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House Price Inflation

Written By: - Date published: 10:58 am, May 6th, 2012 - 59 comments
Categories: business, capital gains, debt / deficit, Economy - Tags: , ,

It is a conventional economics axiom that increasing the money supply without a concomitant increase in production causes inflation.

In the last thirty five years we have had low inflation in all, except two, commodities. Firstly, Land , and thence housing and farm prices. (The other commodity is food).

This is driven by private Banking’s incentive to print money. The more money they supply the more interest they can make. Unfortunately, there is also a strong natural incentive to lend only on solid security, such as land and buildings. Banks know better than anyone the inherent insecurity and instability of financial instruments, including shares.

Mortgage law in most Western countries favours lending on land. Unlike other investments, or lending, if the value of the security, land, goes down, the borrower is still liable for the full amount of the loan and interest. The bank is indemnified against loss. For example, in New Zealand, the bank has priority over all other creditors, including contractors.

Lending on business and other assets does not offer the same security. The bank has to wait in line with other creditors and, normally, cannot continue claims in excess of their proportion of the sale.

Banks, while reluctant to risk their own money, are happy to risk small savers investments. Our pension funds, bank deposits and savings.

These schemes, whether shares, derivatives, hedge funds or other financial instruments are designed so that banks can gamble with our money. Win or lose they always get a cut. Losses come out of our pensions and other savings. Or, if they really stuff it up, taxpayers are expected to borrow more from them to pay for it. “The bailout”.

De-regulation of banking has removed almost all constraints on lending and the amount of wealth banks can take. The total monetary value of financial instruments and debt is now so great that a crash, or super inflation, is inevitable if it is ever fully spent on real production. Does anyone really think that infinitely compounding interest is possible in a world with finite resources?

While we lose our savings, houses and farms, bankers still get richer.

Given the difficulty in obtaining bank finance without land as security, favourable tax treatments in (Western countries for homeowners, landowners and farmers ), incentives for banks to avoid risk and the risks inherent in other investment (The inevitable crash of Banker’s ponzi schemes and the likely devaluation of currency denominated investments) it is not surprising that investors prefer land. The Chinese Government buying up land worldwide with US dollars, before they become worthless, is only a minor example.

Hence land prices rising much faster than wages.

Our economy, along with most other Western economies has been skewed by banks following their own self interest. The “invisible hand” has failed..

KJT

59 comments on “House Price Inflation”

  1. peter 1

    And in Godzone our interest payments and bank profits go off-shore for the benefit of others. We are already tenants in our own country, might just as well sell everything off.

  2. Richard 2

    Well, this post is pretty incoherent, and generally factually incorrect.

    Land isn’t, as claimed, treated differently than other investments, it is merely a highly common form of security interest. Other such interests, like Personal Property Security Interests also carry similar priority rules. Further, the presence of the security is the very thing that allows you to borrow 500k on a 50k salary and only pay 6% interest. Take that away, and take away any dreams of home ownership for the middle class.

    Blaming issues of housing affordability on easy access to credit is just bizarre.

    • KJT 2.1

      Bollocks. Try getting business finance without land as security.

      • muzza 2.1.1

        I’m sorry , Sir/Madam, do you have any collateral which the bank could use as security to underwrite any loan for your business.

        Oh, well unfortunately the bank will not be able to provide an undsecured loan, as the risk profile is not in line with bank policy!

        Good day!

  3. Johnm 3

    The early 80s I could easily buy a 3 bedroom house for $32,000.00 I was on a salary of $10,000.00 a year! That house was on a large section and stood alone. Since then the banks have lent a lot of fiat interest bearing money to get rich capital gains housing speculators on a self propelled upward market and real estate sales have cashed in as well. Using a vital social asset at once affordable prices has been turned into a get rich scheme for kiwis with existing income and assets to act as collateral.

    Nats and Labour have refused to stop this rort at the expense of younger kiwi couples ’cause they’re in it as well! By levying a Capital gains Tax of say 60%. Now young kiwis can’t buy their own homes ’cause of the greedies who have troughed in for wealth gains. Easy credit from foreign banks enabled this gross scandal and they have cashed in with the additional interest charged on the principal.

    Just another Ponzi scheme exploiting the fact people must live in shelter.

  4. Nick K 4

    So the problem with housing affordability is mortgages? As Richard said, bizarre.

    • KJT 4.1

      Are you actually trying to tell me that the availability of money has no effect on prices?

      • Nick K 4.1.1

        No. The availablity of money (cheap money) has *an* impact. It’s not the sole reason. Supply is another big factor, which we are seeing now as a result of developers being bankrupt and finance companies going under.

  5. Draco T Bastard 5

    Unlike other investments, or lending, if the value of the security, land, goes down, the borrower is still liable for the full amount of the loan and interest. The bank is indemnified against loss.

    Such laws are systemic to modern capitalism and puts the lie to the great risk, great reward BS that is peddled as the reason some people are rich. The wealthiest people take almost no risk as they’re protected against loss by the government. This needs to change.

    I’ve been thinking about this specifically in regards to mortgages, that I think that nobody should ever be at risk of losing their homes and that whenever you loan someone money you’re taking the risk that you’re not going to get it back. Thus I have come to the conclusion that we need a law that says something like:
    1.) The mortgage is for a fixed term
    2.) Each payment is for the agreed upon amount or 20% of income, which ever is the lesser

    This puts the risk back on the bank where it’s supposed to be.

    Would also need to ban foreign ownership so that vast amounts of cheaper foreign money don’t push the prices here up.

    • KJT 5.1

      I would rather leave out banks entirely. The lender is the democratic polity.
      Private entities should not have unregulated control over money supply.

      At this stage that is the Government as the “peoples representative”. A sarcastic thing to say at present, which is why we need democracy.

      I agree on foreign ownership. Foreign buyers with unlimited cheap US dollars can easily outbid any New Zealander.

      Some countries and States do have public banks.

      In the 30’s in NZ, public banking and issue of finance was a big factor in our early exit from the depression.

      • Draco T Bastard 5.1.1

        I would rather leave out banks entirely.

        So would I but I think that such a policy would have the private banks running for the hills as they’d pretty much be guaranteed to take a loss.

        Private entities should not have unregulated control over money supply.

