Daily review 13/12/2021

130 comments on “Daily review 13/12/2021 ”

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1. weka 1

   13 December 2021 at 6:07 pm

   Ardern answering questions in the Monday stand up on housing. Starts around 28m

   https://www.rnz.co.nz/news/national/457821/watch-live-prime-minister-jacinda-ardern-announces-any-changes-to-traffic-light-system

   She says early on that no-one wants the NZ housing market to crash, because people's homes are still the single biggest asset most NZ people will own. She doesn't really say anything else apart from that, or answer the question, other than 'all the levers' blather (meaning the levers that protect investors and some home owners). Building more supply features, but as far as I can tell this is increasing house prices.

   Can someone please explain to me why property prices dropping would harm individual people? Is it a retirement thing (how so)? Or that people can borrow against it?

   Doesn't it only become an issue when people want to sell? Some people will have houses worth less than their mortgage, is there not another way this issue can be solved. Wouldn't less buying and selling be a good thing?

   The press question was about prices going back to what they were before covid ie a 27% drop. In what ways would this cause and to whom?
   • RedLogix 1.1

     13 December 2021 at 6:13 pm

     If you think a market rising too quickly is bad – wait until you live through one that is crashing.
     • weka 1.1.1

       13 December 2021 at 6:22 pm

       presumably I will at some point. But that doesn't answer my questions. I want someone to spell it out in the NZ context.
       • mickysavage 1.1.1.1

         13 December 2021 at 7:35 pm

         The ones who will be hurt most by a crashing market are first home buyers. They have the smallest equity and tend to be mortgaged to the hilt. Believe me I see it every day. Young couples really stretching it to get into housing. They are a baby or a job loss or an interest rate rise away from huge pressure.

         The market could crash or correct because of an interest rate increase. If their equity disappears they may have nowhere to go.
         • SPC 1.1.1.1.1

           13 December 2021 at 7:44 pm

           Many who bought in the past year or so may well lose their input equity in the next year or two.

           Those paying back the loan ahead of schedule now will cope with rising rates. Others can cope by moving to higher incomes via wage increases or take on extra work or they can take in boarders – incl a caravan in the yard.

           If it goes that way (c 10-20% depending on when they bought in) the share of the mortgage paid which was principal (sans the interest) instead of rent becomes their effective equity. And that grows while they can meet the mortgage payments.
           • Pat 1.1.1.1.1.1

             13 December 2021 at 7:48 pm

             Which assumes the lending bank will not foreclose and that the RBNZ will allow the lending institutions to operate outside their licences.
             • SPC …

               13 December 2021 at 7:55 pm

               It would be really dumb to foreclose in a declining market when mortgage payments were being made. Banks do not make money being dumb.

               What have bank licenses to do with foreclosing on those meeting their mortgage payments? More likely banks would just toughen up on new lending (as they are doing now in anticipation).
         • weka 1.1.1.1.2

           13 December 2021 at 8:26 pm

           can the government not protect people in that situation?

           But in the end, if young couples are having to take such risks to buy a house isn't that because of the disparity between income and property prices? And incomes are never going to keep up.
           • Macro 1.1.1.1.2.1

             13 December 2021 at 8:48 pm

             can the government not protect people in that situation?

             They never have in the past. And how would they do it? Pay the banks the lost equity (ie reduce the loan by the size of the new market value)? I can see that going down with the general public like a bucketload of sick.

             But in the end, if young couples are having to take such risks to buy a house isn't that because of the disparity between income and property prices?

             Well yes it is to some extent, it is also due to the chronic shortage of house supply in NZ particularly in Auckland. This is a problem that has been allowed to fester for decades now. Developers aim their new builds at the top end of the market because that is where the profit lies. No money in building masses of cheaper houses – that requires more infrastructure to start with – more materials and smaller profit on each item. Back in the 0 ties I remember the assessment then that Auckland needed 13,000 + new homes per year. Never happened. That was almost 20 years ago. The down stream result is massive prices for the few houses coming on stream and desperate people willing to take on huge risks in order to find somewhere to live.
             • Pat …

               13 December 2021 at 8:52 pm

               They have indeed done so in the past….by offering refinance at a discounted rate.

               However with interest rates already nearing the zero bound that option has pretty much been removed, but there are potentially other actions they could take.
               • Macro …

                 13 December 2021 at 9:06 pm

                 but there are potentially other actions they could take.

                 Such as?
                 • Pat …

                   13 December 2021 at 9:14 pm

                   set up a gov entity to offer extended terms (say 40 years) rock bottom rates or shared equity options to criteria meeting applicants that the private banks need to foreclose on.

                   Housing corporation did a version of this in the 1980s
                   • Macro …

                     13 December 2021 at 9:21 pm

                     IIRC the terms were 25 years and 3% (that was a pretty small rate then) and the sums were around $25,000.

                     Current rates for a fixed mortgage are around 2.5%
                   • Pat …

                     13 December 2021 at 9:31 pm

                     Nope the rate was around 11% compared to market rates of around 19% and the term was 24 years as opposed to a market maximum of 20.

                     Yes the cuurrent rates are low as i noted above but currently floating rates are around 5% and rising and some 80% of fixed mortgages are due for renewal in the next 12 months so there would be some scope.
         • Macro 1.1.1.1.3

           13 December 2021 at 8:30 pm

           Yes that is the nub of the problem. A "correction" of $200k – $300k on a median priced house could almost see a complete wipe out of any equity (and that is a 20% reduction in house price).

           https://www.nzherald.co.nz/business/nz-house-prices-hit-new-record-925000-up-238-auckland-now-13m/BNNOELUO2JVKP5VA43YYZNKQUQ/
           • weka 1.1.1.1.3.1

             13 December 2021 at 8:38 pm

             in what ways is this a problem?
             • Macro …

               13 December 2021 at 9:03 pm

               Suppose for some reason you were forced to sell the property you bought last year for $1m. You had a deposit of $500,000 and the bank loan of $500,000. If the property now sells for $800,000 you still owe the bank Around $500,000 so you are left with $300,000. A loss of $200,000. Your savings have reduced by $200,000 in a year. Even though over the past year you have invested a large portion of your income in paying the interest on that $500,000 loan.

