house.

The arrogance of the older generation in this regard is unbelievable. Yes, they did work hard. No, this does not mean that they should have been entitled by right to enormous windfall gains which have come about due to a bizarre historical event: the action of central bankers to deliberately inflate asset bubbles as a response to a global financial crisis. Then as a response to a pandemic, they have defended the bubbles they created with more of the extraordinary stimulus and interest rate suppression.
Logen Ninefingers 26/01/2022 post 2558

What we have seen to date from the government and central bank has been a passive bail-out of the housing market. Back in 2020 when house price falls were predicted they went into overdrive to support the market. Of course the measures were intended to prop it up (orbail it out in other words) rather than over-heat it. Of course your average Kiwi see's interest rates being slashed to the bone and doesn't think "hmmm...they are propping up the market", they think "corrrr....look at interest rates; I better get e another house!" or "I better get me a better house". So you got the unintended consequence: massive price rises.

You see a lot of comments on line about 'ha ha ha ha...the experts were predicting house price falls - instead they went up massively. Those idiots don't know what they are talking about".
These comments are dumb. Prices would probably have fallen without the heavy handed intervention of the government and the central bank.

Logen Ninefingers post 2567

I guess on the one hand many young people have been left holding the bag, but have a long life to look forward to.

And the boomers have cashed out their central bank given gains but are at the end of their lives and have the old folks home, dementia et al to look forward to.

Logen Ninefingers post 2574

Trickle down economics is about using monetary policy to prop up asset prices or "bubbles" as you have referred to them in your posts. The effect of constantly propping up asset prices has the side effect of reducing social mobility and appears to be concentrating wealth and income into fewer and fewer hands. I am calling BS on this, you seem to have changed your tune since 2022, perhaps you won lotto or received an inheritance since then.

To get the trickle down it appears you have to support the asset owners with monetary policy to get a trickle from their... hmm how did you say it "enormous windfall gains"

The other side effect of boosting asset prices is that you also boost the price of everything else it is called inflation (or in NZ a "cost of living crisis"). Inflation is OK if your assets are rising while your debt is diminishing but not so great if you have no assets.

[Ggcc]

A good example of trickle down economics was when Adrian explained back in 2020 that low interest rates and easy money would create a "wealth effect". People who own assets would feel richer so they would keep spending i.e. the trickle down effect.

I have heard some people suggest things about trickle down on this thread.

According to the older generation who have reaped astronomical gains solely due to central bank policies since the GFC, all young people have to do is not spend so much on coffees and smashed avocado on toast and they will easily be able to buy a house.

The arrogance of the older generation in this regard is unbelievable. Yes, they did work hard. No, this does not mean that they should have been entitled by right to enormous windfall gains which have come about due to a bizarre historical event: the action of central bankers to deliberately inflate asset bubbles as a response to a global financial crisis. Then as a response to a pandemic, they have defended the bubbles they created with more of the extraordinary stimulus and interest rate suppression. Logen Ninefingers 26/01/2022 post 2558

What we have seen to date from the government and central bank has been a passive bail-out of the housing market. Back in 2020 when house price falls were predicted they went into overdrive to support the market. Of course the measures were intended to prop it up (orbail it out in other words) rather than over-heat it. Of course your average Kiwi see's interest rates being slashed to the bone and doesn't think "hmmm...they are propping up the market", they think "corrrr....look at interest rates; I better get e another house!" or "I better get me a better house". So you got the unintended consequence: massive price rises.

You see a lot of comments on line about 'ha ha ha ha...the experts were predicting house price falls - instead they went up massively. Those idiots don't know what they are talking about".
These comments are dumb. Prices would probably have fallen without the heavy handed intervention of the government and the central bank. Logen Ninefingers post 2567

I guess on the one hand many young people have been left holding the bag, but have a long life to look forward to.

And the boomers have cashed out their central bank given gains but are at the end of their lives and have the old folks home, dementia et al to look forward to.Logen Ninefingers post 2574

I agree with your statement that the majority of older generations don't understand it and choose not to want to understand how this generation can't get a house. Although if you ask this generation, most don't want to own a house. I am trying to tell my parents to spend their money, but they struggle as they feel they are living comfortably. They have a different comfortable way of living than I do. I have aircon which I use regularly, they take off a shirt or put one on if it gets too cold. They have a different mentality, which isn't wrong it is just different.

Also I have the same feeling for the younger who can't learn to live without. If you save money from the time you start working things get easier. I had a nephew who bought a house at 18. He managed to save $50,000 by that age. He worked a job and side hustled selling pens he made out of wood. He did get a $20,000 injection from family which he paid off at 20. He lived without lots of stuff for ages. He had 2 flatmates that helped with the mortgage. He believes if he can do it anyone can you only need discipline.

An example is one who can't go without carpet in their house, when the older generation couldn't afford it yet and walked on cardboard for years until they got carpet. I have young ones I know, that don't buy a vacuum cleaner, they need a Dyson. They can't get a cheap phone they need a $2000 iPhone. I worked with 15 year olds with a brand new $1500 phone, they have afterpay and live with debt. They don't know how to say I can't afford it nor do they save. These are the types that get to 25 saying we can't buy a house.

What I am trying to get at is, where there is a will there is a way. Plus parental advice is required. Most who wanted a house and bought one know they must help children to get a house. That is how I got mine. Just plan that your children want a house and work hard at getting it sorted. Plus only let your children have a house if they can budget and if they can reach targets of saving money.

