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Debt to Income Loan Limits

Written By: - Date published: 7:56 am, June 15th, 2017 - 116 comments
Categories: debt / deficit, Economy, grant robertson, greens, labour, Metiria Turei, national, same old national, treasury - Tags:

Has anyone noticed that it’s now much harder to sell a house? I sure ain’t giving advice. But I suspect existing home owners are finding it takes longer, and no-one’s still getting the great life-altering profit they thought they would from selling.

Back in October last year, the Reserve Bank issued a formal request to government to introduce debt to income (DTI) ratios on home loans.

Debt to income ratios would limit most borrowers to about five times their gross income. If your household is earning $100,000 gross per year, you can loan up to $500,000. That’s it. You can figure out what that would mean for first home buyers across New Zealand, and particularly anyone who lives in a city north of Dunedin.

The Reserve Bank has already implemented Loan to Value restrictions. As noted by Green Party Co-Leader Metiria Turei in May 2016: “The Reserve Bank told the Government that an Auckland family earning $100,000 a year is potentially going to have to spend 60 to 70 percent of their income servicing the mortgage on their first home in the next year or two.” That’s a lot of the groceries gone.

But Debt to Income (DTI) ratios are an even blunter tool. Labour Finance Spokesperson Grant Robertson said at the time that they would only support the rules if they came with a distinction between first time buyers and investors, as well as a regional variation. “While we’ve all got concerns about the growth in speculators and investors, first time buyers will be hit by them [DTI’s]”, he said.

That was last year. So in a barely-noticed media release from Minister of Finance Stephen Joyce on June 9th this year, he welcomed the Reserve Bank consultation document on DTI’s.

The consultation document is here.  Consultation closes on August 18th.

The test is this: all those people out there desperately mortgaging themselves up to the gills may still have the “Kiwi Dream” in their eyes when they sign up to that mortgage – literally a “pledge to the death” – but are they actually too much of a risk to the whole banking system and to us all?

While there’s a full review of the Reserve Bank macro prudential settings due next year, this DTI proposal needs to be considered fast. The fast-deflating housing market in Auckland should make everyone’s hairs stand on end. Because mortgage debt is where New Zealand’s greatest economic threat is.

In June 2016 the HSBC Chief Economist for Australia and New Zealand emphasised that distribution and serviceability was more important than the size of our national debt: “Is the household debt held by households that will be able to service it?”

He had published a paper in April 2016 finding that even though Australia had one of the highest debt levels, most of it was held by its highest earners. He also reminded that the number who could not afford to service debt in the U.S.A. in 2006-7’s GFC were the big tipping point. If banks were unable to give loans to such people due to stricter DTI’s, a little less damage might have been done.

The TOP party spokesperson Geoff Simmons says that the DTI proposal would shut about 2,000 first home buyers and 9,000 investors out of the market. That’s a whole bunch of no-one buying houses anymore. The change hits investors more than individual home owners, which is good. Doesn’t alter the huge tax advantage to investing in housing more than anything else (which TOP plans to eradicate), but it would still be a massive crack of a very brittle wall holding back a dark ocean of mortgage payments pouring onto tens of thousands of New Zealand families.

All those New Zealand landlords who thought that all they needed to do was just get the rent to pay the interest off because they would get their profit from a rise in value and just sell it in two years – that whole financial scenario is under threat.

All those home owners who thought they could stretch upwards and get a nicer house and take their payments well beyond 70% – just wait by the phone for a call from the bank.

The Reserve Banks’ Reasoning is here.

Now listen to this closely from the Reserve Bank:

A DTI limit would reduce credit growth during the upswing and reduce the risk of a significant rise in mortgage defaults during a subsequent severe economic downturn.”

DTI’s are coming, and the New Zealand Reserve Bank is already preparing us all for the next big crash.

116 comments on “Debt to Income Loan Limits ”

  1. Paul Campbell 1

    It was only 10 years ago people were paying mortgage rates above 10%, 30-somethings buying that first home have never experienced that.

    I think that the RB is essentially warning us that that could easily happen again, and the current housing bubble is likely to be pricked by even a small rise in interest rates forcing people to put the overpriced houses they can’t afford back on the market.

    It may seem bad to force people to not be able to buy their first house, but I think that essentially they are trying to save people from making a big mistake, in essence forcing people to put off that purchase until the bubble has burst and housing prices become reasonable again.

    If you have bought a house over the past 5 years, and you’re living hand to mouth paying the mortgage at these historically low interest rates, now might be a really good time to get out.