               I think that for many young couples that would be a significant problem

               Now you might argue that you could now buy a similar property as the one you just sold for $800,000, but you would still have to borrow $500,000 to make the purchase. Your debt to loan ratio was initially 1:1, it is now 3:5 with no significant improvement in housing.
               • weka …

                 13 December 2021 at 9:22 pm

                 I understand how that works in terms of the numbers. What I'm saying is how is this a problem specifically, rather than an assumption of it being a problem.

                 So the problem in your example is they were forced to sell. Why were they forced to sell?

                 And then the problem is that they have to buy a less valuable property. How is this a problem specifically?

                 As far as I can tell the central issue for the second question is that people want to get ahead of an already reasonable standard of living. Where as half the country are just trying to stay afloat.
                 • Macro …

                   13 December 2021 at 9:25 pm

                   As far as I can tell the central issue for the second question is that people want to get ahead of an already reasonable standard of living. Where as half the country are just trying to stay afloat.

                   The people struggling to buy a home for themselves and family are equally trying to stay afloat – as we are only too well aware with the increasing demands on our food banks right now.
                   • weka …

                     14 December 2021 at 12:18 am

                     if someone is using a food bank, how can they afford to buy a home? I understand people who already own a home, one person loses their job, they no longer have enough income because the mortgage takes it all. But that's a different situation.
                 • Craig H …

                   14 December 2021 at 12:10 am

                   Need to sell: divorce/separation, death, job loss leading to foreclosure

                   Want to sell: downsizing, upsizing, new job, new school, family issues, horrible neighbours

                   Buying and selling the same market only causes issues if the remaining equity is not enough for a 20% deposit on the next property. With a drop of 30%, that means 46% equity of the current property price is needed to still have 20% equity at the new prices.

                   It also means people can't withdraw equity to improve their current house if it will put them below 20%. As above, not an issue if they have more than 50% of current prices, bit of an issue if they don't. That may seem like a minor issue, but not everyone uses that for a new car – other uses are home repairs and maintenance, modifications etc. The loss of that money means a downturn in economic activity which can turn into a recession if it is sharp enough.
                   • weka …

                     14 December 2021 at 12:21 am

                     so maybe maintenance and upgrade should be part of the income budgeting not the capital gains budgeting.

                     In the need to sell category, why can they not rent the property out?
                 • Poission …

                   14 December 2021 at 12:53 am

                   Its not the big problem people perceive,there have been 10 mortgage sales this year nationwide,112 last year ,the peak during the Gfc (2009) was 2620 .
                   • weka …

                     14 December 2021 at 9:01 am

                     2620 is quite a lot though.
                   • Blazer …

                     14 December 2021 at 9:47 am

                     Who supplies that information?

                     Years ago there would be pages of Mortgagee sales in publications like the Property Press.

                     Those with vested interests realised this was not a' good look'and worked against ramping prices and profits and was discontinued.

                     A controlled drip feed of mortgagee sales became the new order.

                     In bull markets like NZ is having for the last decade or more, banks have no trouble finding buyers for distressed sales.
                   • Poission …

                     14 December 2021 at 10:33 am

                     Who supplies that information?

                     Corelogic
         • Patricia Bremner 1.1.1.1.4

           13 December 2021 at 8:59 pm

           Yes Micky this happened in Queensland, so people took in boarders. Full Board and meals, with one price for Monday to Friday more for a full weeks.
         • Blazer 1.1.1.1.5

           13 December 2021 at 9:25 pm

           How so.

           We are told that buyers are stress tested at a much higher interest rate than the rate they take for the mortgage.

           As first home buyers are actually living in their homes and paying less than rent,a drop in price/equity would mean little.

           Losing their job would be worse.

           Most have 30 year mortgages ,so in that time frame inflation should restore any equity and…some.
         • Blazer 1.1.1.1.6

           14 December 2021 at 8:35 am

           Why doesn't the Govt do something about it then?
     • Herodotus 1.1.2

       13 December 2021 at 6:33 pm

       Crashing is only a real issue in conjunction with high unemployment, increasing interest rates should be covered by having responsible banks that have loaded stress loadings into their calculation for what the max. loan they are willing to give to clients. Banks have shown in the last 10 years that they are reluctant to force sales.
       I will say as someone within the industry there are increasing examples of building invoking sunset clauses and then relisting, i 1 case 5 town houses with an added $200k on each. Easy $1m pity for those who had the dream smashed, and have to restart their house ownership journey
       With property only increasing by 23% !!!! Should there be a drop of 18.7% we would still have prices at Dec 20 levels, those innocent victims would be those who have entered the market in the mid to later part of the current year, and would possible see their equity vanish, but if still employed they would still continue be able to pay the mortgage. IMO to make housing affordability a correction of 30% would make a difference in the long term for new entrants. That is returning to mid 2019 prices!!!! And once you are in the market it is the price to transition to the next level i.e. from town house/apartment etc to family 3/4 bedrooms etc, that is the issue.
       • weka 1.1.2.1

         13 December 2021 at 6:56 pm

         if I'm understanding that right, the issue is more if prices drop and someone can no longer afford to pay their mortgage due to eg job loss?

         What would be happening to the rental market in such a situation? eg could people move into a rental and have wealthier people rent their house to pay the mortgage? Would rents be going up or down? More or less supply?
         • mickysavage 1.1.2.1.1

           13 December 2021 at 8:15 pm

           An interest rate of itself could deeply destabilise the market, eat into equity and raise mortgage costs and rents.

           And if you have cash it could be the perfect time to buy.
           • weka 1.1.2.1.1.1

             13 December 2021 at 8:23 pm

             do you mean interest rate increase? Why would that happen?
             • Macro …

               13 December 2021 at 9:16 pm

               Interest rates are at historic lows. There is really only one way they can drift in the near future and that is up. One of the tools the reserve bank has in its tool box is to raise the base interest rate (currently 0.75%). The bank is given the task of controlling inflation to within a range of 2 – 3% and one of the main methods it uses to reduce inflation is to raise the base interest rate. With the current supply shortages world wide and across the country inflation is increasing so we can expect to see interest rates rise in the new year whether we like it or not.
               • weka …

                 13 December 2021 at 9:24 pm

                 if rises are inevitable why are people being encouraged to borrow with so little leeway?

