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  1. #41
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    Quote Originally Posted by SBQ View Post
    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)
    Last edited by Aaron; 12-09-2019 at 08:43 AM.

  2. #42
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    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.

  3. #43
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    Quote Originally Posted by SBQ View Post
    On the Canadian front for 'doing something about' the problem of 1st home buyer ownership, it seems the Cdn gov't is taking it all the way to the bank so that low income or 1st time home owners can get their 1st home. Unlike NZ, we've stood flat and done absolutely NOTHING about making homes more affordable for the 1st home buyer.

    https://www.cmhc-schl.gc.ca/en/media...uyer-incentive

    and for more beefier details:

    https://www.moneysense.ca/spend/real...yer-incentive/

    "The federal government launched a new national program on September 2, 2019, that it says will help thousands of families across the country buy their first home. Aptly named the First-Time Home Buyer Incentive (FTHBI), the program offers eligible buyers up to 10% of a home’s purchase price to put toward their down payment, thus lowering mortgage carrying costs and making home ownership more affordable."

    C'mon Ms Ardern, why aren't you doing anything about the issue of home affordability in NZ???

    And the eligibility for FTHBI is pretty reasonable:

    "are not only people who have never owned a home before, but also homeowners who have gone through a divorce or breakdown of a common-law partnership, or those who have not lived in a home that they owned (or that was owned by their spouse or common-law partner) for the past four years."

    And the Cdn gov't will:

    "The government will loan buyers 5% of the purchase price for a re-sale home, or 10% for a new one. That works out to a possible $50,000 on a new $500,000 home, or $25,000 on a $500,000 resale property. "

    This is on top of the 5% down payment the 1st home buyer needs to have. The FTHBI portion is payable after 25 years with no interest BUT the capital gain value of the house the Cdn gov't will also get the benefit; that is the home owner under this scheme SHARES the capital gain with the gov't, likewise in a crash (not likely house values would be less after 25 years) the gov't will share the loss. But it's interesting to see the Cdn gov't is making a bold move to tell 1st home buyers that they are willing to take the risk in lending. Again:

    "Buyers don’t have to make ongoing payments and are not charged interest on the loan. But they do have to repay the incentive, either when they sell the house, or after 25 years—whichever comes sooner. "
    Overall this does sound fairly similar to what we have. We don't have shared equity, but we have the rent to buy scheme (not that the details are clear on that)

    Rent to buy instead of Shared equity,
    5% deposit with govt insured loan, check, with price and income caps, check
    Second chancers included, check.
    NZ gets the $5k (or $10k for new build) )per person grant as well, again, income and price caps apply.

    But the big problem is both of these schemes are just going to spur more demand, which will do what to prices? yeah, more demand = higher prices.
    The solution isn't to give people money to help blow the bubble up further, its to increase supply and bring prices down.

  4. #44
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    Quote Originally Posted by Vagabond47 View Post
    Overall this does sound fairly similar to what we have. We don't have shared equity, but we have the rent to buy scheme (not that the details are clear on that)

    Rent to buy instead of Shared equity,
    5% deposit with govt insured loan, check, with price and income caps, check
    Second chancers included, check.
    NZ gets the $5k (or $10k for new build) )per person grant as well, again, income and price caps apply.

    But the big problem is both of these schemes are just going to spur more demand, which will do what to prices? yeah, more demand = higher prices.
    The solution isn't to give people money to help blow the bubble up further, its to increase supply and bring prices down.
    Maybe cut immigration until the infrastructure and number of houses catches up.

  5. #45
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    Quote Originally Posted by Aaron View Post
    Maybe cut immigration until the infrastructure and number of houses catches up.
    Yeah, no need for wide open taps on immigration, a bout a third of what we get now is enough.

  6. #46
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    Quote Originally Posted by Vagabond47 View Post
    Overall this does sound fairly similar to what we have. We don't have shared equity, but we have the rent to buy scheme (not that the details are clear on that)

    Rent to buy instead of Shared equity,
    5% deposit with govt insured loan, check, with price and income caps, check
    Second chancers included, check.
    NZ gets the $5k (or $10k for new build) )per person grant as well, again, income and price caps apply.

    But the big problem is both of these schemes are just going to spur more demand, which will do what to prices? yeah, more demand = higher prices.
    The solution isn't to give people money to help blow the bubble up further, its to increase supply and bring prices down.
    Not at all similar to the Cdn model where the gov't provides a loan up to 10% (on a new build; note on existing home it's only 5% so there is the emphasis for developers to build more supply). The loan appreciates (or depreciates in a market collapse) at time of sale or in 25 years if the house has not changed hands. This is not a 'grant' where the funds don't have to be paid back as in the NZ case (IMO $5K or $10K is a joke to the cost of buying a house in NZ which is around 1% of the value of the house? Give me a break). Did I not mention the taxation on capital gains in Canada?

