ADRIAN ORR our NEW RBNZ GOVERNOR

[Aaron]

I have not been following Zerohedge reporting for a long time as I do not find their information factual and is very subjective how they spin their narrative.

For eg. Zillow has real factual (far more accurate data) of the # of house sales around the US and tracks those selling in say California, and the same people, buying in other states. If you look at the national rise in US house prices (likewise in Canada), they do no compare to NZ's massively high rise in house prices for the same period. Also you need to take population in proportion of house pricing ; in NZ (and correct me if i'm wrong), maybe 80% live in places that experienced insane returns. While in Canada and the US, you are not seeing 80% of the population with home prices that risen 30%. So I would question ZeroHedge's data source and how they are spinning their narrative of inflation and the massive housing bubble.

I opinion? Don't ask these guys. Ask someone like Warren Buffet who has been around far long than these guy reporting were born. I'm not seeing Buffet liquidating Berkshire's share position in fear of a massive bubble in the stock market (or housing market). If I recall correctly, he was saying the Berkshire's investment in housing and construction is very healthy. We had a stock market crash in 3rd week March 2020. The housing policy in US/Canada is in far better position than in NZ. What more to say?

https://www.zerohedge.com/markets/ca...r-bubble-fears

[SBQ]

https://www.zerohedge.com/markets/ca...r-bubble-fears

Not even remotely the same. What did Auckland do since the start of Covid? Well over 30%? NZ Nationally?

If you ask me, 20% of recent housing purchases falling in the investor category is not a lot. The BOC has a lot more tools than the RBNZ. They do stress tests on houses, they do speculation assessments. Again that ZeroHedge is just spinning their narrative. The fact being is the Canadian Gov't has done a lot more than NZ in getting 1st home buyers into a home and building more and more houses than ever. Look at ll the high rise buildings going up in Vancouver and Greater Toronto area? Makes Auckland look like a joke standing still.

Again.. 20% ? Let's recall what Jacinda said in how many houses in NZ were sold to people who already had 5 or more houses?

[Aaron]

I had thought our disagreement was that I thought loose monetary policy and low interest rates were the main drivers of the current house price rises in NZ and that you thought it was mostly the tax policies in NZ.

Probably a combination of both and no doubt other factors such as the supply issue, population growth, desperation of first home buyers and investors realising that central banks are gunning for inflation to take care of debt and are not even pretending they are worried about price stability. Yield doesn’t matter anymore as capital gain is where it is at.

Similar to NZ the US, UK , Sweden, Denmark, CANADA etc etc. are experiencing house/asset price increases. Do all these countries have the same tax policy?? Did they all neglect to build houses like NZ? or perhaps there is some other reason why asset prices across the developed world are inflating. Hmmm.... tricky I wonder what it could be, but it must be happening in all these countries at the same time. I will have to put my thinking cap on as to what might be the main driver behind house price rises globally.

You raise so many points that I don’t have time to fact check, I am not even sure that we are arguing over the same issue. I would need FTG to look over many of the statements you have made to make sure you are talking from your mouth this time rather than your a*se and then assemble these statements into some sort of cohesive argument. Maybe clarify what your point is and we can go from there.

[SBQ]

@ Aaron:

I'm not denying that record low interest rates aren't a cause of record high housing prices. No one is saying that. What i'm hitting hard is the obvious ; not all investments are created equal and what we have in NZ is truly unique to the rest of the world. One, an absence of CGT on the sale of multiple houses over the long term (+10 years). Two, as described in the following article, a very high % of investments pooled into NZ real estate compared to anywhere else.

https://businessdesk.co.nz/article/t...w-it-all-began

You mentioned Sweden and Denmark? Perhaps you should check what % of the country holds their investments in their real estate market? They know better that $ invested in overseas equities in a diversified way is a far better bet then coercing their citizens with archaic tax that only favour the fueling of higher and higher house prices that we see in NZ. After all it's not that low interest rates helped fueled the craze in NZ, but rather - we have a unique situation that exasperates the growth exponentially. Let me quote again:

As New Zealand house prices continue to soar, it is worth examining the origins of this amazing boom. Why has New Zealand’s average house value rocketed from just $25,500 in Dec 1980 to an estimated $715,500 at the end of last year?