A bit all over the place sorry about that. Got called away about 3 times and lost where I was going lol

[Logen Ninefingers]

A good example of trickle down economics was when Adrian explained back in 2020 that low interest rates and easy money would create a "wealth effect". People who own assets would feel richer so they would keep spending i.e. the trickle down effect.

I have heard some people suggest things about trickle down on this thread.

According to the older generation who have reaped astronomical gains solely due to central bank policies since the GFC, all young people have to do is not spend so much on coffees and smashed avocado on toast and they will easily be able to buy a house.

The arrogance of the older generation in this regard is unbelievable. Yes, they did work hard. No, this does not mean that they should have been entitled by right to enormous windfall gains which have come about due to a bizarre historical event: the action of central bankers to deliberately inflate asset bubbles as a response to a global financial crisis. Then as a response to a pandemic, they have defended the bubbles they created with more of the extraordinary stimulus and interest rate suppression.
Logen Ninefingers 26/01/2022 post 2558

What we have seen to date from the government and central bank has been a passive bail-out of the housing market. Back in 2020 when house price falls were predicted they went into overdrive to support the market. Of course the measures were intended to prop it up (orbail it out in other words) rather than over-heat it. Of course your average Kiwi see's interest rates being slashed to the bone and doesn't think "hmmm...they are propping up the market", they think "corrrr....look at interest rates; I better get e another house!" or "I better get me a better house". So you got the unintended consequence: massive price rises.

You see a lot of comments on line about 'ha ha ha ha...the experts were predicting house price falls - instead they went up massively. Those idiots don't know what they are talking about".
These comments are dumb. Prices would probably have fallen without the heavy handed intervention of the government and the central bank.

Logen Ninefingers post 2567

I guess on the one hand many young people have been left holding the bag, but have a long life to look forward to.

And the boomers have cashed out their central bank given gains but are at the end of their lives and have the old folks home, dementia et al to look forward to.

Logen Ninefingers post 2574

Trickle down economics is about using monetary policy to prop up asset prices or "bubbles" as you have referred to them in your posts. The effect of constantly propping up asset prices has the side effect of reducing social mobility and appears to be concentrating wealth and income into fewer and fewer hands. I am calling BS on this, you seem to have changed your tune since 2022, perhaps you won lotto or received an inheritance since then.

To get the trickle down it appears you have to support the asset owners with monetary policy to get a trickle from their... hmm how did you say it "enormous windfall gains"

The other side effect of boosting asset prices is that you also boost the price of everything else it is called inflation (or in NZ a "cost of living crisis"). Inflation is OK if your assets are rising while your debt is diminishing but not so great if you have no assets.

You are simply conflating Central Banks inflating asset prices to induce the so-called ‘Wealth Effect’ with a different idea referred to as ‘Trickle Down Economics’. Just because you heard it referred to as that term doesn’t mean it is.

In New Zealand, the desire to boost asset prices have demonstrably stimulated consumer spending and propped up the economy for a long period of time. This is not Trickle Down Economics though, it is simply the main driver of economic activity in New Zealand. Building and selling houses is how we keep the wheels spinning. Anything that threatens the ‘housing ponzi’ - such as a pandemic - induces the kind of panicked over-reaction from the central bank & government that we saw in 2020.

Leftists are obsessed with’Trickle Down Economics’ just as they are with the term ‘Neoliberalism’. These bogey words are thrown about like hand grenades to the point where they lose all context and meaning.

It is helpful to strip these terms back to their meaning:

Neo-liberalism: Less regulation, less state intervention in economies, less state ownership of businesses.

Trickle Down Economics: ‘A rising tide floats all boats’, although it is unrealistic to think that the indolent or unskilled will benefit to the same degree as a business owner or qualified person.

[Aaron]

You are simply conflating Central Banks inflating asset prices to induce the so-called ‘Wealth Effect’ with a different idea referred to as ‘Trickle Down Economics’. Just because you heard it referred to as that term doesn’t mean it is.

In New Zealand, the desire to boost asset prices have demonstrably stimulated consumer spending and propped up the economy for a long period of time. This is not Trickle Down Economics though, it is simply the main driver of economic activity in New Zealand. Building and selling houses is how we keep the wheels spinning. Anything that threatens the ‘housing ponzi’ - such as a pandemic - induces the kind of panicked over-reaction from the central bank & government that we saw in 2020.

Leftists are obsessed with’Trickle Down Economics’ just as they are with the term ‘Neoliberalism’. These bogey words are thrown about like hand grenades to the point where they lose all context and meaning.

It is helpful to strip these terms back to their meaning:

Neo-liberalism: Less regulation, less state intervention in economies, less state ownership of businesses.

Trickle Down Economics: ‘A rising tide floats all boats’, although it is unrealistic to think that the indolent or unskilled will benefit to the same degree as a business owner or qualified person.

There is a difference between creating an asset and inflating an asset. I am not going to debate ideology with you, just commenting on what is actually happening in the real world. The rising tide of debt, low interest rates and inflation is certainly floating the asset owners boats.