                 Why is inflation increasing atm?
                 • Maurice …

                   14 December 2021 at 4:17 am

                   Inflation is rising because of Government Debt creation putting more money into the system which is chasing fewer houses and scarcity of building products (and almost everything else) due to supply problems – drop in manufacture due to lockdowns and transport bottle necks.

                   "Market Forces" – The Gods of the Copy Book headings return!

                   As I pass through my incarnations in every age and race,

                   I make my proper prostrations to the Gods of the Market Place.

                   Peering through reverent fingers I watch them flourish and fall,

                   And the Gods of the Copybook Headings, I notice, outlast them all.
                   • weka …

                     14 December 2021 at 9:04 am

                     how does more money in the system relate to house building/supplies shortages and thus causing inflation? Do you mean the cost of housing (building as well as property) increasing while people have more money is what causes inflation?

                     Doesn't building a lot more houses increase the property prices in the short and medium term?
             • Nic the NZer …

               13 December 2021 at 9:19 pm

               "Why would that happen?"

               http://bilbo.economicoutlook.net/blog/?p=48850

               This describes one reason.
               • weka …

                 13 December 2021 at 9:23 pm

                 can you not summarise it for me?
                 • Nic the NZer …

                   13 December 2021 at 9:25 pm

                   "Central banks are resisting the inflation panic hype from the financial markets – and we are better off as a result"

                   Is the title, but it probably should be read in full for people new to the subject.
   • Nic the NZer 1.2

     13 December 2021 at 6:26 pm

     Yes, its basically an issue that peoples debts become larger relative to the assets which secure them. Banks have been known to call for repayment on roll over in these circumstances so the issue is not purely an effect on sellers however.

     The other thing to consider is debt repayment in similar to saving, so this works to reduce aggregate spending and income (e.g GDP). Incidentally borrowing works in reverse to this. So there is at least a possibility that debt repayment is prioratised, people pay back debts rather than going in cafes, and so the fall out is on the cafe staff and businesses who lose work. This happened under lockdown (people saved rather than going out) but there the government wage subsidy kept cafe staff paid. So if the govt manages to get the housing market into reverse they may need to support GDP to stop a recession resulting. That wage subsidy was easier to explain politically under lockdown.
     • weka 1.2.1

       13 December 2021 at 6:50 pm

       Yes, its basically an issue that peoples debts become larger relative to the assets which secure them. Banks have been known to call for repayment on roll over in these circumstances so the issue is not purely an effect on sellers however.

       Can the government not regulate that to protect home owners? Other than the bank selling out from under them, what's the problem with the debt/asset ratio changing?
       • Nic the NZer 1.2.1.1

         13 December 2021 at 7:10 pm

         The issues here are basically fairness. This will be a problem for recent buyers, so the question in fairness terms is should the government be influencing the housing market in ways which penalize people, and did they have reasonable warning of what was coming. Otherwise the debt/asset ratio changing will effect how much somebody carries over if they are moving. At that point its not an equivalent trade as they pay off the balance of the mortgage on the inflated purchase price, not the depressed sale price, even if they can make another purchase at a depressed purchase price.

         Otherwise a bank needing some repayment is basically requiring saving as indicated below. I don't think its the preferred thing for banks to do, but it happens.
         • weka 1.2.1.1.1

           13 December 2021 at 8:28 pm

           Fairness like being homeless or spending most of your benefit on rent and not being able to afford to feed and clothe your kids?

           I assume you mean fairness of people that got in earlier compared to people that got in later. This is the problem of Ardern saying she doesn't want property prices to drop, people take it as assurance, bet on that, and then the govt can't actually move.
           • Nic the NZer 1.2.1.1.1.1

             13 December 2021 at 9:13 pm

             Yes, its that kind of fairness, and its not that home owners are the worst off members of the economy either.

             But the problem with just contrasting house prices with rents is that house prices have a tenuous relationship with rents.

             Looking at the situation a lot of landlords were in before 2010 many were basically satisfied with the capital gains and were largely not fussed about maximising the rents anyway. Though that attitude seems to have changed a bit since then. But I don't see a good reason falling house prices will necessarily result in lower rents anyway, they could well result in higher rents. A lot of the governments reforms in fact seem to be trying to get landlords to start making investments more like a business and to my mind this will mean more landlords focused on the bottom line. Best case scenario we don't know if these changes will push rents up or down, there are ways it could do either in practice.

             The other problem I see is reading too much into what Ardern says anyway. Basically house prices are set by the trades happening in the housing market. The PM can say what she wants but at most its a signal about which kinds of policy her party will or won't implement, but the impacts of those policies are quite far from well defined. I suspect the main impacts are on which party various classes of people might support and the housing market impacts are largely very hard to evaluate.
           • Blazer 1.2.1.1.1.2

             14 December 2021 at 9:53 am

             ' In wanting state tenants to experience the benefits of owning their own home, the government offered purchasers very generous terms: 5 percent deposit, a 3 percent mortgage rate, with a maximum purchase period of 40 years. Since this time thousands of tenants have purchased their state houses and become 'kings and queens of their castles'.

             Introduced by a National Govt!

             Also introduced by a National Govt…

             'The National government introduced full market rents in 1991 to reduce the state role in housing provision. From the start, public debate over state housing policy in New Zealand has centred on this very issue: how far should governments intervene in the housing market. '
       • Patricia Bremner 1.2.1.2

         13 December 2021 at 9:03 pm

         The rules have changed to allow shared equity. Some will resort to this.
       • Pete 1.2.1.3

         13 December 2021 at 9:28 pm

         One of ours with a big mortgage will try to get bailed out by the Government if values drop dramatically and the house is worth way less than what they owe. She'll change her name to 'South Canterbury Finance.'
     • weka 1.2.2

       13 December 2021 at 6:52 pm

       The other thing to consider is debt repayment in similar to saving, so this works to reduce aggregate spending and income (e.g GDP). Incidentally borrowing works in reverse to this.