        Agreed. In fact, the only money available should be what the government spends into the economy. Banks and finance companies would only be able to loan out that which has been loaned to them for that purpose. The right won’t like that though as it would prove that the community is the source of wealth and not the rich as they like to believe.

        • Leverett 5.1.1.1

          Right – so the risk of default is shouldered squarely by the banks. Two alternative paths spring to mind:

          The first is that bank’s go out of business, or at least cease lending to those of us without huge incomes or enormous estates. Banks might continue to lend to landlords, of course, because if they default the mortgage isn’t securing a home but a business asset. As a coeval, land prices fall because there are less buyers but given they can’t access lending, aspirant folk become less able to purchase property and all the land ultimately ends up being owned big business and big government.

          The second is that the state gets in the business of lending on property on the terms suggested. With no risk of foreclosure for default more people buy property, knowing that there is no risk of bankruptcy or eviction as a result of default – the costs of default being socialised. This makes credit ‘cheaper’ and consequently increases demand – in the same way that student lending increased following interest write-off legislation. Land prices greatly inflate in line with established economic principles. The government takes massive losses as homebuyers default with the crown unable to realise its security. Housing losses consume a huge proportion of the state budget.

          I am not saying the current world of banking and finance is in great shape but am genuinely interested in what is wrong with the foregoing analysis. Are there any examples of such schemes working well in the real world or is such a scheme based only on a priori reasoning?

          • Draco T Bastard 5.1.1.1.1

            It’s a question of artificial restrictions. The method used ATM is interest rates and that doesn’t actually work as the collapsing bubble proves. The other method involves regulation about where houses can be built (which we already have) and I’d suggest another couple of restrictions – you can only have one mortgage, it can only be applied to one house and you can only update it once every ten years. Also I’d probably get rid of the OCR and the idea of the government being the Lender of Last Resort.

            Yes it will be the government making mortgages available (at 0% interest) and more people will buy but there’s still a limit to the number of people and thus the number of houses wanted. Owning multiple homes so as to live off the rental income (be a professional bludger) would not be viable. On the positive side, all our people will be decently housed.

            As for the loss being socialised – What loss? The government creates the money to enable the necessary distribution of resources and then destroys it through mortgage repayments and taxes.

            The market doesn’t work without serious regulation and the present system of limited regulation only works to make a few people rich and everyone else dependent upon them. I call such a set up dictatorship.

            • Leverett 5.1.1.1.1.1

              I agree that, for whatever reasons, the world of finance isn’t going gangbusters at the moment and desperately needs correction. To summarise your proposal, however:

              – Ban all obligations mortgages on houses;
              – Ban repayments over 20% of the borrowers’ income for any lending to purchase houses;
              – Ban mortgagee sales over houses where the owner is in occupation;
              – Ban second mortgages on houses;
              – Ban the charging of interest on finance to buy a house;
              – Ban refinancing of home loans more than once a decade;
              – Ban the ownership of multiple houses; and
              – More restrictions on where houses can be built.

              The suggested result of these law changes isn’t that the housing stock will deteriorate and decline – or completely monopolised, but somehow that “all our people will be decently housed”.

              Under the present, imperfect system, my partner and I were able to scrimp and save for a few years to scratch together a deposit. We convinced the bank that we would be able to pay back its shareholders money with interest – showing that we would be a good investment. We are thinking of fixing my rates at some point in the next 6 months but haven’t decided yet.

              We had to move to the provinces to be able to afford a house and I worry about hard times a bit. We pay a little bit each month for life-insurance and mortgage interruption insurance. It means that we rent movies rather than go to the cinema, pack lunches and entertain friends at home rather than frequent cafes – which is sometimes frustrating. We think the arrangement is mutually beneficial because we are starting to build up a bit of equity in the land instead of paying most of our income to a landlord.

              It just seems a little weird that you would call that a dictatorship. In actual fact, you want to intervene in that mutually agreed exchange and dictate terms that no commerical party would agree to. Is there a point where you believe that there are intolerable restrictions on the right to enter into free contracts? I assume you’re not a full blown state-socialist, right?

              Under your vision, the only lender would be the state – but under such circumstances that somehow everybody is ‘taking’ from the system and, in the final analysis, nobody is paying in. There is no risk of penury if I default and no risk of losing my family’s shelter if I don’t work hard to create value for others. So once your ensconsed, why work?

              Again – has that alternative ever been tried succesfully anywhere?

              • Draco T Bastard

                Ban all obligations mortgages on houses;

                Didn’t do that as people would still be required to pay up to 20% of their income.

                Ban the charging of interest on finance to buy a house;

                I didn’t ban it at all. You could still go out and pay interest if you so desire as I’m sure there will be plenty of people willing to take money from you. It’s more that I set up conditions that prevent it from happening due to rational self-interest.

                Ban second mortgages on houses;

                Why would you want, or need, a second mortgage?

                Ban refinancing of home loans more than once a decade;

                Yep, good reason for that – it prevents housing bubbles like the one that just helped trip the world into recession.

                More restrictions on where houses can be built.

                Most definitely as urban sprawl is a) destructive of the environment, b) takes away land that could be used for better purposes (leaving it in it’s natural state is a better purpose) and c) damned expensive to maintain.

                The suggested result of these law changes isn’t that the housing stock will deteriorate and decline – or completely monopolised, but somehow that “all our people will be decently housed”.

                Yep, because all the necessary housing would actually be built.

                It just seems a little weird that you would call that a dictatorship.

                Being dependent upon an individuals whim is being in a position that you cannot govern yourself.

                So once your ensconsed, why work?

                Because it provides purpose.

                Again – has that alternative ever been tried succesfully anywhere?

                Looking to the past for solutions for the now and the future can only result in failure. That said, there’s the 1st Labour Government to look to.

  6. Pete 6

    There is sound social policy behind the relatively easy credit for homebuyers. Home ownership means people are more rooted in their communities, they take better care of their property and there’s a general desire to see a community improve. I’m not saying communities made up of rented properties don’t have their own strength – the student quarter here in Dunedin is a particularly vibrant (although it is by nature transient).

    I think we are witnessing one unintended consequence of the growth of women’s employment since the 1970s. Dual income households are now the norm rather than stay-at-home mums. That money sloshing around pushes prices up.