[Aaron]

I agree with your statement that the majority of older generations don't understand it and choose not to want to understand how this generation can't get a house. Although if you ask this generation, most don't want to own a house. I am trying to tell my parents to spend their money, but they struggle as they feel they are living comfortably. They have a different comfortable way of living than I do. I have aircon which I use regularly, they take off a shirt or put one on if it gets too cold. They have a different mentality, which isn't wrong it is just different.

Your point I guess is that there is still a chance of social mobility if you make the effort, rather than just moaning about how unfair life is.

I agree.

Although I am suggesting for someone born to the wrong family social mobility is getting harder rather than easier. The main reason being monetary policy.

The example of your nephew includes the inevitable "helping hand" from family but by the sounds of it he would be doing well anyway maybe just not as well as quickly.

[Aaron]

Trickle Down Economics: ‘A rising tide floats all boats’, although it is unrealistic to think that the indolent or unskilled will benefit to the same degree as a business owner or qualified person.

Thought I had better check the definition of trickle down economics as I use it a lot and there are a lot of water metaphors in your definition.

What Is Trickle-Down Economics?
Trickle-down economics and its policies employ the theory that tax breaks and benefits for corporations and the wealthy will trickle down and eventually benefit everyone.

Tools like reduced income tax and capital gains tax breaks are offered to large businesses, investors, and entrepreneurs to stimulate economic growth.

Sorry not monetary policy as I have suggested. It is more to do with tax policy. Although inflation has been likened to a regressive tax and inflating assets and debt would provide the job creators and go-getters with more funds to trickle down and the "indolent" and "unskilled" (much better terms than the usual "lazy" and "stupid" are you sure you are not woke?) end up contributing more as they trade time for dollars.

Taxation is always tricky but following your ideology if it is correct the countries with the least taxes should be the wealthiest with all the boats at high tide.

https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates

I don't think you can rely on Wikipedia but it is the best attempt at what we are after. Confirmation of the success of trickle down economics.

Which countries do you consider successful? and which ones are unsuccessful? It would be interesting to look at their comparative tax rates.

I don't generally like to get into ideological arguments but sometimes ideas are soooo stupid and fly in the face of reality it is always good to check the ideas against actual results in the real world.

[FTG]

In New Zealand, the desire to boost asset prices have demonstrably stimulated consumer spending and propped up the economy for a long period of time. This is not Trickle Down Economics though, it is simply the main driver of economic activity in New Zealand. Building and selling houses is how we keep the wheels spinning. Anything that threatens the ‘housing ponzi’ - such as a pandemic - induces the kind of panicked over-reaction from the central bank & government that we saw in 2020.



You are right "on the money" L9F's.

Politicians & bureaucrats, in cahoots with the 'elites', continuing to inflate money supply, & hence debasing our currency, will only further inhibit 'Trickle Down Economics' in the productive economy having a good chance of taking hold.

The combination of cheap debt and inflation has exacerbated rising inequality between low-middle NZ and the large owners of capital. The top quartile (and second quartile to a lesser degree) have been able to profit from insidious inflation, using their balance sheets to borrow at cheap rates and buy real assets as a hedge against inflation. Meanwhile kiwis in the two lower quartiles — with weak balance sheets and little/no access to leverage — will continue to bear the brunt of rising prices.

[Aaron]

You are right "on the money" L9F's.

Politicians & bureaucrats, in cahoots with the 'elites', continuing to inflate money supply, & hence debasing our currency, will only further inhibit 'Trickle Down Economics' in the productive economy having a good chance of taking hold.

The combination of cheap debt and inflation has exacerbated rising inequality between low-middle NZ and the large owners of capital. The top quartile (and second quartile to a lesser degree) have been able to profit from insidious inflation, using their balance sheets to borrow at cheap rates and buy real assets as a hedge against inflation. Meanwhile kiwis in the two lower quartiles — with weak balance sheets and little/no access to leverage — will continue to bear the brunt of rising prices.

How is inflating assets and providing cheap capital different to tax cuts for wealthy people. They both provide them with more money/capital to work their magic.

I was waiting for Logen to respond because the tax cut idea does not seem to stack up when you look at the different tax rates of the different countries. Maybe it depends on your definition of success. There are always a group of people in most third world countries that do very well for themselves. Maybe that is what he is after with lower tax rates. That seems to stack up better to reality.

https://en.wikipedia.org/wiki/List_of_countries_by_tax_rates

[Ggcc]

Your point I guess is that there is still a chance of social mobility if you make the effort, rather than just moaning about how unfair life is.

I agree.

Although I am suggesting for someone born to the wrong family social mobility is getting harder rather than easier. The main reason being monetary policy.

The example of your nephew includes the inevitable "helping hand" from family but by the sounds of it he would be doing well anyway maybe just not as well as quickly.

I am not 100% sure what you mean by social mobility. If it means both parties need to come to a common ground then yes.

I am nearing 50 and I "moan" a bit about the next generation and feel if they want to get ahead they need to look how their previous generation did things. I feel the kids of today don't need everything they feel they need. People don't need a $2000 cell phone. Kids of today have so much help from parents in way of daycare. Daycare never existed for my parents. Benefits were less. No working for families. One parent had to stay at home as their parents or family were unavailable. If they could not afford to live in the street they chose they moved to a street they could afford. Again different mentality.

Of course people don't need to go as rugged as our parents generation. Sometimes I feel my parents have some jealousy how the kids of today live. They feel many live and don't plan for tomorrow. I read an interesting article in the Herald, more a letter to the editor in the business section. I will write about it how I remembered it below.