The average New Zealand house is now worth 28 times more than it was 40 years ago while the NZX 50 Capital Index has appreciated a more modest tenfold over the same period.

Meanwhile, United States equity markets have completely outperformed the country’s housing market over the same 40-year period. The median US house price has appreciated just five times since Dec 1980 while the Dow Jones Industrial Average has risen by 33 times, the S&P 500 Index 28 times and the Nasdaq by a massive 64 times.

Forty years ago, New Zealand house prices were much lower than US house prices, but our prices are now more than 50% higher.

One does not have to think that the primary cause of NZ's housing problem is due to the RBNZ bringing rates so low. Every country around the world has been doing this. You could mention housing prices in the US are at record levels - but are they compared to the price of NZ house? A BIG NOPE. In Auckland we think paying $2M for a house not much more than a 3 bedroom state house is expensive. In the US, paying $2M for a house.. overall would be far more grand, larger, more comfortable, wider streets, larger section sizes, just like the vehicles they drive over there. It's pretty much to the level that NZ's housing situation is in a league of it's own. Why wouldn't it be? You have an absence of any demand controls without CGT. A near non-existent supply side of building houses. Yes if you ask me NZ is unique.

As referenced before, just look at the composition of the investments in NZ; what % is held in the NZX vs in houses? Therefore when you mention US, Sweden, or CANADA, i'm afraid the situations there are different and that's not purely due to record low interest rates but rather, the decades upon decades of the NZ gov't making bad choices. At least I know growing up in Canada, high housing prices only benefit those that can own but ultimately, the losers are the next generation wanting to buy their 1st home. So by their composition investment make up, it's clear retirement planning is not concentrated upon owning houses. The tax rules give all the benefit for the working class to invest in more productive areas - like in the stock market / equities. But what we have in NZ is entirely the complete opposite.

[SBQ]

I should also add that in that article, they blame the cause at the RBNZ (hence low interest rates). I disagree. The argument is about which came first, the egg or the chicken? It's the behaviour of NZ investors (property) lavish appetite of buying multiple houses to form their retirement portfolio. The banks in NZ, whom are mostly foreign, are only here because the people dictate so and all along, decade after decade, the NZ gov't watched along, did nothing, 3 years in.. 3 years vote again. 3 years done nothing and continued to pass the buck along.

[Aaron]

I should also add that in that article, they blame the cause at the RBNZ (hence low interest rates). I disagree. The argument is about which came first, the egg or the chicken? It's the behaviour of NZ investors (property) lavish appetite of buying multiple houses to form their retirement portfolio. The banks in NZ, whom are mostly foreign, are only here because the people dictate so and all along, decade after decade, the NZ gov't watched along, did nothing, 3 years in.. 3 years vote again. 3 years done nothing and continued to pass the buck along.

I would suggest 30 years of lower and lower interest rates and monetary policy and interest rate intervention every time asset markets try to correct have incentivised investors to take on more debt at lower yields bidding up asset prices knowing that central banks will ensure investment success. Without the central banks and targeted inflation the capital gains would not be as significant. Tax policy was/is the cherry on top I suppose.
Lately houses have increased nearly 30% annually despite the loss of interest deductibility and an extension to the bright line test. If your arguement holds true these actions should have tempered the price rises. What else has changed, Adrian Orr has tried to talk the housing market down because he is not going to his job and raise interest rates, further encouraging everyone.

Price stability, moral hazard just a couple of concepts foreign to a central bankers way of thinking.

[SBQ]

It wasn't too long ago (2011?) interest in the bank account was paying near 9 or 10% - did housing prices collapse? I don't recall being so. I agree, just like before when people ask me where to invest $ in NZ? I regretfully say, "Buy houses". Hence 'it's still the best game in town'.