    Having just recently purchased a house in NZ, the disclosure to IRD is relatively vague. In Canada you must disclose the use of the house ; intent ; purchase for investment? ; etc. and it's a LOT more difficult to game the system there than in NZ. What we see in NZ is relatives, family members are buying houses in each of their name and claiming as their own personal residence while they conduct renovations with INTENT to flip the house in 2 to 5 years time. THIS is the reason why you have a bubble and not the 1st time home owners wanting to get in.

    I've been hearing the same story that the housing bubble caused by excessive immigration. Well i'm finding houses are coming down since the ban on foreign buyers. With AML, it makes buying houses even more difficult so I expect long term, houses aren't going to go up much. On some part, the NZ gov't is at fault for not making the construction of new houses more affordable ; over-regulations (ie RMA, Council restrictions ; and recently Maori protests of land use north of Auckland) sets the attitude that "Yes we want affordable houses but.... not in my back yard". Nothing will change and the losers will be the next generation when they go buy their own home... going into more debt". Remember Auckland house prices are not unique - same deal in Vancouver. But what I see happening there is a hell of a lot more than what NZ is doing.

  7. #47
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    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)
    Case in point the Brains Trust at the Aussie Reserve Bank warning against.... shock horror.... people paying down debt and how it is bad for the economy. WE NEED MORE DEBT AND HIGHER HOUSE PRICES SO WE CAN BORROW MORE IN A VIRTUOUS CYCLE OF GROWTH. What a bunch of f**ktards.

    https://www.msn.com/en-nz/money/fina...cid=spartanntp

  8. #48
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    Quote Originally Posted by SBQ View Post
    Not at all similar to the Cdn model where the gov't provides a loan up to 10% (on a new build; note on existing home it's only 5% so there is the emphasis for developers to build more supply). The loan appreciates (or depreciates in a market collapse) at time of sale or in 25 years if the house has not changed hands. This is not a 'grant' where the funds don't have to be paid back as in the NZ case (IMO $5K or $10K is a joke to the cost of buying a house in NZ which is around 1% of the value of the house? Give me a break). Did I not mention the taxation on capital gains in Canada?
    Agree, we should have taxation of some sort on houses. I prefer TOPs deemed rate of return tax, as the landlord class can't ignore it if they never intend to sell, as they can with a CGT only on realised gains, while still being able to borrow against the unrealised capital gains of the property.

    Note that for a couple buying the grant is $10k (or $20k for a new build). And $20k is 3.1% minimum, since the price cap is $650k for a new build in Auckland or Queenstown, less elsewhere. For many it is the deposit that is the problem. Even a couple earning $50k each ($765/week take home each, after tax and kiwisaver) can reasonably easily service a 90% mortgage on a $650k property ($680/week mortgage payment, 45% of the couples take home pay). Those further down the income ladder are indeed rather stuffed, but funding more loans isn't the answer, either increasing their income somehow , or dropping the price of property so the so the prices aren't stupid multiples of income.

    Turning more people that want to buy into actual enabled buyers just pushes up demand and does nothing for an already tapped out supply chain here in Auckland. Maybe Vancouver is different, but at the moment Auckland is building faster than it has in decades, and the builders are flat out. We need to improve the speed with which we can build (prefabrication or automation?), and free up the supply of buildable land (RMA/ council zoning etc)

    Having just recently purchased a house in NZ, the disclosure to IRD is relatively vague. In Canada you must disclose the use of the house ; intent ; purchase for investment? ; etc. and it's a LOT more difficult to game the system there than in NZ. What we see in NZ is relatives, family members are buying houses in each of their name and claiming as their own personal residence while they conduct renovations with INTENT to flip the house in 2 to 5 years time. THIS is the reason why you have a bubble and not the 1st time home owners wanting to get in.
    The flippers have to have someone to sell to, that is willing (or forced by situation) and able to pay the price they are asking, if there was adequate supply compared to demand, they would have a much harder time trying to sell an overpriced renovation, and also would not be willing to pay high prices for properties to buy to renovate. Again, the problem is a problem of supply and demand, and also that of the tax/cost advantages of the investor over the home owner. At the end of the day, they buy 1 property, improve it, and sell 1 property having a net 0 long term effect on supply; they aren't the reason for the shortage of property.