My husband is 69 and has started having medical problems. He still works and I want him to finish up with work. He feels that if he did they would be homeless within a few years. Later you find he has a freehold house and 4 million dollars???? Always planning for the just in case. It is built into them.

[Aaron]

I am not 100% sure what you mean by social mobility. If it means both parties need to come to a common ground then yes.

My husband is 69 and has started having medical problems. He still works and I want him to finish up with work. He feels that if he did they would be homeless within a few years. Later you find he has a freehold house and 4 million dollars???? Always planning for the just in case. It is built into them.

Social Mobility for me means "equality of opportunity" or the extent to which people have the same chances to do well in life regardless of the socio-economic background of their parents, age, sexual orientation, race, ethnicity, birthplace, or other circumstances beyond their control.

Regarding the 69 year old, I wonder how happy his marriage is. There might be reasons other than financial to hide at work.

[Ggcc]

Social Mobility for me means "equality of opportunity" or the extent to which people have the same chances to do well in life regardless of the socio-economic background of their parents, age, sexual orientation, race, ethnicity, birthplace, or other circumstances beyond their control.

Regarding the 69 year old, I wonder how happy his marriage is. There might be reasons other than financial to hide at work.

Thanks for the clarification

My only concern about people having the same chances, that there are confusions when you look at the likes of how John Key and how he got wealthy, from a solo mother on the benefit... There will be many others who did get rich and came from a bad socio-economic background. If they can do it why not anyone. Some part of me feels that if you want to make it work you will, but it has to start young.

It may come down to their motivation and own personalities rather than just being raised by a wealthy background. I also have articles of millionaires from lotto who lost it all within years.

I was told by people I sounded like a twat when I said I ate baked beans and spagetti for dinner for approximately 2 years so I could afford my mortgage payments. Who's the twat now. Sorry I do sound like a twat now.

The 69 year male old sounds nuts or his wife is lol

[Aaron]

Thanks for the clarification

My only concern about people having the same chances, that there are confusions when you look at the likes of how John Key and how he got wealthy, from a solo mother on the benefit... There will be many others who did get rich and came from a bad socio-economic background. If they can do it why not anyone. Some part of me feels that if you want to make it work you will, but it has to start young.

It may come down to their motivation and own personalities rather than just being raised by a wealthy background. I also have articles of millionaires from lotto who lost it all within years.

I was told by people I sounded like a twat when I said I ate baked beans and spagetti for dinner for approximately 2 years so I could afford my mortgage payments. Who's the twat now. Sorry I do sound like a twat now.

The 69 year male old sounds nuts or his wife is lol

If you have made sacrifices to get ahead I can understand why you would be annoyed by people moaning but are not willing to make any sacrifice or adjustment to their lifestyle to get ahead.

It is just things like monetary policy supporting/boosting asset (house) prices and causing inflation that are obviously not right and making things harder for those on the bottom and easier for those at the top. These sort of things annoy me.

[Logen Ninefingers]

I hope all is ok with the KiwiBank loan book. Jarrod Kerr and his offsider’s are always the ones squealing the loudest about OCR increases.

——

‘Kiwibank economists are strongly disagreeing with market sentiment suggesting that further Official Cash Rate hikes from the Reserve Bank may be in the pipeline.
Economists at the country's largest bank ANZ caused a considerable stir at the end of last week by changing their call and forecasting that the RBNZ would start hiking the OCR, currently paused at 5.5%, again at its review on February 28. The ANZ economists now pick a peak OCR of 6%.
Following on from this forecast there was a flurry of activity in the wholesale interest rate markets, with the result that the market is now pricing in a 50-50 chance of an OCR hike in the February review.
In Kiwibank's latest First View publication, chief economist Jarrod Kerr, senior economist Mary Jo Vergara and economist Sabrina Delgado say they "disagree" with the wholesale market pricing.
"We think the RBNZ has done more than enough to get inflation back to [its target of] 2% and continue to call 5.50% as the peak in the OCR," the economists say.’

[Aaron]

I saw that in the paper. I guess all good economists know that low interest rates and easy money make the world go round. The more indebted we can get the younger generation the more we can pay useless bank economists.

Alokhdir's been calling for cuts for a while now, hope his investments are doing OK. You don't need to worry so much how you allocate capital if it is free and readily available.

You didn't get back to me on the lower taxes better country theory? Obviously National believe this whole heartedly as do a majority of the NZ voting public. Labour proved you can spend sh*tloads and not achieve anything, which is one angle of your argument I can agree with but the results globally don't seem to stack up.

[unhuman]

Doubles in price every 10 years? ie about 7% per year

Thats a new one Duncan. It used to be 10% a year - ie doubles in price every 7 years.

Do you still reckon property has doubled every 10 years from 1066 to 2006 and will do so from 2006 to 2056?

Year average house price
2006....400k
2016....800k
2026....1.6 m
2036....3.2 m
2046....6.4m
2056....12.8m

A house is considered expensive if it is 7 times the average wage.

What are the chances of the average wage being $229,000 (1.6m/7 = 229k) in 2026?

Pretty slim I'd say.

If house prices keep doubling every 10 years no one will be able to afford to buy them.

I like to refer back to this post from 2007 every couple of years to check how NZ's unaffordable housing is tracking.