    Secondly, There’s also regional variations. I think what is playing out is the result of so much of the economy being centered on Auckland. There is so much more demand there and the market really is a different beast compared to the rest of the country. I’m lucky enough to be making the average income, but as a single person I would not have been able to buy a house had I stayed in Wellington. Here in Dunedin I’ve just moved into my own (modest) house after moving down south to work at the university.

    Edit: and I had help to do that too – I saved my deposit through Kiwisaver, so I used those employer contributions and the first home deposit subsidy from Housing NZ.

    • kiwi_prometheus 6.1

      “There is sound social policy behind the relatively easy credit for homebuyers.”

      The cheap credit boom leading up to the GFC was about a record breaking speculative bubble not “sound social policy”. And it has burst big time.

      USA house prices are down around 40% in the last 5 years. Australia tanking the last 2 years.

      NZ is sure to follow.

      And to think history’s ( and NZs ) greatest credit bubble occurred under Labour’s command.

      Shows how ideologically bankrupt the Left is with its Neo Classical Economics Lite, and the stench of stale cat pee hanging around it thanks to Rad Fem felix types.

      • Draco T Bastard 6.1.1

        Labour is of the right, neo-liberalism is of the right, and on top of that the political parties just do what they’re told to by the banksters.

    • Carol 6.2

      There is sound social policy behind the relatively easy credit for homebuyers. Home ownership means people are more rooted in their communities, they take better care of their property and there’s a general desire to see a community improve. I’m not saying communities made up of rented properties don’t have their own strength – the student quarter here in Dunedin is a particularly vibrant (although it is by nature transient).

      Actually, I think that one of the reasons the elite pushes home buying for all (apart from the fact that the people at the top get rich off it all while those at the bottom are kept in an insecure state), is that it keeps people busy with their house etc, so they are less likely to become highly critical of the elite…. ie it keeps them from rioting in the streets, because they are locked into paying for, maintaining and protecting their homes.

      This is one of the main reasons I’ve never been interested in owning my own home. Since I was quite young I’ve always thought it was a bit of a con.

      Lifetime renter, me. Still can’t get excited about real estate, and I have a strong sense of historical and social links to my community without it. Affordable housing should be readily available for all, without a need to buy, IMO. And if society society was organised so that accommodation was easily available, there would be other things to bind people to community and to develop a sense of a social consciousness.

  7. Afewknowthetruth 7

    In the last thirty five years we have had low inflation in all, except two, commodities. Firstly, Land , and thence housing and farm prices. (The other commodity is food)

    What a load of crap.

    Oil is currently 4 times the price it was in the early 2000s ,and is over 5 times the price it was in the 1990s. And that is after severe demand destruction has clobbered the market, due to numerous economies implodinging

    And gold is around six-and-a-half times the price it was 15 years ago.

    My decision to participate in TS discussions only on rare occasions is validated.

    • KJT 7.1

      You are right. Should have thought of energy also.

      Same drivers though.

      Don’t agree Gold is a commodity.

      I think you also agree it is all likely to collapse in a heap when it hits against resource constraints.

      • Lanthanide 7.1.1

        Compared to historical prices, food is also still very very cheap.

        • Colonial Viper 7.1.1.1

          According to Grantham in the last 10 years commodity prices have recovered all the price drops of the last 150 years.

        • KJT 7.1.1.2

          It may well be, but it has been rising steeply against median incomes.

          The rising gap between prices for necessities, and incomes, and the drivers for the gap, is our concern here.

  8. Reagan Cline 8

    “the inherent insecurity and instability of financial instruments including shares” Not sure that shares are “a financial instrument” but whatever – there are graphs that show shares long term outperform all other investemnt classes. There is short and medium term volatility in all investments.

    “Does anyone really think that an infinitely compounding interest is possible in a world with finite resources ?” No, if the resources bought and sold for profit are finite.

    The service part of the economy has grown hugely in NZ and is not limited by the material resources I think you are referring to.

    • Colonial Viper 8.1

      there are graphs that show shares long term outperform all other investemnt classes.

      Graphs of the past. Specifically of a past where the focus of the economy was on real industries and real profits, during a time of increasing resource and energy availability.

      Anyways, financial instruments such as shares are not the place to put capital now. Real productive assets and physical precious metals are where you need to be.

      • Reagan Cline 8.1.1

        I’m feeling greedy and a little afraid now CV. What “real productive assets” should I put my savings into ? Mighty River Power maybe ?

        • Colonial Viper 8.1.1.1

          Cheap, easy to fill rental properties, economically priced farm land, solidly revenue generating small businesses, and yes the power generators being hawked off.

    • KJT 8.2

      Those that deal in shares like to repeat that “on average, shares outperform all other asset classes”.

      While true, in that the total share market has risen faster than any other investment assets, this applies only to the sharemarket as a whole.

      As an individual investment the returns are far more mixed.

      For example. If you picked a random basket of shares in different enterprises 25 years ago, there is a better than even chance you would have made a loss.

      Some would say you can do better by picking when to buy or sell. But, Unless you have specialist (insider) knowledge, or enough money to change the market, you are unlikely to better the market. Even expert, share trading fund, managers rarely do better than index funds, long term.

      I know many people who lost their shirts on shares in the 80’s by leveraging to buy shares.

      Ultimately the only organization that has the long term view and clout to offer the new venture finance, particularly on sustainable energy and products, we need, is the State.

  9. DH 9

    I’m not sure this has the right explanation on business lending. The problem there is that banks will only lend up to 60% on asset value while still demanding a 100% security over the whole asset. Their reasoning is that a receivership fire-sale of business assets will usually return at least 60% so that’s the maximum they lend while claiming a first ranked security over the entire asset. Try and buy a commercial property – they demand a 40% deposit & then take the entire building as security over their 60% loan.

    Banks are the only no-risk party in the business arena and that’s what creates all the problems. Everyone else has to carry the entire business risk from the remaining 40% of asset value. When a business goes bust the bank typically gets all their dosh back, often including interest arrears, and every other creditor gets nothing.

    The finance companies went bust because the banks had first ranking securities over all the assets the finance companies lent against. The NZ banks lost bugger-all in those big crashes, they had the first mortgages. Risk & reward isn’t the mantra of banks.

    • Colonial Viper 9.1

      Correct, in the casino of capitalism, the banks run the house.

