ADRIAN ORR our NEW RBNZ GOVERNOR

[Aaron]

If the RBNZ wasn't setting interest rates, what are these "market (interest) rates?

I guess I would need to understand international finance better and the nature of money in a fiat currency system.

If banks and finance companies are the market place for interest rates we did see finance companies successfully attract capital through higher interest rates (and back handers to "financial advisors") although obviously the risk assessment by the lenders of the capital was not very good.

How are NZ banks funded as the article below points out the more banks lend the more money gets created. Do banks even need depositors? I read of central banks printing money and buying bonds, does this fund banks in NZ.

The OCR influences all other interest rates, but how if banks are free to set rates however they like how does it do this.

[dobby41]

How are NZ banks funded as the article below points out the more banks lend the more money gets created. Do banks even need depositors? I read of central banks printing money and buying bonds, does this fund banks in NZ..

Yes banks need depositors because they can only create a multiple of what the borrow - capital adequacy ratio I believe.

[SBQ]

NZ doesn't have a comprehensive capital gains tax much of the developed world does. If Australia, Canada, UK etc have historically high house prices to income then it won't be capital gains tax being the main driver. Although it will play a part. What they do have in common is lower and lower interest rates and loose monetary policy.
Check for yourself
https://www.global-rates.com/en/inte...ral-banks.aspx

The underlying factor is 'what % of the total population' is able to afford the house they live in? Both Canada and Australia have CGT, but i'm sure Sydney & Vancouver only represent a small % of the total population in each country (and so be it were the top 1% are able to buy those places). When 33% of NZ's population live in Auckland region, then yes we have a problem. Vancouver might be only 1% of Canada. If you look at other major cities in Canada like Edmonton, Calgary, Quebec City, Montreal, even Ottawa, all have exceedingly affordable housing (the latter being the most affordable and Ottawa is gov't central, like Wellington govt). The only 2 real outliars are Vancouver and Toronto and I do believe a large part of that is more to do with Canada's approach multiple ways of taxation to discourage landlordism (if there's such a word?). When Jacinda made that landmark speech in March, the stats were staggering. Some 40% of ALL property transactions were made by those who already owned multiple houses. 15,000 houses were purchased by those who already OWNED 5 OR MORE houses!!! Shocking if you ask me and well beyond the realm of things when you compared to Canada. The critics got it wrong in their reporting. Like which came 1st, the egg or the chicken... people's behaviour dictates first - they're always going to go for the tax free capital gain which is still the best game in town in NZ. In Canada or in the US, the best game in town to get rich is owning shares through retirement savings (for which in NZ have nothing except the dismal Kiwi Saver). No TFSA/IRA no RESP / Education savings plan. No Disability savings plan (which all of these grow 100% tax free and not limited to only domestic stock exchange).

https://www.youtube.com/watch?v=JwoImm6FgCM

Things are not fair and the fairness is easily judged when you look at other countries. The middle class NZ resident with Kiwi Saver will have less of a portfolio at retirement than the Cdn or US resident investing in the same shares. Corporate taxes are lower in Canada & US than in NZ. Income taxes are lower there too. The Vancouver home of similar value to the Auckland home, will be larger, more comfortable, better in every way than the Auckland home (so if you want to go and compare things like cars - you need to look at apples vs apples). There no Toyota Corolla that ends up being better in Canada than in NZ ; but on the issue of houses and standard of living - then there's a clear difference. The low interest rates set by central banks over the past decades are not the cause - the OECD has set it clear that NZ houses have ran away in terms of affordability and you can't simply put it down to low mortgage rates. Again, blame the behaviours of landlordism.

[FTG]

The underlying factor is 'what % of the total population' is able to afford the house they live in? Both Canada and Australia have CGT, but i'm sure Sydney & Vancouver only represent a small % of the total population in each country (and so be it were the top 1% are able to buy those places). When 33% of NZ's population live in Auckland region, then yes we have a problem. Vancouver might be only 1% of Canada. If you look at other major cities in Canada like Edmonton, Calgary, Quebec City, Montreal, even Ottawa, all have exceedingly affordable housing (the latter being the most affordable and Ottawa is gov't central, like Wellington govt). The only 2 real outliars are Vancouver and Toronto and I do believe a large part of that is more to do with Canada's approach multiple ways of taxation to discourage landlordism (if there's such a word?). When Jacinda made that landmark speech in March, the stats were staggering. Some 40% of ALL property transactions were made by those who already owned multiple houses. 15,000 houses were purchased by those who already OWNED 5 OR MORE houses!!! Shocking if you ask me and well beyond the realm of things when you compared to Canada. The critics got it wrong in their reporting. Like which came 1st, the egg or the chicken... people's behaviour dictates first - they're always going to go for the tax free capital gain which is still the best game in town in NZ. In Canada or in the US, the best game in town to get rich is owning shares through retirement savings (for which in NZ have nothing except the dismal Kiwi Saver). No TFSA/IRA no RESP / Education savings plan. No Disability savings plan (which all of these grow 100% tax free and not limited to only domestic stock exchange).