Article on stuff this morning stating houses have doubled in the last 10 years: https://www.stuff.co.nz/money/350176470/house-prices-double-10-years-can-it-continue

Before the OCR hikes NZ looked on track to get to the 1.6m by 2026.

QV only has the average house price at 950K~ish now though so some way off right now.

Between the flood of migrants and (eventually) decreasing interest rates still a chance to get to 1.6m. Most economists seem to think housing on the rebound this year.

The housing ponzi scheme still going strong.

[JBmurc]

I like to refer back to this post from 2007 every couple of years to check how NZ's unaffordable housing is tracking.

Article on stuff this morning stating houses have doubled in the last 10 years: https://www.stuff.co.nz/money/350176470/house-prices-double-10-years-can-it-continue

Before the OCR hikes NZ looked on track to get to the 1.6m by 2026.

QV only has the average house price at 950K~ish now though so some way off right now.

Between the flood of migrants and (eventually) decreasing interest rates still a chance to get to 1.6m. Most economists seem to think housing on the rebound this year.

The housing ponzi scheme still going strong.

Not going to happen by 2026 IMHO .. unless the NZD goes even further down in value because rates drop to near zero again... middle-class Kiwis just aren't making enough $$$ after ever increasing living costs ...FHB having to stump up even more for a first home unit etc ..

[Aaron]

Not going to happen by 2026 IMHO .. unless the NZD goes even further down in value because rates drop to near zero again... middle-class Kiwis just aren't making enough $$$ after ever increasing living costs ...FHB having to stump up even more for a first home unit etc ..

RBNZ guarantees at least a 1-3% rise each year although as unhuman points out the RBNZ has spectacularly out performed their inflation targets with asset prices. Although assets do not form a big part of the CPI so maybe they do not measure it.

Interest deductibility will return soon thanks to Chris and the team. I agree with it though, it is inflation targeting that seems to be what distorts things.

This guy has an interesting take on things although he is talking about Australia.

"The rental property sector in Australia is not a net tax payer. The deductions actually exceed the income.

and that is with a capital gains tax.

https://www.abc.net.au/news/2024-02-15/ken-henry-australias-tax-system-in-worse-position-after-15-years/103465044

Hopefully Chris can get the rental market back in order so landlords can get back to contributing very little to the nation. Guaranteed 2% tax free capital gains probably more like 7% and with Adrian at the helm mortgages are 6-7% easier to pay off each year, although the current return of interest rates has many moaning.

[Aaron]

Anecdotal admittedly, sad but I am reluctant to say true. As there is still the possibility of home ownership, but as sailorRob points out not a good investment and relies on current monetary policy settings to keep interest rates low and push up house prices faster than CPI inflation.

National's policies will only exacerbate the problem, but what is the solution? I would suggest a 0% inflation target as a first start. Cut immigration to the bone. Look at a capital gains tax and investing that in housing. Sounds too hard and no political will to change as a certain sector of society is doing just fine.

https://www.stuff.co.nz/nz-news/350187327/its-national-belief-now-you-cant-afford-house

Australia but just some confirmation bias.

https://www.youtube.com/watch?v=qsE_-Fp6BQM

[blackcap]

National's policies will only exacerbate the problem, but what is the solution? I would suggest a 0% inflation target as a first start. Cut immigration to the bone. Look at a capital gains tax and investing that in housing. Sounds too hard and no political will to change as a certain sector of society is doing just fine.



Sounds like a good start. Lets get this country going with the people we have and not rely on import while we get lazier and lazier. 0-1% inflation target would be great. None of this 3-5% creep. Not sure if capital gains tax would be a thing or necessary with 0% inflation.

[Aaron]

Not sure if capital gains tax would be a thing or necessary with 0% inflation.

I guess the only capital gains would be from providing actual value, rather than just borrowing, holding assets and waiting for the central bank to boost your rents and decrease your debt.

[blackcap]

I guess the only capital gains would be from providing actual value, rather than just borrowing, holding assets and waiting for the central bank to boost your rents and decrease your debt.

That would be the case, and then I would argue that a tax is not necessary.

Then again, I am biased against tax, I am of the opinion that tax is theft. (State sanctioned theft, but theft none theless)

[Aaron]

That would be the case, and then I would argue that a tax is not necessary.

Then again, I am biased against tax, I am of the opinion that tax is theft. (State sanctioned theft, but theft none theless)

Your abhorrence to all taxes aside we tax productive labour, why not productive capital?

Also a capital gains tax would get the rentiers contributing a bit more to society, even if they are not adding value.

No one likes paying tax but it would appear what we might consider the more successful countries tend to have higher taxation and stronger public institutions.

[JBmurc]

RBNZ guarantees at least a 1-3% rise each year although as unhuman points out the RBNZ has spectacularly out performed their inflation targets with asset prices. Although assets do not form a big part of the CPI so maybe they do not measure it.

Interest deductibility will return soon thanks to Chris and the team. I agree with it though, it is inflation targeting that seems to be what distorts things.

This guy has an interesting take on things although he is talking about Australia.