      • DH 9.1.1

        Aye, they do but it doesn’t need to be that way if we got a Govt with some balls. Another reason they have the ridiculously low 60% is because it gives them plenty of margin in a receivership to recover generous costs, penalty interest etc. ANZ did ok out of Feltex, everyone else lost their shirt.

        IMO the law needs to be changed so no lender can recover interest from a receivership as part of a security, it should be strictly the capital value of the debt. Interest & other costs should be the very last ranking.

        • Herodotus 9.1.1.1

          Problem is that banks take charges over specific assets. in this case land & buildings.
          In 08 we never experienced a real drop in residential property. In many cases around Auckland property is 10%+ above the 07/08 sales values achieved, so property is maintaining its real inflation adjusted rate over a severe and testing time.
          If property was 66% of what it currently is, many issues affecting NZ would be solved (and maintaining the long run wages to cost ratio refer link below), less offshore debt, increased disposable incomes to name a few. Problem is that (I cannot see) how an adjustment can be achieved with minimal transitional damage. Easiest way apply CGT on all property, but have a reduced rate for the family home (say 50% of that for all other property), and place control limits over what a bank can loan on a property e.g. min debt:equity ratio on any deal.
          And land “inflation” is far more than what has been statistically reported- as housing densities have greatly increased in the last 10 years or so. I.e. the size of sections has reduced from the 1000m (1/4 acre), to 750m to now 450-500m standard Auckland stand alone section, and in increasing frequency sections below 300m2. The smaller the section the greater the house build costs. As houses to comply to site coverage and return a return to the builder/developer has to be multi level. To reduce build costs both in time and $ is to build single level.
          And for interest read the Housing Affordability report recently released
          http://www.productivity.govt.nz/final-report/1468

          • DH 9.1.1.1.1

            “Problem is that banks take charges over specific assets.”

            Not always, that usually only applies to funding specific property assets of a business or residential property. Many business loans take the equivalent of a debenture over the entire assets of the business. Take a good look at a lot of the companies listed on the NZX and you’ll find that the banks have first dibs on shareholder equity with most, if not all, of them. That’s how shareholders lost every cent they had invested in Feltex; ANZ had a charge over the company.

            That’s one of the prime reasons that wise investors don’t buy shares. Shareholder capital has been subordinated to the banks. Shareholder capital exists on paper but if any company on the NZX went bust shareholders would lose everything while the banks would get every cent back. Who wants to take that kind of risk with shares?

            • Colonial Viper 9.1.1.1.1.1

              Consequently it means that private investors are very reluctant to help invest in growing, medium sized companies, leaving them starved of capital with few places to turn…except again to the banks.

          • prism 9.1.1.1.2

            @ Herodotus 6/5 8.12pm

            As houses to comply to site coverage and return a return to the builder/developer has to be multi level. To reduce build costs both in time and $ is to build single level.

            Bad idea. There is an urgent need for Low multi-level housing to stop the spread of suburbs which create transport problems and costly service provision, (extensive sewer water electricity pipes). The idea of hectares of 20th century style single level housing suburbs flowing out over the countryside is redundant.

            But the trend to hectares of soulless two-storey houses in Auckland developers suburbs now are so depressing. They all have costly soaring two-storey front porches which seem to aim at pretention, the size of the house spreads over the section so that there is little room between houses for sun, privacy separation etc. And they are as individual as 19th century British mass housing, or the ‘tract housing of USA which they are likely to be modelled on.

  10. mouse 10

    Great post KJT… It doesn’t sole all the problems of the world, But it does highlight one of the biggies, and one that can be fixed.

    The deregulation of the 80’s-90s really fucked NZ over…

    We (NZ Inc.) need to re assert control over our economy and it Starts with Banking and reckless administion/ oversight of the banking industry, any fool can create wealth by loaning it into being… and we need to get that Genie back in the bottle.

    Demanding more prudent loan to value ratios on lending… and entry barriers/capital controls on those who are more reckless than ourselves would be a good place to start.

    • KJT 10.1

      Thanks to everyone for helping to sharpen up my thinking on this.

      When I have time I will put up some possible solutions for discussion.

      • Colonial Viper 10.1.1

        Steve Keen has got an idea worth considering. Not simply restricting banks to a house value to loan ratio, but making the ratio based on the likely monthly rental for the property.

        This would kill off the ability for banks to lend more and more money into fueling an asset price bubble, which they could do in a normal house value to loan ratio system, as house values would be going up as part of the bubble at the same time.

  11. BM 11

    Had a pretty large amount of immigrants during the 90’s and 2000’s.
    Of those a good proportion of people were from the UK who didn’t blink an eye paying 100k + over the asking price.
    When you were getting 3-4 dollars per pound it didn’t really matter paying an extra 100k for a property you liked unfortunately it did push the price up beyond what a lot of kiwis could afford.

  12. BM 12

    Edit- things seem to have gone a bit pear shaped with the code

  13. james 111 13

    If we look at affordability of housing in Auckland in particular whilst I agree that the banks are scalping at the moment they are getting more than 200 basis points above their buying rate on lending. We also have to look at the impact of not releasing anymore land for sections this has forced house prices up hugely. Along with the compliance costs of the Council these have risen several hundred % in the past 10 years. eg to subdivide a section in Whangamata in 2003 was a cost of $8000 by 2007 that had risen to $40000. Council gouging ,and spending is totally out of control they have really impacted on the lack of houses being built along with the house prices of existing houses

    • KJT 13.1

      $35000 was the council price to subdivide a Coromandel section last year.

      Lack of supply does not help either.

      • james 111 13.1.1

        Totally agree the subdivision cost is absurd has gone up over 400% in most places just to review a set of plans. Which stops supply in its own right or pushes section prices up so they are unaffordable by first home buyers. The Councils are gouging on compliance costs it really needs to be looked at hard.

        • Colonial Viper 13.1.1.1

          Council costs are still only a tiny proportion of the $200K or so median Auckland house price increase of the last 10 years.

    • Draco T Bastard 13.2

      Increasing the physical size of a city isn’t a solution either as you will always eventually run out of land. The solution is to build upwards or have people move to other cities.

      Along with the compliance costs of the Council these have risen several hundred % in the past 10 years

      The solution that you’re calling for, more land availability, is what’s likely driving those increased costs because of all the extra administration and costs that goes along with it.

