first home buyer advice

[Aaron]

Modern Monetary Theory (MMT) is what pulled the US economy out of the GFC in 2008. Unfortunately MMT is not working in the EU as we see artificial interest rates that are well below what the market expects (their negative interest rate policy does not work buyers of their bonds expect a much higher rate). Anyways in respect to NZ, the RB also adopts MMT but I would not say it's anything near what the EU is at. Key distinction is we still have a we ways to go to zero. The better indicator is to watch the NZ currency.

Housing is only 1 segment of the interest rate variable. Commercial & gov't loans are a big factor so it's more important that the key drivers of maintaining employment, and thus the economy roll through in tough times. Though I do agree, too low rates will encourage the rich to buy more houses in NZ, it also means they stand to risk more in a real estate bubble crash. Sadly, when the economy collapses, so does employment which basically wipes out those trying to buy their 1st home.

Many NZ politicians would disagree but the real problem why next generations have to pile on more debt to buy a house is simply due to NZ's weak currency and thus, the long erosion of standard of living. NZ is a small country that can not make EVERYTHING efficiently to produce the end product 'the house'. Also NZ's is very poor at implementing tax policies on residential homes as all too many just 'game the system' without paying any taxes. This is very different to the Cdn model where the CRA is effective at collection any capital gain tax on the property. But overall, MMT will cease to work if 'taxation' is not applied across all asset classes and this is a key problem in NZ, and not because of interest rates are too high or too low.

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)