"The rental property sector in Australia is not a net tax payer. The deductions actually exceed the income.

and that is with a capital gains tax.

https://www.abc.net.au/news/2024-02-15/ken-henry-australias-tax-system-in-worse-position-after-15-years/103465044

Hopefully Chris can get the rental market back in order so landlords can get back to contributing very little to the nation. Guaranteed 2% tax free capital gains probably more like 7% and with Adrian at the helm mortgages are 6-7% easier to pay off each year, although the current return of interest rates has many moaning.

the assets aren't going up in value ... the NZD is dropping in value ..it's heading southwards and will continue to unless interest rates go high enough to make that NZD value higher say we had 10-15% interest rates etc

Just think of the value lost in the NZD.. if I had a million NZD 25 years ago in Queenstown I'd be so rich could buy a nice property in a great location and a couple of Queenstown rental homes earning 7-8% return(I recall it well as I had a contract on a property for 3bd freehold house for $173k in sunshine bay in year 2000)..and still have enough funds to invest in the market and pick up great stock for peanuts ...

Fast forward to the present mass dilution of the value of the NZD YOY...

that same NZD $1mill today in Qtn wouldn't get me home anywhere in Qtn ... but a 1-2 bed shoebox unit that would return 3-4%

[Aaron]

Yep inflation is the devaluing of dollars.

Looking back this thread was started by crypto crude back in 2007 when he was 22, now he is 38. With a name like crypto crude I would hope he has made millions in oil or crypto so housing is not a problem. I guess that was just before the GFC so hopefully he bought a house a few years later in the aftermath. That would have been his best chance as central bank largess has probably pushed house prices even higher cf wages.

Good to see rents rising though. Labour and National governments (OUR GOVTs) have been pouring immigrants into NZ for many years now to push down wages and push up rents. I do not think that will assist young NZers onto the property ladder but then who does our govt represent?

https://www.newshub.co.nz/home/money/2024/02/record-migration-and-high-interest-rates-the-perfect-storm-that-s-causing-rents-to-soar.html

Rising rents and cheaper and more varied places to dine out as well as the security of more care workers for the elderly, sounds like utopia for a retired/retiring boomer with no debt and a couple of rentals.

I am a bit hard on the boomers of the last three prime ministers only John Key is a boomer. Jacinda and Chris are GenX, Jacinda was nearly a millenial.

[Aaron]

I may not like his ideology but Sir John Key is a clever guy. He thinks house prices should double over the next 10 years and interest rates will be going down by next year. He is probably right.

https://www.newshub.co.nz/home/new-zealand/2024/02/sir-john-key-reveals-his-prediction-for-the-housing-market.html#:~:text=Sir%20John%20Key%20has%20a,hig her%20salaries%20are%20to%20blame.

Obviously if interest rates are going down then house prices should go up. But Sir John also gave immigration, rising costs and higher salaries as reasons for his prediction. He doesn't say if salaries will keep pace with house price rises. Funnily enough he did not mention land constraint being a big issue. From some quarters this appears to be the main reason for rising house prices. I think sir john is smarter than those people.

Interesting that while house prices are doubling in 10 years that is a rate of 7%pa and if wages are rising, CPI inflation will be within 1-3%? Something does not add up in my head. Maybe cheap imports from Asia will get even cheaper.

Interesting also that national prefers to index some benefits to CPI inflation (not national super of course don't s*it on your voter base).

What does CPI really measure? Is it fit for purpose?

An interesting note in the article.

Inflation and rising mortgage costs saw median house prices dip from their $925,000 peak in November 2021 to $760,000 in January this year, according to data from the Real Estate Institute of New Zealand.

That is an 18% drop in 18 months with inflation running at 6%-7% maybe we need to buy the dip. I wonder how Max's property development company is going.

Probably good news for retirement villages share prices. Poor ValueNZ is getting a hard time on the OCA thread.

[Aaron]

Following on from yesterdays post I see an opinion piece pointing out that land restriction is the cause of all housing issues. Too much govt.

https://newsroom.co.nz/2024/02/27/nzs-uncompetitive-urban-land-markets-at-root-of-housing-problems/

From Dr Eric Crampton he must be smart so I guess land restriction might be part of the problem, but I have seen how developers like to cut up land flog it off quick and leave the ratepayers to fix up all the corners they cut. So lumping the costs on the developers and buyers versus spreading a lot of the costs over new and existing ratepayers.

Also see that it is from the NZ Initiative, a group that do not even understand that GST is a regressive tax.

More interesting was Matthew Hooton's opinion piece this morning. To quote.

Bishop cites a 2007 paper, which he says suggests doubling a city’s population might increase its productivity or per-capita GDP by 15 per cent.

If so, doubling Auckland’s population to 3.4 million over the 36 years to 2060 would increase Aucklanders’ average earnings by 0.4 per cent a year.

https://www.nzherald.co.nz/business/who-wins-from-doubling-aucklands-population-again-matthew-hooton/OUMJ7FSSW5DRLKACSHBJX4KBIY/

So Chris Bishop and National are wanting to double our population and the policies they promote only discourage young NZers from having a family and encourage them to leave the country so that just leaves immigration from the third world. I guess it is easier and cheaper than investing in the younger generation.

This is just sad especially as Matthew points out some real life cities that appear to prove the productivity bs wrong. When did townies wrest control of this nation. It almost makes me want to return to First Past the Post.

National appears to be set to make NZ another crowded s*ithole in Asia. At least the young people leaving won't feel like coming back to raise a family like they used to.