  14. prism 14

    What are the Council’s excuses for putting their rates up so high? Are they trying to take some off the top towards the costs from previous lax control leading to leaky buildings and the cost of remediation etc? If so, is this cost being loaded in full or part, on to the planning section of the Council when it actually is so large it’s an all-Council burden?

    • Colonial Viper 14.1

      The Supercity will save rate payers money. John Banks promised.

  15. prism 15

    lprent – My edit function was refused straight after I put a comment. Then I couldn’t even Close the window. Nothing happened. I got back in by opening a second blog so I could make this report. I did scroll up the page to get information and then had to use my F5 key to refresh so I could read my updated comment,
    something I have had to do since comments are under the heading of WP Ajax Edit Co.

  16. Poission 16

    The fundamental problem is the policy price paradox with property.

    The reserve bank sets interest to curb inflation (demand) The increase in equity in property allows borrowers to use their houses property to borrow more fueling higher costs.

    Borrowers for say small commercial set their rents at both funding costs and revaluation of assets forcing business to increase prices and constrain costs such as wages.

    The asymmetry has distorted the market,making rents for small business around 20-25% of turnover rather then around 10-12% historically.

    The constraint to reduce property inflation is a policy problem,where either property tax (which is widely used o/s) or a reduction in offsets against income,interest,depreciation etc.

    The increased use of say housing for leverage against additional property purchases was a mechanism that still drives property pricing.

  17. Jeremy Harris 17

    Lol, on The Standard it’s like reading posts by primary school children:

    By September 2004 Beal Bank’s assets had climbed to $7.7 billion. Then Beal stopped buying, letting his loans run off. By September 2007 assets had shriveled to $2.9 billion, one-fifth of which was cold cash. He was worried that consumers had taken on too much debt and money was being lent to companies for next to nothing. “Every deal done since 2004 is just stupid,” Beal says.

    He began by pulling back from home loans–even those guaranteed by Fannie Mae and Freddie Mac. Beal thought the two quasi-government agencies were over-leveraged. When staffers mentioned their guarantees in deal presentations he would fire back that these guarantees were “worthless.”

    Outsiders thought it was Beal who didn’t get it. Despite its aversion to credit then, the bank occasionally had to buy mortgages to meet federal low-income-lending requirements. Jonathan Goodman, then head of loan purchases, recalls salesmen from Countrywide laughing at him on the phone when he refused to buy iffy condo paper backed by the two agencies. “Countrywide, Bank of America, Washington Mutual … every single [mortgage seller] thought we were insane,” Goodman says. “They didn’t know why we cared. They thought Fannie and Freddie guarantees were as good as Treasuries.”

    http://www.forbes.com/2009/04/03/banking-andy-beal-business-wall-street-beal.html

    Yip government mandating of central reserve banking and government deposit gaurantees have nothing at all to do with the problems in banking and it’s reverberations throughout economies, it’s all the fault of the evil “invisible hand” and “greedy banksters”. Puh-lease.

    • joe90 17.1

      WTF do the US mortgage scandals and the systematic theft by the lending industry have to do with NZ house prices Jeremy?.

      • Jeremy Harris 17.1.1

        Because like the US we have government mandated central banking and deposit guarantees.

    • Colonial Viper 17.2

      Most of the US subprime mortgage problems were caused by control frauds perpetrated by senior managers in private financial institutions, assisted by the “independent” credit ratings agencies.

      http://www.creditwritedowns.com/2012/02/william-k-black-explains-control-fraud-at-length.html

      Simple Government deposit guarantees have no role to play in the perpetration of these control frauds, and neither does the classical “invisible hand” of the market.

      • Jeremy Harris 17.2.1

        Some of the problem was caused as you describe, most of the problem was caused by Fannie and Freedie, federal mandates for subprime mortgages, federal guarantees of deposits, expansionary monetary policy by the federally created and mandated Fed Reserve and million and one other federal market interventions…

        • Draco T Bastard 17.2.1.1

          And who controls the US political scene?

        • prism 17.2.1.2

          Jeremy Harris You sound as if you are repeating the mantra of right wing financiers in the USA – no way will they find fault with their own sector. No it’s all government’s fault – and the fact that it can be captured by the system with regulation as a pretence is ignored. There is a moral hazard in getting too close to free marketeers if a government intends to provide oversight and take steps to ensure probity in financial rules are followed.

        • Colonial Viper 17.2.1.3

          Jeremy Harris YOU ARE NOT LISTENING

          Over 80% of subprime mortgage fraud was perpertrated by LENDERS acting under the authority of CEOs and other senior executives operating CONTROL FRAUDS.

          FMac and FMae were late players into this scene, PRIVATE financiers were the biggest and fastest in.

          And as others have tried to point out to you…in the US, Congress is simply an extension of American corporate/banking power.

        • KJT 17.2.1.4

          Really. So problems which occurred AFTER regulations were relaxed were a result of too much regulation??

          Freddie Macs and Fannie Mae’s collapse also occurred AFTER the GFC. You are confusing an effect with the cause. A few hundreds of millions of defaults, which happened mostly after the GFC reduced incomes, caused the 100’s of billions GFC?? Sarc.

          You are parroting all the other Neo-liberal apologists who like to pass the buck, and the costs, to anyone, but them selves.

          Sorry. we tried your way. Newsflash! It failed!