       Not quite getting that one. The government wants people to be spending rather than paying off debt? How does that relate to a drop in property prices?
       • Nic the NZer 1.2.2.1

         13 December 2021 at 7:21 pm

         This is basically a question of who is impacted by the resulting change in behaviour. The summary of the point here is that an expanding housing market with expanding debt does increase our total income and spending across the country. When that even just slows down (let alone reversing) then that part of total income and spending goes away. This is basically the same as people electing to save more and spend less of their income. The unfair part of this would be that the people who are unemployed are often not involved in the housing market, but are influenced by its effects none-the-less.

         The reason I also mentioned the govt here is that its spending is a good way to soak up excess unemployment which may result from this occurrence, and it doesn't have an actual financial constraint and so should be mandated to act for social policy purposes.
         • weka 1.2.2.1.1

           13 December 2021 at 8:30 pm

           so the govt needs a runaway housing market to keep the economy afloat by people taking on more personal debt? Isn't that insanely fragile?
           • Nic the NZer 1.2.2.1.1.1

             13 December 2021 at 8:59 pm

             I wouldn't say its necessarily that fragile as it has persisted for quite a while. But eventually its probably bound to result in an overindebted household sector and inequality. Its a simplification but you can divide the income of the economy (GDP) into 3 sectors, private domestic, public government and overseas. In order for GDP to grow one of those sectors must spend more and frequently borrow more to support that spending. Since the Rogernomics reforms the increased spending initiative has generally come from the private domestic sector taking on more debt. Those reforms were largely about pushing spending off of the public government sector and onto the private domestic sector. This was only really recognised as a problem when Key came in during 2008, but the Clark government surpluses were only possible with similar expansion of private domestic sector spending and debt.

             https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-household-debt

             The alternative is more public government spending to support incomes (and fewer govt surpluses, especially as NZ typically runs a balance of payment deficit). Unfortunately the government budget is often described as similar to a business, rather than the factually accurate claim that government deficits are needed to create space for private domestic saving and debt repayment. There needs to be a certain level of saving if everybody is going to be saving for their own retirement, or repaying housing debt but that will need public sector deficits otherwise that behaviour change will result in some level of recession.
             • weka …

               13 December 2021 at 9:26 pm

               But eventually its probably bound to result in an overindebted household sector and inequality

               Why do you say eventually? That's what is already happening.
               • Nic the NZer …

                 13 December 2021 at 9:40 pm

                 I think its reasonable describing a process which started in 1983 (or even starting around 2000) as (arguably) eventually becoming more critical in 2021. And its at least arguable that its not even yet over-indebted, as you have noted several times why is there anything wrong with people in negative equity on their property as long as they keep a job. If follows they are not yet over-indebted in that case.
                 • weka …

                   14 December 2021 at 9:09 am

                   I'm not quite saying that. I'm asking people to be specific about the details of the issues rather than just saying reflexively 'oh that's bad'.

                   Because I want us to look at different solutions, and we can't do that without understanding what the problem is.

                   I would guess for some people who lost their jobs in the past 2 years, having negative equity was a bad thing. So there's a difference for how individuals (who vote!) feel about it, and how the government and economists look at it (collectively and for the good of the whole).

                   Someone has to lose out apparently. I'd like the left to look at why it still largely supports poor people being the ones that are worst affected. I know some of the rationales (Labour want to stop the underclass growing more than they want to end the underclass condition itself). I just think we could be more honest about it.
                   • Nic the NZer …

                     14 December 2021 at 9:31 am

                     I suggest you need to be more specific then, what is the meaning of over-indebted? My phrase was taking the meaning to be that such a person was over-indebted when they are prone to being unable to make payments/repay their debt (+ some bare minimum of other living expenditure). But apparently you mean something else by saying people are over-indebted.

                     I also don't really get the reasoning about somebody who loses their job with negative equity. Losing a job is usually the bad thing and can lead to losing a house regardless of the owners equity position. But negative equity has many negative consequences such as higher interest rates and insurance costs, lack of flexibility, potential repayment pressures and other drains on income.
                   • weka …

                     14 December 2021 at 9:41 am

                     I didn't know what you meant by over-indebted, I took it to mean that someone was precarious because of that debt, not that they were already crashing.

                     The point about job loss is that people are being sold the idea that buying a house with precariousness built in is good (get on the property ladder!). Then when one half of a couple loses their job, they can't afford to live and end up using food banks. Had property been more affordable, and/or people more sensible financially in taking on debt with regard to the way the world is, that wouldn't happen.
                   • RedLogix …

                     14 December 2021 at 9:51 am

                     But negative equity has many negative consequences such as higher interest rates and insurance costs, lack of flexibility, potential repayment pressures and other drains on income.

                     One of our longer term tenants fell into just this hole during the 2009 GFC. Based overseas they lost jobs, property and savings all at once and were forced to return to NZ. There's lot's more to their story that I won't retell here – but essentially they've never been able to recover from that setback.
           • Blazer 1.2.2.1.1.2

             14 December 2021 at 8:36 am

             You got it Weka….the ugly truth no politicians want to admit.
   • Red Blooded One 1.3

     13 December 2021 at 6:28 pm

     Regardless of who you vote for I don't think many people want to see their properties value go down much. I certainly don't although it is only on paper these days. As you say, for those of us watching our Retirement come closer, the value of our biggest Asset is not something we hope to gamble with. For me it is a safety net, encouraged in previous years as a Retirement Plan. and in case we get a wave of negative whiners about Northland staying Red this is one Northlander content with the decision.
     • weka 1.3.1

       13 December 2021 at 6:49 pm

       why does it matter in retirement what your property is worth? Isn't the issue more that you want the mortgage paid off by the time you retire? Which is more likely generally if property prices dropped.
       • Red Blooded One 1.3.1.1