    On the other hand if you’re just in this for the gross tax free capital gain, stay in there, you’ll get what your greedy arse deserves.

    • roadrage 1.1

      but wait. The wealthiest can service their loans, what’s it matter a few peons go to the wall striking a deal that one accident and the bank forecloses.

      Why should only the wealthiest be able to service loans! Doesn’t that remark strike you at all? Surely a functionally stable market provide general citizens sufficient breathing room to take on debt. Its like wealth is sucking up more loans to pay those loans and force the peons from engaging unfruitful economic activity. No sign of a shrinking number of wealth holders holding even more of all wealth! Off the back of stagnate wages, lower smaller products and services, degrading environment, etc. Hey if only someone called K.Marx could have been born a century ago to inform us all about the risks of capitalism without intervention, aka, neo-lib nothing to see here, the invisible hand was never a product of fruitful economic endeavours of the majority but the genius economists of the right who hate govt. Though they so routinely use govt to usurp the fruitful wealth acquisition of the majority handing over the profit machines to fewer and fewer very visible hands.

      • greg 1.1.1

        higher interest rates are good for savers debtors have been given 9 years to get there houses in order savers have been subsidizing borrowers all that time fair is fair debtors can not have cheap credit for ever they should have been paying off there loans.if there people out who are over leveraged then thats there problem it not as if they were not warned.this will be a case of we told you so.

        • Paul Campbell 1.1.1.1

          As I said above younger people who haven’t experienced a high interest rate environment are likely to be caught here …. and you can’t really claim they ought to know better

          However anyone taking on a big financial commitment like buying a house really ought to do intensive research about risks …. remember in a bubble things look way rosier than are realistic – it’s the nature of the group-psychology that creates bubbles, sort of a mass delusion based a little bit on greed

        • KJT 1.1.1.2

          Debt does not come from savings.

          And why should someone get huge amounts more money just because they have money.

          Most New Zealanders are debtors, because wage rates are not high enough to save. Low interest rates are good for ordinary people, as is moderate inflation.

          Saving is not noble in itself. See the paradox of thrift.

  2. One Anonymous Bloke 2

    Meanwhile, the big players are looking forward to all the lovely acquisition opportunities that always accompany the National Party.

    Except this time, instead of eating Terry Serepisos, they’ll be dining out on Mum & Dad.

    • RedLogix 2.1

      Sadly I have to agree with you. It’s a perfect ‘pump and dump’ mechanism.

    • Not just the big players. If the bubble bursts and there’s a rash of foreclosures, those with plenty of income and equity will need the ethics of a saint to refrain from capitalising on other people’s misery.

      • greg 2.2.1

        thats the best time to buy someone else loss is another’s gain but i suspect in kind of bust we will get the banks could be in real trouble given there exposure to the housing market and we may have record numbers of bankrupts to deal with

  3. esoteric pineapples 3

    It seems to me that if the RB introduces debt to income loan limits it will make it even harder for New Zealanders to buy a home while not having any real impact on overseas people buying New Zealand properties therefore encouraging further overseas ownership of New Zealand properties.

    • dukeofurl 3.1

      You say ‘home’ , while I say ‘ out of their depth in borrowing’.
      A home loan is still a contract and if you cant pay they will sell it from under your feet and chase you for any money outstanding ( not like US where homeowners drop the keys at the bank and walk away)

      You can bet that the banks wont be so considerate as they were were with dairy farmers where the farm was kept going even though the milk returns couldnt pay the
      all the bills + interest to the bank

    • left_forward 3.2

      Hence the importance of regulating overseas ownership of NZ properties.

      • Draco T Bastard 3.2.1

        Hence the importance of banning foreign ownership.

      • roadrage 3.2.2

        Explain something for me. A owner of a sheep farm, say, grows sheep, exports them to themselves for no money, then slaughters and eats said sheep. What taxes would they pay, if any? Then they hire foreigners and pay them overseas? Does tax ever get paid or are all the depreciations cover any tax they would of?

        • left_forward 3.2.2.1

          Sorry I don’t understand your question – rephrase?

          • roadrage 3.2.2.1.1

            CAn someone avoid paying taxes by growing sheep they do not sell, hire contractors they do not pay in nz, and write off any costs to depreciation?

            • left_forward 3.2.2.1.1.1

              as far as I know or understand you – my answers would be … possibly (if they had another source of income), not sure, no.

            • David C 3.2.2.1.1.2

              Wow.
              There would be no tax because there is no income.
              What would they use for money?

        • Draco T Bastard 3.2.2.2

          I don’t know how they do it but, according to reliable sources that have done their books, farmers don’t pay tax.

