Quote Originally Posted by Aaron View Post
I guess these might all be factors. Tax policy around capital gains including housing has been consistent for many years without house prices getting too high. I would suggest that after each central bank intervention when the economy(borrowers) gets over extended with lower rates and easier debt means people are now comfortable becoming over-extended financially knowing that central banks will drop interest rates and assist refinancing. Another couple of financial crises and you will get paid to have a mortgage with negative interest rates like in Denmark. No limit on house prices then and then overextended borrowers are no longer overextended. People saving money though are screwed. I guess that's the game and I am upset as my parents taught me to be prudent with debt and to save for the future.(Worst advice ever since about 1987)
NZ house prices got too high because of the NZRB placing more emphasis on economic output (ie productivity) than to control inflation. Their measuring stick of determining inflation, the CPI, is a very crude method for assessing inflation as it never considers the long term outlook of ie. mortgages. It's only a snap shot of costs at from point A to point B ; and considers no other variable. I much prefer the US's model of factoring inflation 'Producer's Price Index' PPI. So what has been consistent in NZ is IRD rarely collects taxes on the sale of houses (with exception to those that are in the business/trade/construction). Such an asset class so large, it should not be ignored if you're using interest rates as a means to control house prices. What makes the Canadian model of treating real estate so remarkable is not only they recognise house prices rise (because of inflation) but also the FTHBI program tells the buyer that the gov't is too into the game of making $$. Anotherwords, the gov't and the buyer goes hand in hand into buying a house and when the house changes hands or after 25 years, both investors will get paid back. This is very different to the process we have in NZ where IRD assesses taxing capital gains on a house by using a bright-line 5 year test or if the buyer intended to purchase the house as an investment / speculation where the gains are taxable.

I would say it's unfair to use the EU examples of interest rate controls as during the formation of the EU, they've completely ignored key factors such as the formalisation of past debts between different sovereign nations. The United States of America through civil wars in the past HAD collectively formalised their debts and therefore, the controls of interest rates can apply as a whole nation. This is not happening in the EU and a good example is to look at the relationship between Italy and Germany on their bonds, that is, Italy on it's own has massive debt and seeks more loans. The ECB says ok we'll lend you at 2% but the global open market asks that Italian issued bonds should pay at least 8%. This is not gonna work so the ECB loans to Italy and the German citizens get screwed out by propping Italy up (because Germany as a whole is the largest economy in the EU); how they say 'austerity measures'? NZ will not fall into that model but instead, a gradual erosion of standard of living (via a long term weakening of the NZ currency to the USD) will occur before interest rates will get to zero. Hopefully I would be long gone back overseas before this occurs.

Don't assume your parents were wrong about being prudent with debt and having cash. When 2008 hit, it was only those that HAD the savings and cash set aside that benefited the most. Those that borrowed and over leveraged had the most to lose. Jim Cramer (CNBC sensationalist) time and time again says you need cash reserves to buy at times of crisis. Hindsight 2008/2009 were good years to buy either in real estate or in the stock market. What is more compelling is this - where are people investing their pension $? Are they being blind buying NZ shares or US listed shares? Because the model we have in NZ is strongly tainted towards investing into NZ shares which by far, are way way more riskier than buying US listed shares. I mean in the past 5 years if you held NZD currency instead of USD you would of lost over 20% on the exchange rate. It's a fat move by ex-NZRB minister Michael Cullen to push NZ into Kiwi Saver. Oh and if you look at the Scandinavian countries, they don't force their residents to buy their own shares, their gov't pension funds have huge positions in US listed equities. What NZ should be doing is aligning their tax structures to be similar to abroad so investments abroad and within NZ are transparent and equal. But instead, you have corporate taxes that are higher in NZ than abroad. You have restrictions on NZ residents having foreign brokerage accounts (ie FMA). You have tax policies that coerce funding to stay within NZ (FIF). When I add all these factors up, it doesn't look very good in NZ.

You know 20 years ago NZ use to be a magnet of attracting wealthy migrants having none of those restrictions or tax laws. But recently when I see these people selling up land around NZ, that tells me the wealthy migrant is moving abroad. Now it may seem to the locals that they don't care for such migrants, it's important to know that if too much $ leaves NZ, then the NZ currency will get weaker which affects everyone.