https://www.youtube.com/watch?v=JwoImm6FgCM

Things are not fair and the fairness is easily judged when you look at other countries. The middle class NZ resident with Kiwi Saver will have less of a portfolio at retirement than the Cdn or US resident investing in the same shares. Corporate taxes are lower in Canada & US than in NZ. Income taxes are lower there too. The Vancouver home of similar value to the Auckland home, will be larger, more comfortable, better in every way than the Auckland home (so if you want to go and compare things like cars - you need to look at apples vs apples). There no Toyota Corolla that ends up being better in Canada than in NZ ; but on the issue of houses and standard of living - then there's a clear difference. The low interest rates set by central banks over the past decades are not the cause - the OECD has set it clear that NZ houses have ran away in terms of affordability and you can't simply put it down to low mortgage rates. Again, blame the behaviours of landlordism.

SBQ. Sorry, but it looks like you need to be called out again. You may want to "fact check" yourself before attempting to build your arguments. Otherwise you may find that the basis of your points are being built on quicksand and that they will be dismissed as quickly as you appear to be glibly dispensing them.

QUICK FACTS:
Vancouver's population 2.6M (approx 7% of Canada. Certainly not 1%)
Sydney's population 5.3M (approx 21% of Australia. Surely this shouldn't be called a "small %")

To further illustrate what's actually happening, despite Aussie having CGT, house prices in greater Sydney increased by over 8% in the March Quarter. Even higher than Auckland at 7.2%. Vancouver; I'll leave you to look into that, rather than potentially further embarrass.

The actual reality is significant house price inflation has been, and still is, occurring in multiple markets across the globe. NZ is NOT some sort of unique/special case.

With the ongoing global "Everything Bubble", arguably created by QE, TINA et al, one could say that it isn't really a surprise.

[SBQ]

SBQ. Sorry, but it looks like you need to be called out again. You may want to "fact check" yourself before attempting to build your arguments. Otherwise you may find that the basis of your points are being built on quicksand and that they will be dismissed as quickly as you appear to be glibly dispensing them.

QUICK FACTS:
Vancouver's population 2.6M (approx 7% of Canada. Certainly not 1%)
Sydney's population 5.3M (approx 21% of Australia. Surely this shouldn't be called a "small %")

To further illustrate what's actually happening, despite Aussie having CGT, house prices in greater Sydney increased by over 8% in the March Quarter. Even higher than Auckland at 7.2%. Vancouver; I'll leave you to look into that, rather than potentially further embarrass.

The actual reality is significant house price inflation has been, and still is, occurring in multiple markets across the globe. NZ is NOT some sort of unique/special case.

With the ongoing global "Everything Bubble", arguably created by QE, TINA et al, one could say that it isn't really a surprise.

If you don't believe in the past 30 or so years NZ's unaffordable housing is not unique enough to be ranked #1 by the OECD for the poorest familes, then you must belong on that camp of those that own lots of residential properties. For a progressive nation, this is not something NZ should be proud with. I stand corrected the Vancouver / Sydney % population ; but I won't back down on NZ's culture for landlordism.

https://www.rnz.co.nz/national/progr...ability-report

Your % difference does not change the fact, vast majority population in Canada or Australia do not use houses as a vehicle to make their riches. Is my 33% population figure in Auckland that far off? Show me some figures on % of all houses that are rental vs owned by 1st home owners? Then you have something to argue about.

Don't try to justify the means why NZ houses are unaffordable to MOST of the general population by saying it's the same in other OECD nations. It's not. Those countries have done far more for the middle working class than NZ has ever done. But i'm not trying to skew and change the topic. It's not a justification that say Sydney is as expensive as Auckland despite they have CGT. You need to look at the struggles of the middle class and low income workers in both parts. When a high % of houses are in rental state, that means more of the population can't afford to own their 1st home.

[FTG]

...then you must belong on that camp of those that own lots of residential properties.

Your % difference does not change the fact, vast majority population in Canada or Australia do not use houses as a vehicle to make their riches.

Don't try to justify the means why NZ houses are unaffordable to MOST of the general population by saying it's the same in other OECD nations. It's not. Those countries have done far more for the middle working class than NZ has ever done. But i'm not trying to skew and change the topic. It's not a justification that say Sydney is as expensive as Auckland despite they have CGT. You need to look at the struggles of the middle class and low income workers in both parts. When a high % of houses are in rental state, that means more of the population can't afford to own their 1st home.[/QUOTE]

SBQ.....just settle a little huh. .........You are jumping around with a pumped up chest like an over-excited teenager on their first date. And, once again making wild assumptions. In this case on which "camp" I'm in and my opinions on what is driving the deterioration in house affordability in NZ. If you want to successfully "argue" on a forum site then my suggestion to you is keep your boundaries clear on what is fact and what is your opinion. Dressing up your opinion & assumptions as fact is not going to help you win any solidly principled based argument.