         13 December 2021 at 7:27 pm

         If the next step of retirement is moving to a Village (for example) every bit of value may be necessary for a "comfortable" existence. With a mortgage in retirement is said to be a very uncomfortable, let alone if renting. Why do you think it would be good for your most valuable asset to be worth less? The only benefit I see would be rates reduction but being quite happy paying taxes and rates for the betterment of society that's not really a plus for me.
         • Herodotus 1.3.1.1.1

           13 December 2021 at 7:45 pm

           Why do you think it would be good for your most valuable asset to be worth less? A 30% reduction only brings back prices to mid 2019, so in your case ( as long as LTO prices also corrects) then your position remains unchanged. But with increased property LTO prices increase, and that is why retirement village are able to achieve growth and pay great dividends to their share holders. They pocket the capital gain as well as the deferred management fees up to 30% of your licence fee. One of the best positive cashflow businesses in NZ.
           • Red Blooded One 1.3.1.1.1.1

             13 December 2021 at 8:12 pm

             That would be great IF Villages reduced their prices by 30%. Not holding my breath, while I still have some.
         • weka 1.3.1.1.2

           13 December 2021 at 8:14 pm

           Why do you think it would be good for your most valuable asset to be worth less? The only benefit I see would be rates reduction but being quite happy paying taxes and rates for the betterment of society that's not really a plus for me.

           I don't think it's good for the individual whose asset devalues, I think it's good for homeless and poor people who can't afford rent, and lowish income people who can no longer afford to buy a house ever.
   • Pat 1.4

     13 December 2021 at 7:14 pm

     The answer in one word is 'growth'

     The growth we use now is financial, not production….if growth stops then there is no wherewithal to pay interest (in aggregate)

     Everything is predicated on that ability…lose it and the whole system collapses.

     NZ has made housing lending its almost exclusive source of financial growth (more so than any other economy) …pretty much no one is confident enough to lend/borrow for any other purpose.
     • weka 1.4.1

       13 December 2021 at 9:28 pm

       what is aggregate.

       The growth we use now is financial, not production….if growth stops then there is no wherewithal to pay interest (in aggregate)

       does that mean we have growth because we have borrowed money internationally?

       What would happen if economic growth was based more on production?
       • Pat 1.4.1.1

         13 December 2021 at 9:41 pm

         aggregate= in total

         It means without growth there is no ability to extract interest (that is not to say individuals couldnt)….ultimately it means that borrowing becomes increasingly difficult and people, institutions, businesses need to save before investing….think about what that does to an economy…you cant buy that house (or anything) until youve saved enough to pay for it outright.

         If our growth was based on production (as it was until the neolib revolution) we would still have problems because we have reached the limits of extraction and externalities (pollution/.waste)……it is the end of growth.

         We are using finance to kick the can down the road….and the road is coming to an end.
       • Blazer 1.4.1.2

         13 December 2021 at 10:09 pm

         Bernard Hickey on the NZ economy…reality

         New Zealand's economy is a housing market with bits tacked on | Stuff.co.nz
         • Gezza 1.4.1.2.1

           14 December 2021 at 12:26 am

           That’s a good read & an intelligent analysis.
   • SPC 1.5

     13 December 2021 at 7:23 pm

     A fall about 10% next year is my pick.

     20% over 2 years would be OK too.

     Other looming issues

     People struggling to pay mortgages because they move up to higher interest rates (this may force some to consider boarders – albeit via caravans in the yard for some).

     When unemployment insurance arrives and in what form (income related or a more Canadian form) – it will help (for a certain period at least) those not able to get ACC because of illness rather than accident. Until then an option, for those able to afford the cost, is income insurance.
     • Pat 1.5.1

       13 December 2021 at 7:38 pm

       Income and unemployment insurance are usually time limited…i.e 6 months. Not much help with a 30 year mortgage…and that assumes a) you can afford/have it and b) it is honoured
       • SPC 1.5.1.1

         13 December 2021 at 7:49 pm

         It does what it does – losing a job and taking months to find an equivalent, or being out of work for months and being forced to sell under duress in a falling market is something to avoid if one can and there is any risk.
         • Pat 1.5.1.1.1

           13 December 2021 at 7:55 pm

           History (recent) has shown that those who lose employment in a recession almost invariably take an income hit if and when they find alternative employment
           • Craig H 1.5.1.1.1.1

             14 December 2021 at 12:15 am

             In part, that's because people get forced into the first full time job they can find which may or may not suit their talents.
             • Pat …

               14 December 2021 at 7:14 am

               That can be a cause…however whatever the reason the fact remains that lifetime earning capacity decreases and consequently ability to service debt is reduced.
   • Matiri 1.6

     13 December 2021 at 9:08 pm

     I remember a housing boom followed by a big price drop in the late 1980's in the UK, prices fell by 30% in some areas and a lot of people owed more than their house was worth.
     • weka 1.6.1

       13 December 2021 at 9:24 pm

       then what happened?
       • Blazer 1.6.1.1

         13 December 2021 at 9:32 pm

         Irish property bubble – Wikipedia

         big contributor here…
         ‘Throughout the bubble, newspapers and media played a vital role in hyping property. No national newspaper was without a glossy property supplement and weekend papers were often equally filled with property ads, reviews of new developments, stories of successful purchases, makeovers, and a gamut of columnists relating their property experiences. TV and radio schedules were filled with further property porn – house-hunting programs and house makeover programs were regular features on every channel. Even in July 2007, Irish Independent journalist/comedian Brendan O’Connor urged people to buy property, even as the bubble was clearly bursting.[42] In April 2011, journalist Vincent Browne admitted that the Irish media had played an important role in adding to the frenzy of the Irish property bubble’
         • weka 1.6.1.1.1

           13 December 2021 at 9:40 pm

           I was asking what happened in the UK after the values dropped 30%. There's this implication that it's inherently bad, I want the explanation for how, specifically

           If you own a home worth $300,000, and then it’s worth $210,000, you still have a home.
           • Blazer 1.6.1.1.1.1

             13 December 2021 at 10:02 pm

             It is not a problem if you can service the mortgage…supposedly stress tests are done at +3% of the mortgage rate you strike.