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    Anyone on the left would have been disappointed at the result of the election. There was an opportunity to win, but that got lost through a combination of factors. There were tactical decisions made by Labour, the Greens and Internet-Mana...
    The Daily Blog | 27-09
  • From Fiji’s dictatorship to ‘democracy’ – the AUT student team on t...
    Mads Anneberg’s profile on Ricardo Morris and Repúblika. David Robie also blogs at Café Pacific. THREE STUDENTS from AUT University covered Fiji’s historic “from dictatorship to democracy” general election this month. While the election arguably legitimised Voreqe Bainimarama’s so-called 2006...
    The Daily Blog | 27-09
  • David Cunliffe Resigns As Labour Leader – Forces Robertson Out of the Bel...
    David Cunliffe has made a smart move, resigning as the leader of the Labour Party so as to force a leadership primary campaign. The move draws rival Grant Robertson out of the beltway to parts of the country where he...
    The Daily Blog | 27-09
  • Deep thought vs Deep prejudice
    . . This letter to the editor appeared in The Listener, on 27 September, and caught my attention; . . Mr Dawson wrote in response to one of those typically unthinking comments which  condemned the poor for their “unbridled, reckless...
    The Daily Blog | 27-09
  • The NZ National voters elected
    The NZ National voters elected...
    The Daily Blog | 26-09
  • GUEST BLOG: Kate Davis – The post election postmortem is giving me post p...
    I feel the need to contribute to the discourse. This is a new experience for me. Not having an opinion, but expressing it on a popular forum in a public sphere. That’s why I have waited till now and put...
    The Daily Blog | 26-09
  • A dictionary of education terms and definitions, brought to you by the let...
    Free to all TDB readers, please enjoy your very own cut-out-and-keep handy primer of terms that I predict you will need to know over the next three years… Achievement Gap (noun) Synonym for wealth gap. ACT (abstract noun) Intangible. Reported to exist in...
    The Daily Blog | 26-09
  • A Mines Rescue brigadesman’s perspective on the Pike River Mine
    My husband and I lived in Greymouth in 2010, we were a coal mining family.  The day Pike River Mine blew up and the days following changed us profoundly, as it did for so many.  This is a Mines Rescue...
    The Daily Blog | 26-09
  • The Left Triumphant! A Counterfactual History of the Last Twelve Months.
    DID IT REALLY HAVE TO END LIKE THIS? Reading through the commentary threads of the left-wing blogs it is impossible to not feel the anger; the sense of betrayal; the impression of having had something vital ripped from their grasp;...
    The Daily Blog | 26-09
  • GUEST BLOG – Myles Thomas: The media won it!
    Make no mistake, John Key is a clever communicator – reasonable, authoritative and relaxed – but without the media he wouldn’t be PM. Depending on your viewpoint, New Zealand’s news media are either a bunch of Grey Lynn lefties or...
    The Daily Blog | 25-09
  • Not Learning Lessons Past: the West’s Response to IS
    In an earlier posting Ukraine, United Kingdom, Ireland, Scotland, I noted that the first lesson of conflict learned by Robert McNamara was “understand your adversary”. If we have honourable objectives, our first and most important weapon is empathy. In the Vietnam War,...
    The Daily Blog | 25-09
  • GUEST BLOG: Dr Jarrod Gilbert – Proof of David Farrar’s deception: my ...
    In the lead up to the election the Minister of Corrections Anne Tolley launched a gang policy. In order to justify the government’s approach she used gang figures that overstated the gang problem. Not by a little bit, but a...
    The Daily Blog | 25-09
  • SPECIAL FEATURE: Stuart Nash – Red To The Rescue?
    SPECIAL FEATURE by Selwyn Manning. IF THE ELECTION RESULT which was dished out to Labour was not enough to incite an immediate leadership primary, then the caucus’ refusal to recognise David Cunliffe as the leader should cement it. Now is...
    The Daily Blog | 25-09
  • Has the one party state crackdown begun already? Left wing NZ activist grou...
    Well known left wing activist social media group, ‘John Key Has Left Down NZ’ has been shut down on Facebook. At 11.40pm last night, Facebook, without any warning shut the group down siting a breach of terms of service as...
    The Daily Blog | 24-09
  • Why Cunliffe should probably just let Nash & Robertson win
    We have to face some very unpalatable home truths. If you are a left wing political person, best you put your vote now to the Green Party, although you’ll have to do that all the while the Greens frantically tell you...
    The Daily Blog | 24-09
  • The graceless win of Kelvin Davis
    The graceless win of Cameron Slater’s mate in the North, Kelvin Davis is difficult to swallow. Here Cameron Slater’s mate in the North is shitting on Hone Harawira by calling Hone all steam, no hangi as Kelvin rubs his ganged up win into...
    The Daily Blog | 24-09
  • So Labour shifted too far to the left?
    So Labour shifted too far to the left?   Here’s the ill-judged view of Josie Pagani in the Pundit “Labour must change”: “At the last election I made myself a heretic when I wrote a column mentioning how unpopular the...
    The Daily Blog | 24-09
  • Uncomplicated Loyalties: Why Cunliffe and the Labour Left Cannot Win
    THE STORY of David Cunliffe’s leadership of the Labour Party has been one of missed opportunities and unforced errors. That he was the only choice available to those who wanted to rid the Labour Party of its neoliberal cuckoos is...
    The Daily Blog | 24-09
  • So we can expect this now?
    So we can expect this now?...
    The Daily Blog | 23-09
  • Can Labour be saved? Why Whaleoil & National won and why we need a new ...
    As the shock of my optimism that NZers would recoil from the real John Key as exposed by Dirty Politics and mass surveillance duplicities wears off, I am surprised to find that the right in NZ are not content with...
    The Daily Blog | 23-09
  • Three more years (up shit creek and paddling hard)
    “If the future is not green, there is no future. If the future is not you, there is no future”. Emma Thompson’s stirring words to the climate marchers in London last Sunday are worth considering in the aftermath of the...
    The Daily Blog | 23-09
  • One Party State
    In years to come this election will be seen as a historic turning point towards one party rule. I don`t mean this literally, absolute single party dictatorship is not in prospect. In the New Zealand context though, one party has...
    The Daily Blog | 23-09
  • No More. The Left Falls.
    . We cannot be beaten down Because we are down already. We can only rise up and if you should beat us down, We will rise again. And again. And again… And when you tire of beating us down, We...
    The Daily Blog | 23-09
  • Hang tight everyone – Marama Davidson campaign reflection