          • dukeofurl 3.2.2.2.1

            neither does Fonterra.

            The coop sides gets a $200 mill tax refund, mostly for GST but the payments are passed tax free to its Coop members.
            They are incentivised to avoid paying any of it in tax, mostly by borrowing more or the proverbial ‘new tractor’

    • … not having any real impact on overseas people buying New Zealand properties …

      The government refusing to acknowledge there’s an elephant in the room is of course a major reason we have this bubble in the first place. Not much the RB can do about that, unfortunately. I recommend electing a government willing to actually deal with the problem.

  4. Adrian Thornton 4

    here is an interesting piece on housing (renting) unaffordability in the US…

    Earning Minimum Wage Puts Affordable Housing Out of Reach

    Unregulated rental markets and the commodification of domestic housing is ripping social cohesion and our societies asunder, from one end of the planet to the other.

    And the best NZ Labour can come up with is $500,000 affordable houses…so you too can get on the ‘property ladder’…it is obscene.

    Turn Labour Left!

    • RedLogix 4.1

      Not necessarily everywhere. While Australia has a problem in Sydney and to a lesser extent Melbourne, everywhere else is sweet. I picked this more or less at random, it’s just down the road in a nice area:

      https://www.domain.com.au/2119-geelong-road-mount-helen-vic-3350-2013661111

      AU$340,00

      Take a look at the pictures and weep.

      • Phil 4.1.1

        it’s just down the road in a nice area:

        Nice place, but an hour and a half commute to Melbourne (outside of rush hour) is hardly ‘just down the road’. You sound like the Real Estate agent who told me Porirua was “10 minutes” to the Wellington CBD. 😛

      • Ad 4.1.2

        That is pretty.
        And on half an acre!

      • riffer 4.1.3

        “The median price for a 3 bedroom house in this suburb is currently $327,000, with the median rent being $305 / week.”

        Is there a single suburb in New Zealand any more where this would apply?

      • Macro 4.1.4

        And then in WA there is this:
        http://www.realestate.com.au/property-apartment-wa-baldivis-124788462
        $259,000.
        And yep it is also “just down the road”.
        About an hour public transport ride into the CBD of Perth and 5 mins from the Stockland shopping centre which by the way is MASSIVE. Much easier than travel in Auckland, and far more frequent. Trains run every 10 mins.
        Aussie to NZ dollar now almost dollar for dollar – as u know.

        • RedLogix 4.1.4.1

          The point is NZ real estate is grossly over valued. Building costs are double what they should be, and land has become a speculator/money laundering plaything.

          • Phil 4.1.4.1.1

            “just down the road”. About an hour public transport ride into the CBD of Perth

            To be fair, a one hour public transport ride to and from the Wellington CBD gets you beyond Waikanae or Upper Hutt, or from the Christchurch “CBD” to Somewhere like Lyttleton or Rangiora. Prices there seem to be a lot closer and comparable to your Baldivis Perth example.

            Equally, an apartment in central Perth or Melbourne looks as hilariously priced as Auckland and Wellington. I’m not saying NZ is not overvalued, just that we’re not especially out of whack with Australia.

            • RedLogix 4.1.4.1.1.1

              OK so find me something similar to the property I linked to in say Thames.

              • Macro

                OK so find me something similar to the property I linked to in say Thames.”
                i’m living in it. 🙂

                But to be perfectly honest Phil’s criticism is way off.
                You can live in Auckland and take well over an hour to get to your work place, and as you will know Red many of those who live in the suburbs in Aus also work there. The train from Mandjurah to Perth (about the same distance as Auckland to Hamilton) takes less than an hour and travels at over 120 km/hr, is huge compared to many of the trains in Auckland and other cities and takes you into the city faster than u can in private transport. I have family, living there and visit regularly – we almost always use the bus from the airport and train because it is quicker than if we were picked up at the terminal – and cheaper.
                I was recently in Scotland and we visited Edinburgh for the day from Galasheilds. We took the train which was tiny – just two cars long. The return trip had to be experienced to be believed. I thought Melbourne trams were the concrete definition of infinity – everyone squashed in – plus one more! But in Edinburgh its everybody squashed in – including the toilet space – plus 3 more and a bike!

                • RedLogix

                  Exactly. The V-Line from Ballarat into Southern Cross, while often operated short of it’s potential, usually takes under 100min for the 100km trip.