It makes you wonder why Luxon wants to be PM.

https://www.msn.com/en-nz/news/national/luxon-claims-52k-accommodation-payment-to-live-in-own-apartment/ar-BB1j7hZG?ocid=msedgntp&pc=DCTS&cvid=9031ecb702e141d7bcfbb9981ccb101b&ei=11

It says he is the first PM to claim this in 34 years. All legitimate Bill English sorted this.

Hooton also points out that Labour flooded NZ with immigrants just prior to the election in the hope that it would boost GDP and help their chances at re-election. All these politicians are starting to come across as self centred scum bags much like myself. I would have hoped for better from our leaders but I guess we are the ones that vote them in.

[Lego_Man]

I may not like his ideology but Sir John Key is a clever guy. He thinks house prices should double over the next 10 years and interest rates will be going down by next year. He is probably right.

https://www.newshub.co.nz/home/new-zealand/2024/02/sir-john-key-reveals-his-prediction-for-the-housing-market.html#:~:text=Sir%20John%20Key%20has%20a,hig her%20salaries%20are%20to%20blame.

Obviously if interest rates are going down then house prices should go up. But Sir John also gave immigration, rising costs and higher salaries as reasons for his prediction. He doesn't say if salaries will keep pace with house price rises. Funnily enough he did not mention land constraint being a big issue. From some quarters this appears to be the main reason for rising house prices. I think sir john is smarter than those people.

Interesting that while house prices are doubling in 10 years that is a rate of 7%pa and if wages are rising, CPI inflation will be within 1-3%? Something does not add up in my head. Maybe cheap imports from Asia will get even cheaper.

Interesting also that national prefers to index some benefits to CPI inflation (not national super of course don't s*it on your voter base).

What does CPI really measure? Is it fit for purpose?

An interesting note in the article.

Inflation and rising mortgage costs saw median house prices dip from their $925,000 peak in November 2021 to $760,000 in January this year, according to data from the Real Estate Institute of New Zealand.

That is an 18% drop in 18 months with inflation running at 6%-7% maybe we need to buy the dip. I wonder how Max's property development company is going.

Probably good news for retirement villages share prices. Poor ValueNZ is getting a hard time on the OCA thread.


So you're talking average Auckland house pushing $2m in 10 years. What does wage growth have to be to justify those valuations? Factoring in DTI limits of 6x.

[Aaron]

So you're talking average Auckland house pushing $2m in 10 years. What does wage growth have to be to justify those valuations? Factoring in DTI limits of 6x.

Don't know why you are asking me the maths question as you are better at it than me, but assuming a 10% deposit of $200,000 on a $2mill house that is $1.8mill divide by 6 equals $300,000. With an average income of $100,000 now that is only a 200% increase over the next 10 years. I guess if your income isn't rising by 20% pa(200%/10yrs) you are going backwards?

John is probably not talking about the average NZer I imagine with the rise in asset values he and his family will have sufficient equity so that the income limits are not a problem. That is why targeted inflation works so well. It boosts asset prices.

On the theme of Auckland house prices, the front page of the herald had a story about a woman whose son was not enrolled in Auckland Grammar even though he lives in zone. Apparently she had to fly all the way from Hong Kong where she lives and works to sort it out.

https://www.nzherald.co.nz/nz/auckland-grammar-enrolment-trouble-despite-boy-living-in-zone-school-declines-application/OTOX6NADRJF4ZGUHG6GSEQYJC4/

She owns a house in the grammar zone and her father looks after the boys here in NZ.

To me the interesting story would be the the family, with my xenophobic, glass half empty view of the world I would like to know if she has an import/export business helping sell NZ products to the world, or if she lives and works and pays tax in Hong Kong contributing nothing here in NZ, while her Dad collects the pension in NZ and her boys get free schooling all courtesy of the NZ taxpayer.

If that were the case she is pretty ballsey and shameless going to the papers to complain.

The other issue is crowding at schools due to excessive immigration.

[Aaron]

Renters are "grateful" for interest deductibility for landlords says Chris Luxon. Yeah right get me a Tui's. I would laugh but I think Chris probably genuinely believes this.

https://www.msn.com/en-nz/news/national/we-care-about-renters-luxon-says-renters-very-grateful-govt-bringing-back-interest-deductibility-for-landlords/ar-BB1jNhgG?ocid=msedgntp&pc=DCTS&cvid=cef1fd9ef0e843df8944002d50d26ee8&ei=8

I wonder if first home buyers are grateful?

I was against penalising residential housing with the removal of interest deductibility as it was not consistent with other investments and seemed overly complicated. I guess the woke Labour liberals did not see housing as an investment.

I thought the interest deductibility for new homes was a good add on though to encourage new builds, but I guess rentiers prefer to own existing assets and take rents rather than building something new. They can get capital gain by pushing up rents each year which seems less risky than actually building a house.

Adrian Orr should help keep house prices rising with his out of control inflation (cost of living crisis) and the NZ taxpayer is helping to the tune of $1.5billion a year in accommodation supplements.

Who wants to bet that the accommodation supplement is one area of welfare spending that the govt does not cut back on? Because it directly helps the poor, wink wink nudge nudge

[thegreatestben]

I've got two new builds I developed, I rent and manage them myself. I can tell you the two things that are setting the rent I'm asking is interest rate and shortly behind is insurance and rates increases. I'm about to refix and I'll be topping them up more per week than the rent one of them brings in per week.