    I've been hearing the same story that the housing bubble caused by excessive immigration. Well i'm finding houses are coming down since the ban on foreign buyers. With AML, it makes buying houses even more difficult so I expect long term, houses aren't going to go up much. On some part, the NZ gov't is at fault for not making the construction of new houses more affordable ; over-regulations (ie RMA, Council restrictions ; and recently Maori protests of land use north of Auckland) sets the attitude that "Yes we want affordable houses but.... not in my back yard". Nothing will change and the losers will be the next generation when they go buy their own home... going into more debt". Remember Auckland house prices are not unique - same deal in Vancouver. But what I see happening there is a hell of a lot more than what NZ is doing.
    Ah, now here we go.. you turn down the demand with the foreign buyer ban (although China cracking down on money flows out of China may be the real reason) , and prices stop increasing, and even start falling.
    And yes, the councils are indeed a big part of the supply problem, limits on increasing density of buildings, and charges for permits and development contributions etc push the prices up.
    Its not the flippers, although they are certainly taking advantage of the loopholes in the system to make outsized low taxed or untaxed gains.

  9. #49
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    On the supply side 49 Auckland apartment developments that were planned to actually deliver last year didn't - abandoned, deferred, sites onsold (Colliers).

    That indicates more about finance issues than council issues as all 49 were already consented.

    Apartment buyers have been more for rentals in the past, overseas buyers similar or hold for capital gain, or both.

    Balloon economics - poke one side and then ....

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    Not surprised, Kiwis generally aren't a big fan of apartments. The amount of apartment blocks needing remediation hasn't done their image any good, and when you are shopping for property and look at apartments, and discover $5k pa Body corp levies you lose interest real fast.

  11. #51
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    Quote Originally Posted by Vagabond47 View Post
    Not surprised, Kiwis generally aren't a big fan of apartments. The amount of apartment blocks needing remediation hasn't done their image any good, and when you are shopping for property and look at apartments, and discover $5k pa Body corp levies you lose interest real fast.
    Friend of mine lives in a 90 apartment complex, very nice, well maintained, not cheap to rent or to buy. 88 are rentals. This is Wellington central - big rental shortage here.

    If not bought off the plan as rentals or for owner occupiers, nobody should be surprised if the development falls over. Big question - in a shortage why are investors not buying (existing or new)? Government policies have plenty to do with it.

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    Quote Originally Posted by artemis View Post
    Friend of mine lives in a 90 apartment complex, very nice, well maintained, not cheap to rent or to buy. 88 are rentals. This is Wellington central - big rental shortage here.

    If not bought off the plan as rentals or for owner occupiers, nobody should be surprised if the development falls over. Big question - in a shortage why are investors not buying (existing or new)? Government policies have plenty to do with it.
    A lot of the apartments that were planned were luxury apartments catering to the overseas buyer market, when that got knocked on the head they discovered no local was going to pay $800k+ for a city apartment (eg. https://www.trademe.co.nz/browse/lis...?id=1423232571 ) , but thats what they needed to make the project work.

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    Quote Originally Posted by artemis View Post
    Friend of mine lives in a 90 apartment complex, very nice, well maintained, not cheap to rent or to buy. 88 are rentals. This is Wellington central - big rental shortage here.

    If not bought off the plan as rentals or for owner occupiers, nobody should be surprised if the development falls over. Big question - in a shortage why are investors not buying (existing or new)? Government policies have plenty to do with it.
    Fully agree. Need to question why most of these high rise apartments or condos are going bust well before they start or finish? Quite often i'm told there are great similarities to the housing problem between Auckland and Vancouver but they're so far apart. Vancouver constantly is building high rise after another and each time I visit every year, I see 1 petro station knocked down and replaced with a condo (with business premise at ground level). The surprising thing is these building projects are mostly SOLD OUT well before they start digging.

    NZ is far too expensive to build - only fools would pay over $800K for 66m2. Last year visiting Auckland my uncle (who works at Alk city council) told me that there are countless of projects going under... meaning "they're not financially viable". It seems that they whole NZ real estate market depends on higher and higher prices to fuel any building. But what we have is a shortage of buildings with investors running away from building projects.

    As I said before, NZ's remoteness makes construction ultra expensive. In Canada, economies of scale is achieved being next door to the USA. I'm thinking the world realises the cost of living is just too high in NZ that when they look at the salary pay.. the #s don't stack up.

  14. #54
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    Quote Originally Posted by Vagabond47 View Post
    A lot of the apartments that were planned were luxury apartments catering to the overseas buyer market, when that got knocked on the head they discovered no local was going to pay $800k+ for a city apartment (eg. https://www.trademe.co.nz/browse/lis...?id=1423232571 ) , but thats what they needed to make the project work.
    No idea if they were high end or shoe boxes. But one thing we do know is that LVR changes for investors coincided with a major drop off in them buying. Bank lending to the sector started dropping sharply from mid 2016 and remains well less than half that level. (Reserve Bank c31 report.)

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    Quote Originally Posted by artemis View Post
    No idea if they were high end or shoe boxes. But one thing we do know is that LVR changes for investors coincided with a major drop off in them buying. Bank lending to the sector started dropping sharply from mid 2016 and remains well less than half that level. (Reserve Bank c31 report.)
    Minor problem with that theory, LVR restrictions don't apply to new builds, for Owner-occupiers or investors.

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