  5. jcuknz 5

    In the past I have often given away ideas because of the cost, interest mainly. so if Kiwis are so obsessed with home ownership [ or rather feeding a bank] then they need to be restricted like this and efforts put into regulating the rental market so that people can afford to rent and still live a life instead of being slaves to a bank.
    The trouble is the restricted thinking which doesn’t take a holistic view of the problem.
    Though to be fair it is simply a continuation of the nanny state control over peoples foolishness..

    • greywarshark 5.1

      Leave nanny state alone. Its so superior to talk like that about a system that we set up to give everyone opportunities. We were foolish to take it for granted.

  6. RedLogix 6

    The problem with DTI limits is that a household income is subject to wide and unpredictable change. Loss of health, job, technology or an unexpected baby … anything can upset the apple cart. Yet fundamentally a home mortgage is a long-term commitment. Such an unstable governing mechanism is just wrong.

    Steven Keen always proposed putting the onus onto the banks; limit the mortgage to no more than 12 times the imputed annual rental income. So for instance a house that might earn say $20,000 pa as rental income, would have a maximum total mortgage of $240,000.

    By itself this is only part of the answer. There are many complex components to this housing crisis, but in terms of limiting mortgage growth, this is a much better mechanism.

    • Ad 6.1

      I could easily imagine more banks requiring Income insurance to be just as compulsory as Life Insurance when writing out a mortgage agreement, to provide assurance that the income will be there to support a mortgage.

    • Greg 6.2

      Debtors would have case against the banks for preditory leading you have say it can’t afford the loan at record low interest rates then the loan should never had been made.if DTI restrictions were there from the start the bubble wouldn’t have built up this is all nacts fault

      • RedLogix 6.2.1

        Unwinding the bubble is a whole harder problem than preventing one in the first place. Keen also talks extensively about the concept of a modern debt jubilee as one very practical, albeit radical, mechanism to pop the bubble without crashing the economy.

        But essentially banking at present has two major prudential tools, LVR limits and now they are looking at DTI limits. Both have very real weaknesses, while Keen’s method combines the strengths of both without the downside.

        • Ad 6.2.1.1

          So far I have seen both our government and our central government make sufficient moves to deflate the worst of the housing price boom. Can’t tell if this will continue but the trends since Prime Minister Key introduced the 2 year “bright line” test was introduced are good.

          But if they are fully successful, they will have managed the biggest housing boom that we have ever had, and sucked the poison out of our worst economic risk.

          Which will still be painful, but better than all of the existing alternatives given where we are right now.

    • Draco T Bastard 6.3

      The problem with DTI limits is that a household income is subject to wide and unpredictable change.

      Last time I looked the banks force people to have the requisite insurance. Of course, that doesn’t mean that the insurance will pay out.

      I still see private ownership of housing as being the problem as it encourages people to own more than one house and get the passive income from doing so. It’s the easy option for investment that anyone can do. It doesn’t require a high education or millions of dollars per year of highly risky R&D.

      The few people who then up owning the housing push up prices as demand for housing from those who want to own goes up as well and the banks create far more money as mortgages. This feeds into the housing bubble we now have.

    • greg 6.4

      Steve keen also argues there will need to be a debt jubilee in the end hes got good ideas on what that would look like as well
      http://www.radionz.co.nz/national/programmes/sunday/audio/201845436/steve-keen-the-coming-crash
      Steve keen talks about the NZ situation

  7. Greg 7

    The filim the big short comes to mind

    • Ad 7.1

      In a way, but just as the GFC and Great Recession was different to the Great Depression, our next one will have a different character to the Big Short.

  8. Draco T Bastard 8

    I’m not against this but I can see it bringing in even more foreign landlords.

    • David C 8.1

      Draco. I agree. Those that are cashed up or have access to foreign borrowing would love it.

  9. Stuart Munro 9

    Easy answer is to regulate so that foreign banks lose the right to foreclose. They’d exit the local housing market like cats fleeing Gareth Morgan.

    • David C 9.1

      You think having NZ without banks offering mortgages would be a good thing?
      Only those with rich parents can own a house?

      • Stuart Munro 9.1.1

        I’ve spent a lot of time in Korea, where the level of private debt is considerably lower. There are a number of reasons for this, but a prime one is that the housing mortgage is relatively rare.

        At thirty years of two incomes, NZ mortgages are so unrealistic that it would be more economical to take a year off work and build yourself.

        There are an infinite number of possibilities for restricting lending that could be made to improve things. Restricting lending by for example, closing out the foreign banks, would create the rather desirable ‘soft deflation’ of the housing market.

        Of course government will do no such thing – their own irresponsible borrowing would be curtailed as payback.