             If people have to refinance at higher rates with reducing equity, problems occur.

             The Irish example actually has a number of correlations with the NZ housing market now.
       • Nic the NZer 1.6.1.2

         13 December 2021 at 9:50 pm

         https://www.boleat.com/materials/the_1985_93_housing_market_in_the_uk_1994.pdf

         GDP Fell -2.5% in 1991 and unemployment increased by 600000 during 1991.

         GDP Fell -0.5% in 1992 and unemployment increased by an additional 500000 during 1992.
         • weka 1.6.1.2.1

           13 December 2021 at 9:56 pm

           unemployment rose only because of the drop in the housing market?

           I don't get it. If the GDP falls because of values (not actual production) how does that cause unemployment?
           • Nic the NZer 1.6.1.2.1.1

             13 December 2021 at 10:07 pm

             GDP doesn't fall due to values. GDP is a measure of income, so when GDP falls, income falls, and business (often) cut back on staff to save costs.

             The effect of the housing market prices is that when a seller sells in an increasing housing market (because a borrower borrows and is willing to pay) then that becomes their income. Maybe they then take that and buy elsewhere, but… Eventually somebody ends up selling a place and not buying in again, or downsizing and so can realize their housing trades as actual income.

             And when that goes away as house prices go into reverse then that income stream vanishes from the economy so GDP can fall. Perhaps there is also a shift into repaying more debts which is actively taking that spending out.
             • RedLogix …

               13 December 2021 at 10:43 pm

               Good explanation.

               On top of this – and effect most people overlook is that the banks become increasingly unwilling to lend without substantial owner equity. What this leads to is the paradox of the price falling but the deposit needed stays just as large or even grows.

               Market turnover drops because those who aren’t compelled to will hold, and those who do have sell to will often lose their equity and finish up adding to the rental demand.
               • Blazer …

                 14 December 2021 at 8:39 am

                 So what happens to the houses that are sold by the people who have to sell?
             • weka …

               13 December 2021 at 11:41 pm

               sorry, but this does sound completely bonkers. The only way that works if is the people at the top keep getting richer and the people at bottom keep getting poorer.
               • RedLogix …

                 13 December 2021 at 11:59 pm

                 sorry, but this does sound completely bonkers.

                 I realise everyone here hates on me as the resident bastard landlord. It's the price I accept for being open and honest about my experiences. But please spare me the 'bonkers'.

                 Also what is so frequently left out of these discussions is that most powerful reason why so many people are stuck renting is not just prices – although clearly they've become a serious hurdle – but even worse than this, the willingness of any bank to lend them any money at any price.
                 • weka …

                   14 December 2021 at 12:02 am

                   the bonkers comment was to Nic
                   • RedLogix …

                     14 December 2021 at 12:06 am

                     
               • Nic the NZer …

                 14 December 2021 at 12:02 am

                 I don't think that is necessarily an implication, and there have been sustained periods when many economies reduced inequality while still having house ownership and trading (though clearly a more limited financial sector).

                 But you asked how an almost 30% fall in UK house prices resulting in a two year recession and 1100000 additional unemployed and that is a reasonable description of how this happens.

                 The main problem the government faces here being that if they are successful at tipping over the housing market they will need to take responsibility for all the economic fallout resulting from that and that will be unpopular.
   • Sabine 1.7

     13 December 2021 at 10:04 pm

     Say you bought a house last year for 850.000. for what ever reason the value of houses falls and your house is now only worth 580.000 grand. You are still paying the mortgage of the house for 850.000. If you wanted to sell because say your life changes, you can no longer get 850.000 or even close to it, you are shit out of luck and 270.000 short on your loan. The bank will want its money – your fucked..

     So it is not in anyones interest to flood the market with new houses as that will leave the people that bought houses over the last ten years in negative equity. Or in houses without value. And these people vote, and Labour ain't gonna piss of middle class voters.

     I bought a property in a tiny 'town', a glorified garden shed ministry of works from 1949 house with the original water boiler (in gallons) and the floor covered in news paper from 1970 (very interesting read i kept that paper) for 100.000. I am that cheap, yes i am. This property is now valued at 400.000 (yes, a good laugh), and i could sell it to some deluded person from AKL/WLGTN for more then that if i wanted too, but nope it is my retirement hovel. The locals of course are currently priced out of the market, as no one there makes enough money to pay that much. If the price of my house dropped back to what it was originally i would not be worse of. Why? I never loaded anything on the mortgage. But the same can not be said for the majority of people that bought houses and believe themselves to be millionaires. Or that bought Dachas in my little retirement place to go to with their boats for a weekend hoon and bbq. All loaded on the mortgage of a property valued somewhere as a million +.

     Jacinda has no real options here, other then building to rent – and building to cheaply rent, to take pressure of the market slowly and let the market cool down in a controlled fashion.

     Watch interest rates go up, and watch the house of cards fall apart.
     • Blazer 1.7.1

       13 December 2021 at 10:17 pm

       Your first 2 paragraphs are quite misleading…

       1-the figures you quote make no allowance for a deposit,which is generally required-i.e 20% of k850,000=170,000.

       Flooding the market with new houses is definately in the interests of first home buyers and renters.

       People who are not home owners also …vote.
       • Sabine 1.7.1.1

         13 December 2021 at 10:19 pm

         yes dear.
         • Blazer 1.7.1.1.1

           13 December 2021 at 10:22 pm

           Happy to…help.
           • Sabine 1.7.1.1.1.1

             14 December 2021 at 9:15 am

             did you see the word loan? You don't loan your down payment, you loan the rest based on your down payment. So no matter what you paid down, in my scenario you OWE 850.000 dollar, and if you can not sell your house for that money you are short on the loan, and you lost your down payment.

             I hope that this is plain enough english to bend your mind around.