You may want to pause & consider that I made NO reference to your "landlordism" opinions. I simply held you to account for your glib assertions re the numerical facts regarding other cities/markets.

Whilst discussing & sticking to the facts, here is something further for you to consider. The MAJORITY of NZ housing stock is still clearly owner-occupied. Yes, the % has reduced over the decades (peaked around 75% in the 90's from memory), but it still sits around 65% today. Meaning up-to only 35% are owned by landlords. When compared to other markets, it's very similar actually. Home ownership figures elsewhere:

Australia - 67%
Canada - 68%
UK - 65%
USA - 66%
Denmark & Sweden (supposedly very "progressive & modern" countries) - 61 & 64%

These facts are a little confronting for you perhaps, but I trust that it makes you pause and reflect a little more on your epistemological framework. Just maybe you will consider that there are some other key drivers to why we are getting the current outcomes in NZ, and just maybe they relate back to the Subject Line of this forum thread. ;-)

QUOTE: ASSUME - and you will end up making an ASS out of U & ME

[Aaron]

Yes banks need depositors because they can only create a multiple of what the borrow - capital adequacy ratio I believe.

Yes your right looking at CBA's 2020 annual report deposits are 69% of total assets and debt issues 14%, equity is only 7% of total assets.

I had better shut up as I don't know what I am talking about. Does anyone know of any good online courses for understanding the banking system?

[Aaron]

Many thanks FTG I have found SBQ is pretty fast and loose with the truth/facts, good to see someone pointing it out.

Sadly I am not the only one making s*it up.

[SBQ]

Dressing up your opinion & assumptions as fact is not going to help you win any solidly principled based argument.

You may want to pause & consider that I made NO reference to your "landlordism" opinions. I simply held you to account for your glib assertions re the numerical facts regarding other cities/markets.

Whilst discussing & sticking to the facts, here is something further for you to consider. The MAJORITY of NZ housing stock is still clearly owner-occupied. Yes, the % has reduced over the decades (peaked around 75% in the 90's from memory), but it still sits around 65% today. Meaning up-to only 35% are owned by landlords. When compared to other markets, it's very similar actually. Home ownership figures elsewhere:

Australia - 67%
Canada - 68%
UK - 65%
USA - 66%
Denmark & Sweden (supposedly very "progressive & modern" countries) - 61 & 64%

QUOTE: ASSUME - and you will end up making an ASS out of U & ME

So the Labour Party is over-reacting for nothing about the cost of housing? The stats Jacinda made were of no interest?

There are other reasons why Denmark & Sweden have lower home ownership - from what i've been told, they focus their investments towards share ownership rather than holding it all in a dwelling. Perhaps you can be eager enough to fact check this out?

The 65% ownership figure does not tell the whole story. Try looking at the composition of it such as by age group and if you have noticed (or missed out), the trend for the past 25 years? It's been well commented by the media:

https://www.tvnz.co.nz/one-news/new-...el-in-70-years

https://www.theguardian.com/money/20...rship-ons-rent

and as my architect designer friend told me last week, "Seniors do not like to pay rent for a dwelling they live in". If you have children, what will it be when they grow up trying to buy their first home?

Australia from what I recall still allows negative gearing so for the wealthy, real estate is still their best game. I would imagine the UK would be similar ; hence similar housing affordability issues. The US is different and you can see up and down home ownership % over the past decades; though their tax approach to owning houses is a lot different. Canada if you missed, had an increasing trend on home ownership for the past 25 years. Again, what's the OECD's view on NZ's housing? A bunch of waffle? Do they say the same for Aus/Can/US/UK ???

Getting back to the reserve bank making $ out of fresh air. Not all banks are the same. That is larger banks in NZ have the ability to weather more risk and be more competitive on mortgage rates. The better question is, what % of the banks in NZ are foreign owned and how much of the profits they make, goes abroad? Does the reserve bank not care who their $ is lent to and knowingly, the profits are sent abroad if these banks are foreign owned?

[Aaron]

I heard on the radio this morning Janet Yellen suggested interest rates may need to rise a "little" bit to make sure the economy doesn't overheat.

I guess the market reaction caused her to reverse course quickly.

Still zero hedge asks "did she just start the process of thinking about thinking about thinking about normalization?"

Not a chance, inflation is needed to take care of the debt so owners of assets can keep their gains without making any effort.