    To the many people who had expressed their overwhelming support for me to enter Parliament this election – thank you. That the Greens held steady in a big loss for progressive politics is an achievement. We are hopeful that after...
    The Daily Blog | 22-09
  • New flag for NZ once Key signs TPPA
    New flag for NZ once Key signs TPPA...
    The Daily Blog | 22-09
  • Reflecting on Elections Past
    There are a number of past elections that can give the left in New Zealand guidance and hope. Two major points though. Major parties require leaders who can bridge the political divide through strength of personality, vision of what it...
    The Daily Blog | 22-09
  • GUEST BLOG: Kelly Ellis – The Reptile Room
    I stress, at the outset, that I’ve got nothing against reptiles. Some of my best friends are reptiles. Some say I am one, but I’m not really. I just emulate that ability to sit, stationary for hours in court, eyes...
    The Daily Blog | 22-09
  • Submissions sought on herbicide for weed control in maize
    The Environmental Protection Authority is calling for submissions on a herbicide to improve broadleaf weed control in maize. The substance CADET contains 100g fluthiacet-methyl in the form of an emulsifiable concentrate and would contain a new active ingredient...
    Scoop politics | 01-10
  • Jesse Mulligan Lives Below Poverty Line
    Jesse Mulligan Lives Below Poverty Line TV personality Jesse Mulligan will live on the equivalent of the extreme poverty line this October in order to raise awareness of sex trafficking. Mulligan will survive on $2.25 for his food from October...
    Scoop politics | 01-10
  • Narratives from the 2014 Election: What do we learn?
    Narratives from the 2014 Election: What do we learn? - Sue Bradford, Russell Brown & Kirk Serpes discuss....
    Scoop politics | 01-10
  • Voices from Oceania to speak out on climate change
    Voices from Oceania to speak out on climate change at launch of Pacific environment report...
    Scoop politics | 01-10
  • Changes to Pacific Tsunami Warning Centre messages
    The Ministry of Civil Defence & Emergency Management advises that while changes to Pacific Tsunami Warning Centre messages come into effect from today (Wednesday 1 October), the Ministry has been, and remains, the authoritative voice for tsunami...
    Scoop politics | 01-10
  • Police remove banner at Statoil Offices in Wellington
    Oil Free Wellington hung a banner at 9:30 this morning at the Statoil office headquarters in Wellington as the Petroleum Summit opened in Auckland. The banner, which read 'Statoil out of Northland: Stop Deep Sea Oil', has now been removed...
    Scoop politics | 01-10
  • Mixed massages raise concerns
    Mixed massages raise concerns for Te Taumata Kaumatua Ngapuhi nui tonu, and Te Wakaminenga O nga Hapu Ngapuhi....
    Scoop politics | 01-10
  • Union Slams Port Boss’s Pay Rise
    The Rail and Maritime Transport Union (RMTU) says Lyttelton Port CEO Peter Davie’s 18% wage rise, taking his pay packet to $1.24m, is unjustified and inflammatory. ‘Lyttelton port has an appalling health and safety record, with three deaths on...
    Scoop politics | 30-09
  • Prisons expert Ron Nikkel to speak in Auckland October 15
    Prison Fellowship NZ and JustSpeak have the privilege of hosting the former president of Prison Fellowship International, Ron Nikkel....
    Scoop politics | 30-09
  • Hundreds of educators protest IES in Rotorua
    Four hundred educators from around the country took their opposition to the Government's controversial Investing in Educational Success policy to the public today....
    Scoop politics | 30-09
  • Crime drops by 3.2 % in the 2013 / 2014 financial year
    Criminal offences dropped by 3.2 % in the last financial year according to figures released today through Statistics New Zealand....
    Scoop politics | 30-09
  • Narratives from the 2014 Election: what do we learn?
    I would like to invite you to a Fabians Reflection on "Dirty Politics, Dotcom and Labour’s worst result" with Colin James, Keith Ng, Stephanie Rodgers and Richard Harman. They will provide a debrief of analysis and lessons from the 2014...
    Scoop politics | 30-09
  • Oil Free Wellington drops banner from Statoil headquarters
    Today members of Oil Free Wellington have targeted the offices of Statoil, by attaching a banner reading 'Statoil out of Northland: Stop Deep Sea Oil' to the entrance of Vodafone on the Quay Midland Park, where Statoil's New Zealand office...
    Scoop politics | 30-09
  • Media Statement from Karen Price
    “After a period of intense media attention and scrutiny of our family, I set up and used an anonymous Twitter account over the weekend and made a number of comments that I deeply regret....
    Scoop politics | 30-09
  • Greenpeace disrupts Simon Bridges’ speech to oil industry
    Greenpeace activists have disrupted the opening speech by Energy and Resources Minister Simon Bridges at the Petroleum Summit in Auckland this morning....
    Scoop politics | 30-09
  • New Zealand Red Cross Responds to Drought in Tonga
    New Zealand Red Cross has sent an aid worker and two desalination units, to turn seawater into safe drinking water in the drought-hit Ha’apai islands of Tonga....
    Scoop politics | 30-09
  • Can you ever tell if an email is real or forged?
    Computer industry veteran Brian Eardley-Wilmot warns that we should never take claims about stolen emails at face value....
    Scoop politics | 30-09
  • NZ MPs to attend the ASPG Annual Conference in Sydney
    New Zealand MPs to attend the Australasian Study of Parliament Group Annual Conference in Sydney...
    Scoop politics | 30-09
  • Independent Maori seats still needed in Parliament
    “He’s got to be joking!” is the reaction of the president of the Maori Party, Rangimarie Naida Glavish to a call by a former Labour Minister of Maori Affairs, Dover Samuels, for debate by Maori on whether the Maori electorates...
    Scoop politics | 30-09
  • Support for Democratic Rights in Hong Kong
    Rallies supporting the rights for universal suffrage will take place all over New Zealand today and tomorrow...
    Scoop politics | 29-09
  • Trout Mass-Poisoned in New Zealand
    Trout Mass-Poisoned in New Zealand The Graf Boys New Zealand has some of the best trout fishing in the world! Every year thousands of international visitors wade pristine rivers in search of the freshwater game fish....
    Scoop politics | 29-09
  • New Zealand’s 2014 Hottest Vegetarians Crowned
    With winter gone things are heating up, and things just got even hotter with the crowning of New Zealand’s hottest vegetarians, says animal advocacy group SAFE. Marking World Vegetarian Day, 1st October, director James Napier Robertson and actor...
    Scoop politics | 29-09
  • A day to remember our duty to look after our senior citizens
    Human Rights Commissioner Dr Jackie Blue says International Day of the Older Person (1 October) is a United Nations day to celebrate our senior citizens, but also acknowledge the need to protect our kaumatua, or older people from abuse and...
    Scoop politics | 29-09