             Last if Labour or National or Act or anyone would give a fuck about tenants and first buyers we would have gotten a Captial Gains Tax in the first year of the reign of Jacinda, and we would not have had the shenanigans last year with the very very low interest rates that resulted in no help to businesses but allowed people with inflated assets to borrow against these inflated assets and buy up some more property bringing the market up. Also keep in mind that Housing NZ is also buying up houses on the open market, cause that is easier and prolly cheaper then building.
             • Blazer …

               14 December 2021 at 10:41 am

               I saw this plain English and managed to bend my mind around it-

               'Say you bought a house last year for 850.000.'

               You should be clearer.Your new scenario suggests the house is bought for a lot,lot more than $850,000.
     • weka 1.7.2

       13 December 2021 at 11:39 pm

       If you wanted to sell because say your life changes, you can no longer get 850.000 or even close to it, you are shit out of luck and 270.000 short on your loan. The bank will want its money – your fucked..

       people say this so casually "you want to sell your house"

       From what I can tell in the conversation tonight, what this boils down to is people want freedom and they're ok that poor people can't have freedom so long as they do. The liberal ones would like poor people to also have freedom eg to live in a house or to afford things other than rent, but if that can't happen, oh well.

       People want to fly wherever they want, oh well, climate change.

       People want to do whatever they want, oh well, covid spreads.

       If someone owns a home even if you owe a lot of money on it, I think that is lucky.

       And it's not like we don't know this shit. If someone buys into the market now, and overextends themselves, what were they thinking? That the market would keep growing their asset by a hundred thousand dollars a year forever?

       Good on you for buying what you did where you did.
       • RedLogix 1.7.2.1

         13 December 2021 at 11:48 pm

         All human activity – everything we do from the moment we wake – has a risk or cost to it. In general as a society we have two broad pathways to mitigating these costs:

         One is to innovate so as to reduce or even eliminate those costs – a progressive process that has over the past 200 years transformed the lives of ordinary people beyond all belief.

         The other is to prohibit it. In some instances this is entirely warranted, but as a fundamentally coercive action we should reach for this option least and last.
         • weka 1.7.2.1.1

           13 December 2021 at 11:58 pm

           yes. We will coerce in a pandemic, but not a housing crisis that affects poor people disproportionately. The political and middle and rising classes are adept at self care.

           The problem I have with this is the utter lack of imagination. TINA all the way. The idea that we cannot make sacrifices and be creative and innovative at the same time is a modern conceit when human evolution is in part an adaptation in response to challenge.
         • Blazer 1.7.2.1.2

           14 December 2021 at 9:58 am

           Yes the basics for survival are food and SHELTER.

           Ordinary people can no longer own a home in NZ.

           If that's 200 years of progress….it certainly is…transformational.
           • RedLogix 1.7.2.1.2.1

             14 December 2021 at 10:15 am

             Ordinary people can no longer own a home in NZ.

             That's because NZ is a well governed stable country, one of the top 20 or so in the world, that people want to live in;

             But we have a dysfunctional building industry and amateur hour zoning regulations that make the cost of housing ridiculous. Keep in mind that the price of existing homes cannot get too far out of kilter with the cost of building new ones – and it's this cost that's underpinning price inflation across the whole market.

             So high demand and low supply – basic shit really.
             • Blazer …

               14 December 2021 at 10:27 am

               Its not basic shit…at all.

               NZ is the only western country with no Capital Gains or wealth tax.

               The FIRE economy has fuelled investing ' in RE as the only rational asset class,and successive Govts encourage it.

               As you know a 500k mortgage @8% costs around the same to service as a $1000,000 mortgage @4%.

               This is a rigged,manipulated ponzi scheme ,a direct consequence of Q.E on an unprecedented scale.

               Its a return to the the enslavement of the Feudal system.
               • RedLogix …

                 14 December 2021 at 10:36 am

                 NZ is the only western country with no Capital Gains or wealth tax.

                 And wherever a government is incompetent enough to allow housing supply to fall behind demand the same basic rule applies – prices go up. Regardless of the local tax settings.

                 Its a return to the the enslavement of the Feudal system.

                 You have no idea of what medieval feudalism was actually like do you? For the vast majority of human history even the idea that an ordinary person might 'own their house' was unthinkable.
                 • Blazer …

                   14 December 2021 at 10:44 am

                   What a coincidence-every single country in the western world has incompetent Govts=remarkable!

                   My reference to the Feudal system is a comparison to enslavement…just like the translation of the french….mortgage…I'm sure you are familiar with it.
       • Gezza 1.7.2.2

         13 December 2021 at 11:58 pm

         From what I can tell in the conversation tonight, what this boils down to is people want freedom and they’re ok that poor people can’t have freedom so long as they do. The liberal ones would like poor people to also have freedom eg to live in a house or to afford things other than rent, but if that can’t happen, oh well.

         I think the situation’s dealt with even more basically than that by homeowners. At the emotional level. Homeowners can see that not owning a home makes many people fundamentaly financially & emotionally insecure. One job loss away from a benefit, with all the associated indignities that go with the govt granting you an allowance to sustain your & your family’s existence off the taxpayer.

         Better to stay in your home & hope like hell prices don’t fall. It’s not callousness that makes them not worry enuf about those who can’t affird to buy houses. It’s fear.
         • weka 1.7.2.2.1

           14 December 2021 at 12:00 am

           I'm sure that is true for some people Gezza. I think it's why there is so much denial about climate from the relatively stable as well. If we look it straight in the face we realise how much we are about to lose and people would rather pretend.

           Thing is, if you are content to stay in the home you own, you don't need to worry so much about a drop in price. Housing as investment is the problem here, not home ownership.
           • Gezza 1.7.2.2.1.1

             14 December 2021 at 12:22 am

             Yes. Agreed.

             But of course it’s probably equally true that without some level of private landlordism there wouldn’t be enuf houses available to rent. For various reasons, not everybody always wants to buy the home they’re currently living in.

             I suppose we could argue the government could build and rent out homes instead of private landlords, but given the track record of public servants for managing state housing stock here I’m not convinced that that’s ever going to the best solution either.