If landlords have less pressure on cashflow they have less pressure to raise or have "high" rents, most of us want to retain good tenants well ahead of squeezing every last dollar out of them.

[Aaron]

I've got two new builds I developed, I rent and manage them myself. I can tell you the two things that are setting the rent I'm asking is interest rate and shortly behind is insurance and rates increases. I'm about to refix and I'll be topping them up more per week than the rent one of them brings in per week.

If landlords have less pressure on cashflow they have less pressure to raise or have "high" rents, most of us want to retain good tenants well ahead of squeezing every last dollar out of them.

Good on you, I must sound like an ahole complaining about landlords. Good tenants make it easy, I had tenants that must have thought I was a wealthy landlord so stopped paying rent for a few weeks over christmas every year, very stressful, by the time they caught up it was christmas again. Ended up in arbitration/court, fortunately they were sort of genuine and paid it all eventually.

I hope you managed to add some value/gains over and above the cost of the new builds, I understand a few years back building costs were rising so fast builders were losing on fixed price contracts and if it wasn't fixed price I guess the planned cost of the investment blew out.

What gross and net rental yields do you work on if you don't mind me asking?

I think locally our rates are about to go through the roof in the next year and insurance has already risen significantly.

[thegreatestben]

I think gross is somewhere around 4.5%
It's hard to give you a good set of numbers because this all fell out of my personal home which I purchased (first home) in 2012.
I probably got caught a little bit by increased costs but what really added to the cost was personal choice to build stand alones with separate titles. I also relocated the original house on site and did major improvements such as complete double glazing, new roof and fully refinished inside and out (which I DIY'd quite a bit of).

We are "debt free" on our personal home and the new builds are valued at more than the total debt. This upcoming financial year likely to be the worst but I only need to see interest rates around 5% to be happy with my overall cashflow.

I'm personally very happy with what we have done in terms of contributing to supply and doing so in a way I think will lead to good outcomes in the long term. I think it will be a "good" investment in the long run but it's having a pretty massive impact on our lives and has been since about 2020.

[Aaron]

Appreciate your honesty hope it all continues to go well.

I might be a bit old fashioned worrying about yields but I always thought that if the old depreciation rates of 1-2% fairly represented the deterioration of a house over many years 4.5% does not leave a lot to maintain the property and take some income. That said I have been way wrong with these concerns as house prices doubled over the last 10 years and John Key reckons they will double again over the next 10.

On a heavily leveraged property that is the best way to accumulate wealth.

That is why I come across as bitter when discussing central banks. I should never have feared debt and borrowed much more than I have.

[Aaron]

Maybe some public servants wanting the govt to look bad but IRD on the case.

https://www.newstalkzb.co.nz/news/business/inland-revenue-scathing-of-plan-to-disallow-depreciation-deductions-for-commercial-and-industrial-property/

Depreciation denial on commercial buildings not a good idea according to IRD.

It said even under the status quo, where 2 per cent depreciation deductions are allowed, New Zealand is likely to be the least attractive country in the OECD to invest in commercial and industrial buildings.

“Denying depreciation deductions will drive up these hurdle rates of return even higher and make New Zealand a less attractive location for investment,” Inland Revenue said

Obviously Chris Luxon does not own a lot of commercial property. Maybe just residential like his voter base.

[Bjauck]

Taking on debt was certainly the way to accumulate equity in the past, in an environment of falling interest rates and surging asset (especially residential property) prices from the 1980’s onwards. However from today, whether this will continue to the same extent without workforce productivity gains and/or a shift away from income tax to capital or estate taxes, seems quite speculative to me.

[Aaron]

Australia appears to have the same problems around housing and immigration.

https://www.msn.com/en-nz/news/other/barefoot-investor-scott-pape-hits-back-at-woman-who-called-him-a-racist-and-bigot-after-he-weighed-in-on-australia-s-housing-crisis/ar-BB1kOyNS?ocid=msedgntp&pc=DCTS&cvid=d17407ac4ba2431b873bb4c8c55a62fa&ei=51

He brings up an important issue with figures to back up his concerns but media focus on some dummy posting online.

You're a racist bigot, Barefoot,' she wrote. 'What a load of claptrap. You've taken a complex and highly emotive issue and boiled it down to one simplistic factor: housing'.

She does not really state what the issue is and I guess would not know herself. But the statement no matter how dumb raises controversy and that is what sells papers. The media are like sh*t stirrers not truth seekers.

The front page of the herald had a headline that the Ombudsman favoured the banks over their clients and then went into the emotive story about some poor guy who fell for a scam.

To balance the article they should have asked him what happened and why did he get sucked in and does he have any personal responsibility for getting scammed?

Admittedly the headline did the trick as I was immediately outraged by the ombudsman's actions and read some of the article until I realised it was a nothing burger.

[Aaron]

The govt giveth tax cuts for landlords but will they taketh away the $2.34bill landlord subsidy? Is it keeping a roof over poor people's heads or is it allowing landlords to keep cranking up the rent?

https://www.nzherald.co.nz/business/minister-louise-upston-questions-government-paying-234-billion-in-rent-mortgage-supplements/C7PXPUBYSRC7TFGV7MVZBDBM7U/

Now might be the time to do it as landlords will be reducing rents due to interest deductibility coming back. I think denying the deduction was going straight onto the tenants if I remember the news articles at the time.