  • Clear data needed on impact of benefit sanctions on children
    A lack of data on benefit sanctions means there is no way of knowing whether welfare reform is helping or harming children, says Child Poverty Action Group....
    Scoop politics | 29-09
  • The socialist alternative to austerity and war
    Public meeting: After the New Zealand election—the socialist alternative to austerity and war By Tom Peters 29 September 2014...
    Scoop politics | 29-09
  • New recruits to boost border protection
    Twenty six new recruits began an intensive nine-week training course in Auckland today that will see them graduate as Customs officers in time for the busy summer season....
    Scoop politics | 29-09
  • Dwindling Mallard population shows up ‘pest’ myth
    The pro hunting organisation Fish & Game is researching the causes of the decline of the mallard duck population, upset at the prospect of fewer ducks to kill....
    Scoop politics | 29-09
  • Support for Democratic Rights in Hong Kong
    New Zealanders in Auckland will gather on Wednesday to support the rights for universal suffrage in Hong Kong....
    Scoop politics | 29-09
  • Campbell Live Exclusive Interview with David Cunliffe
    David Cunliffe resigned as leader of the Labour party on Saturday; but he still wants the top job....
    Scoop politics | 29-09
  • Action needed on cycling safety
    “Clearly we aren't doing enough to protect the 1.5 million New Zealanders who ride bikes,” said Mr Morgan....
    Scoop politics | 29-09
  • World Rivers Day Passes Without A Whimper
    Sunday 28 September was World Rivers Day to celebrate clean, flowing rivers and caring about them. But a recreation-conservation advocacy the Council of Outdoor Recreation Associations of NZ (CORANZ) says the day seems to have slipped by without...
    Scoop politics | 29-09
  • The Kiwifruit Claim: Q&A
    1. Who is running The Kiwifruit Claim? The Kiwifruit Claim was founded by kiwifruit growers representing well in excess of 10% of the industry. 2. Why are you running this claim? The introduction of Psa into New Zealand had devastating...
    Scoop politics | 29-09
  • Fed Farmers Need to Be Weaned
    The Taxpayers’ Union is calling on Federated Farmers to make a firm commitment to reject any future Government funding, after it was revealed that the lobby group had received over $200,000 of payments in recent years....
    Scoop politics | 29-09
  • Children paying the price for charter school stitch up
    New Zealand children will be paying a high price for a one-seat deal between ACT and National, with an expansion of the beleaguered charter school system says education union NZEI Te Riu Roa....
    Scoop politics | 29-09
  • Hikoi From North Reaches Oil Conference Tomorrow
    Today: The Hikoi opposing Statoil plans for seismic testing and deep sea oil drilling has marched through Dargaville and later be welcomed to Piringatahi Marae, West Harbour,Tamaki Makaurau/Auckland....
    Scoop politics | 29-09
  • Communities Still Count
    The efforts of many organisations to influence the electorate and the political parties they voted for in the lead up to the 2014 Election is over. The voting public has spoken and provided a strong endorsement to the centre-right National...
    Scoop politics | 29-09
  • Eleven social enterprises get ready to take off
    Eleven teams from across the country will take part in the Launchpad, Ākina’s programme to get social enterprise ideas off the ground....
    Scoop politics | 29-09
  • An open letter to the Prime Minister
    in which Transparency International New Zealand asks the Prime Minister to ensure integrity underpins all work he leads "in the best interests of all New Zealanders"...
    Scoop politics | 29-09
  • Paula Bennett ‘great work’ acknowledged – McVicar
    “Paula Bennett, as Minister of Social Development, has contributed significantly in lowering our crime rate and preventing further victims.” - McVicar...
    Scoop politics | 29-09
  • Key’s Restraint in Propping up ACT Welcomed
    The Taxpayers’ Union is welcoming the announcement that ACT MP David Seymour will not be appointed as a Minister....
    Scoop politics | 29-09
  • Only Concession is from the Taxpayer
    Responding to the confidence and supply agreement reached between John Key and Peter Dunne’s United Future Party, Taxpayers’ Union Executive Director Jordan Williams says:...
    Scoop politics | 29-09
  • A Tent for Any Tenant
    AUT students and Salvation Army Manukau Community Ministries team up to raise awareness, as South Auckland’s housing situation moves from crisis to collapse...
    Scoop politics | 28-09
  • Cycle Safety Panel Draft Report Seeks Comments
    The Cycle Safety Panel Draft Report and Recommendations was published on 25th September 2014 and the panel are inviting comments. Lucinda Rees from NZ School Speeds, the organisation campaigning for consistent speed limits outside schools, is encouraged...
    Scoop politics | 28-09
  • Labour’s Review – Terms of Reference Agreed
    Labour's Review - Terms of Reference Agreed Following a meeting of its ruling New Zealand Council yesterday, Labour has released the terms of reference for the comprehensive review initiated following its 2014 election result. The review will comprise three...
    Scoop politics | 28-09
  • The final countdown for Kiwi smokers
    There are just two days left until many smokers stubb out their cigarettes for the last time and embark on Stoptober – New Zealand’s first national quit-smoking month....
    Scoop politics | 28-09
  • “In A Democracy People Win And People Lose”
    “In A Democracy People Win And People Lose” – Chris Hipkins Labour Senior Whip I would say to all of the caucus and all of the members let's actually hear the arguments from the people who want to be leader,...
    Scoop politics | 28-09
  • Campaign to make Murder of Unborn ”Safe and Legal”
    The IPPF have launched an international campaign through its 161 affiliates including the New Zealand Family Planning Association [NZFPA] to make the murder of the unborn safe and legal and accepted as a human right. This is an acceleration of...
    Scoop politics | 28-09
  • Grant Robertson Labour leader hopeful on TVNZ Q+A
    “Look I think what we need to be is relevant, clear and consistent with New Zealanders about the Labour Party's values,” said Labour leader hopeful Grant Robertson on TVNZ’s Q+A programme....
    Scoop politics | 28-09
  • Labour Needs to Get House in Order Before Deciding Leader
    Ex Labour party leader and possible repeat contender David Shearer says the Labour Party is going about the post-election period in the wrong way....
    Scoop politics | 28-09
  • Hate merchants at it again with smear tactics
    “It’s disappointing to see the hate merchants at it again with yet another attempt to smear and silence a health professional who’s doing research they disagree with,” says Ian Powell, Executive Director of the Association of Salaried Medical Specialists...
    Scoop politics | 28-09
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