             I only own my own home, which I consider to be grossly overvalued, but someone would buy it at more that the govt valuation around here. I watch the housing market, like you, scratching my head over how Kiwiland could have got into this situation & how on earth we are going to get out of it & make housing more affordable for Blazer’s Joe Lunchbox with a job and a stay-at-home or part-time-employed wife/partner & two kids.
             • weka …

               14 December 2021 at 9:00 am

               I'm fine with private landlords. I just think the government should set the rules around that to protect tenants more than investors.
             • Blazer …

               14 December 2021 at 9:11 am

               Do you think private landlords would invest in residential property based just on yields?

               Most landlords buy existing and by their ability to leverage, cut first home buyers out of the market.

               The historic, untaxed ,capital gains are the incentive.

               It is a very rational incentive.

               Just like the banks (for whom this is their profit pot of gold),the property ponzi has become…too big to fail.

               The implications for NZ society are…dire.
               • Gezza …

                 14 December 2021 at 9:14 am

                 Agreed.

                 That was an excellent article by Bernard Hickey that you posted yesterday.
               • weka …

                 14 December 2021 at 9:17 am

                 Put some tenant protection laws in place, the greedier landlords will sell, the government and local bodies buy the properties and do a mix of social housing, community land trust management, and rent to own.
                 • weka …

                   14 December 2021 at 9:18 am

                   the CLT model is very useful because it takes out the investor aspect. If a CLT owns the land and housing, and never sells it, then the incentives change for everyone.

                   People who live in such housing could be given other incentives to save rather than investment.

                   But of course, if the economy now depends on the housing market, the government will actively resist any attempts to change how it works.
                   • Gezza …

                     14 December 2021 at 9:43 am

                     But of course, if the economy now depends on the housing market, the government will actively resist any attempts to change how it works.

                     Bernard Hickey says the economy does depend on the housing market:

                     https://www.stuff.co.nz/business/opinion-analysis/124385961/new-zealands-economy-is-a-housing-market-with-bits-tacked-on
                 • Blazer …

                   14 December 2021 at 9:34 am

                   Its a good idea,as is soft loans expressly for first home buyers.

                   What happens though, is a right wing Govt gets in and reverses everything-sells off state houses,unwinds initiatives they consider detrimental to free market profiteering and the cycle continues on.

                   Its why the right hates the Cullen Fund,Kiwibank,and Kiwisaver….these entities mop up funds they want to administer and profit from.
                   • weka …

                     14 December 2021 at 9:42 am

                     Hard to see how the NACT could reverse a CLT trust system, or council owned social housing though. Not sure that NACT would start selling off state houses again, given the direness of the housing crisis.
       • Sabine 1.7.2.3

         14 December 2021 at 9:17 am

         I bought based on what i could pay in repayments (rent to myself) if shit hits the fan, and our society goes down the gurgler. But then my inner german is a pessimist who believes that the sky will fall down on us. 🙂

         I am very old fashioned in the sense that if i can't afford it, i can also not buy it.
         • weka 1.7.2.3.1

           14 December 2021 at 9:19 am

           I feel we've lots a lot of traditional values that would be serving us well now.
           • Sabine 1.7.2.3.1.1

             14 December 2021 at 9:24 am

             One thing that should come back is teaching basic economics and budgeting. WE have done away with financial literacy, or maybe it was the Nuns at my Convent who thought it important enough to teach us a few things that fall under 'life skills' rather then abstract math.
   • Jester 1.8

     13 December 2021 at 10:50 pm

     It would be best if Jacinda just deferred all questions on house prices (and economics in general) to Grant Robertson.
2. swordfish 2

   13 December 2021 at 6:10 pm

   Concerns about Omicron in UK … Booster dose reduced to 3 Months after 2nd jab.

   Given how significantly more infectious Omicron is … concerns that even if it is far less severe than Delta (as seems likely from available data) … hospitals still at risk of being overwhelmed.
   • Sabine 2.1

     13 December 2021 at 10:08 pm

     Read an article yesterday in the German news that two jabs of Pfizer is no match for Omicron. They too are discussing shorter periods between the boosters and hopefully a specific jab in about 6 month.
3. Molly 3

   13 December 2021 at 7:41 pm

   Watch the video of the race about halfway through the article to see the disparity in performance.

   Fury as transgender UPenn swimmer, 22, who used to compete as a man smashes TWO US women's records in weekend competition and finishes one race 38 seconds ahead of her nearest rival – Daily Mail UK

   Note the crowd's reaction to the record breaking finish compared to second place.

   Then, make another entry on the log – SheWon.org.
   • Sabine 3.1

     13 December 2021 at 10:17 pm

     Very brave and very stunning for this person to compete against mere biological non males. So very very brave and so very very stunning. NON Male sporting events is a good place to retire for mediocre males.
     • bwaghorn 3.1.1

       14 December 2021 at 6:28 am

       The woman in these races should just boycott any race meet that allows this shit happen , no ones going to go watch a confused man swim alone in a women's race
       • Sabine 3.1.1.1

         14 December 2021 at 9:19 am

         If they are on the swim team due to scholar ships and help with payments which is quite common in the US then they will have to go out there and lose every time in the name of inclusion, kindness, and men are women. As failing to comply could result in them being sanctioned, expelled, or suddenly charged. And that involves also the swimmer of the other teams that have to compete against this bloke.
   • RedLogix 3.2

     13 December 2021 at 11:01 pm

     Honestly I have nothing but contempt for this. Nothing to do with trans this or that – just cheating of a very low order.
   • RedLogix 3.3

     14 December 2021 at 12:56 am

     You may have already spotted this essay – but makes a conclusive argument.

     Given the overwhelming data, we reject arguments that explain male advantage in sport as a by-product of social conditioning, or that cast it as a social construction more generally. That adult human males have a physiological advantage over adult human females in athletic performance is a matter of settled science.
4. swordfish 4

   13 December 2021 at 8:17 pm

   Poor old Smithy … it's all coming out in the wash.

   “I’m the MP and you’re just the f…ing secretary”

   
   • swordfish 4.1

     13 December 2021 at 8:23 pm

     .

     Reminds me of this for some reason (25:08):

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