If you ask around Vancouver why house prices are so high there - i'm sure you will get a different answer. They aren't saying it's due to decades and decades of low central bank rates. When Trudeau was voted in, he assembled a special task force at the CRA (ie IRD) to look at the hot Vancouver housing market. Their conclusion? They pointed the finger at rich Chinese $ flowing into the Vancouver real estate market and most of them were not paying any taxes on the capital gains by claiming the purchase as a principal resident (while living in China). Unlike NZ that banned non-residents from buying, Canada instead went and taxed them knowing that it was $ to be had. But not severely enough because these high caliber buyers were using Vancouver real estate as a way to launder their $ out of China. So it did not matter what the local domestic mortgage rates were or how much taxes they had to pay as locals had no chance against dirty $ when comes to bid for a house. And what better way to address that dirty money than the Cdn gov't by taxing most of it (psst they get them by taxing their overseas income by using the house as the trap). Then there's the 20% tax applied to non-residents on the purchase price (if you think GST is bad). Full capital gains tax on the sale of the house requiring the owner to front up 33% of the value of the house before it goes for sale. City Vancouver also addressed taxation by putting rates at the highest figure (ie no senior or principal residence discount), a Vacancy Tax, etc. But here's the real story ; if you ask those rich Chinese buyers, they will tell you today like I say right here in NZ, "It's still the best game in town".

Fortunately, the dirty money from China does not flow anywhere else into the small cities of Canada. They draw the line at having to make more than one connecting domestic flight when going back to China; convenience to them is still king. They even tried to move $ to surrounding places around Vancouver like Victoria - but then those municipals also imposed the same Vacancy tax etc.

On the supply side, there's still plenty of places to live in Vancouver if you want big city lifestyle (50 story high apartment buildings). This is typical of any major growing city and unfortunately, something Auckland does not have. How else can you get more people to live in the same given area? You knock down a 2 or 3 dwelling pad, and go multistory UP. But we have stupid RMA in NZ where one can't be even a whisker past the recession plane blocking the neighbour's sun light. So instead of addressing they key problem of supply (the RMA), they think well maybe we should be moving all of Auckland's future development in the North Shore or far south in the farmland of Pukekoe. What kind of prehistoric thinking is this? And then load up the traffic on the Auckland Harbour Bridge. Oh gov't doesn't want people to drive cars.. so we have a cycling problem on that bridge. Where does this end?

[Panda-NZ-]

It wasn't too long ago (2011?) interest in the bank account was paying near 9 or 10% - did housing prices collapse? I don't recall being so. I agree, just like before when people ask me where to invest $ in NZ? I regretfully say, "Buy houses". Hence 'it's still the best game in town'.

Should put in a foreign buyers ban like here.
Local chinese can't even buy the land the property sits on, in their own country.

[SBQ]

Should put in a foreign buyers ban like here.
Local chinese can't even buy the land the property sits on, in their own country.

How is that relevant? Both NZ & Canada have different tax treatments on the same asset class. The ultra wealthy Chinese aren't fleeing China because they can't own land where they lived. Look at how high Shanghai apartments cost - I can assure you it's not about the land ownership issue. It's the simple fact that dirty money can leave China under the radar. When you look closer at Vancouver - they buy the west side, ultra $5M+ which pretty much does not affect the rest of the housing market. These ultra wealthy do not compete with the local buyers in the way we see in Auckland by competing directly with first time home buyers. So the CRA suggestion was, just tax em! and you know what? they gladly pay for it because it's dirty $ anyways. ie Huawei CFO Meng Wanzhou that was arrested ; when they flow their $ in, so does all the China corrupt officials (or those with ties), that found Canada an easy place to park their wealth.

Earlier in the year a Harcourts agent told me (at an open home end of my street) saying the foreign buyers ban in NZ did absolutely nothing in cooling our hot housing market. He beliefs it was FOMO (Fear of Missing Out) and irrational thinking of buyers will to pay anything just to get into a home. We didn't talk about taxation as that was much more complex issue.

[Aaron]

This article doesn't discuss tax as a cause of runaway house prices globally.

https://www.nzherald.co.nz/business/...INUMMC7W6FX2I/

Risk is if interest rates rise.

https://www.nzherald.co.nz/business/...NPJOJBY53LYSI/

The greater test of the housing market will come once mortgage rates start to rise from their record lows, it said.

However, just today, further mortgage rate drops have been announced.

Listened to Megan Woods briefly on a current affair show, but the bit I heard they were debating whether house prices are too high and what is the govt doing about it.

The NZRB is the problem they should be interviewing Adrian Orr as to what he is going to do about it.