        But this is not a trivial problem, and it is coming to a head. The solution will involve pain. Responsible governments will see the pain suffered by the culprits – banks and speculators – rather than citizens trying to make ends meet in this dystopian neoliberal nightmare.

        • Draco T Bastard 9.1.1.1

          But this is not a trivial problem, and it is coming to a head. The solution will involve pain. Responsible governments will see the pain suffered by the culprits – banks and speculators – rather than citizens trying to make ends meet in this dystopian neoliberal nightmare.

          QFT

          There is much from the last thirty years that needs to be undone ASAP and getting rid of foreign ownership and investment is at the top of the list. It’s the only way that we can make NZ for NZers again.

          • greg 9.1.1.1.1

            i think there should be debtor prisons debt must be paid

            • Draco T Bastard 9.1.1.1.1.1

              No, you just allow people to default with the loss going to the institution that made the loan.

        • dukeofurl 9.1.1.2

          “it would be more economical to take a year off work and build yourself.”

          Not possible under current rules which require licensed building practitioners. You could provide a bit of unskilled labour, but wont save much really, as all the supplies and trades would be at normal rates.

          • Graeme 9.1.1.2.1

            Yes you can. It’s a bit restricted in that you can’t pay anyone and only do one house every three years, but owner building is still possible.

            https://www.building.govt.nz/projects-and-consents/planning-a-successful-build/scope-and-design/choosing-the-right-people-for-your-type-of-building-work/owner-builder-obligations/

            Nothing there that would stop someone with a few clues building building their own house.

          • KJT 9.1.1.2.2

            In NZ most of the cost of a house is materials.

            You can’t save much by building it yourself.

            Except, an earth house, maybe?

            • lloyd 9.1.1.2.2.1

              Most of the cost of New Zealand Houses is their size.
              If the house is smaller you use less materials.
              If the RB allowed a higher debt to income level for first home buyers of dwelling less than say 100 sq m, then this country might start building small, cheaper, and less land gobbling houses. Once you own your first house then you can work your way up to a big one, but lets not provide incentives to buy first home mansions.

          • greywarshark 9.1.1.2.3

            What about pre-built houses that you put some foundations, piles and then studs in and then put up the siding. Would that keep prices down. Bring the flats over from Australia and build the foundations to suit and you’d have a house at half the cost wouldn’t you?

            • lloyd 9.1.1.2.3.1

              If you want to reduce house prices standard houses need standard zoning rules. If an NES set out say a dozen residential zones, and required all District Plans to use only those zone rules, then a dwelling designed for a specific zone would be easily consented throughout New Zealand, saving costs in the building consent processing.

  10. David C 10

    I cant see how limiting loans by income to debt ratios would do anything but hurt lower end and first home buyers. Anyone rich or with decent cashflow wont be touched.

    • greg 10.1

      those who are debt free wont even notice its always these who are drunk on credit when the party ends

  11. McGrath 11

    Debt to income ratio is the “nuclear option” that will see the party who rolls it out eliminated from government. Political self-preservation will not see this implemented. Would have been good 10 years ago though.

    • Ad 11.1

      That is why Joyce is being so careful. So its Robertson.

      There remains a good chance that the existing measures that are now in place will be enough to gently bring the housing market down, without causing an unnecessary collapse in prices. No party would want that for New Zealand, and nor would any city or local government given that their rating base and hence their budget completely depends on it as well.

      • Stuart Munro 11.1.1

        I think you’ve hit upon an important problem there, the rating base. It corrupts councils away from solutions that will materially improve circumstances for low income people.

      • David C 11.1.2

        Value of houses has no effect on councils ability to collect rates.

        • Ad 11.1.2.1

          It affects the value of the land and house, hence the rates upon which that is based.

          That’s the point.

          Local government itself is addicted to real estate going up. Especially Auckland and Tauranga and Wellington.

          • David C 11.1.2.1.1

            the value of the houses within the rating pool has zero effect on the amount of rates collected.

            Having house values increase makes zero difference to the council.

            • Ad 11.1.2.1.1.1

              General Rate is based on Capital Value of the property. That’s the largest component by far.

              • McGrath

                I’ve seen my rates skyrocket thanks to the increase in Auckland house prices.

                • David C

                  You have seen your rates skyrocket because of rampant spending by successive leftie Mayors.

                  • Halfcrown

                    With respect mate where I live we have had rampant spending by councils (right wing) which has created a massive debt with our rates rising by an average rate increase of about 4% PA (inflation supposed to be 0-1%) on right wing “adventures” and I cannot recall a “left ” leaning mayor the whole time I have lived where I live. and that is about 35 years
                    The bit that really gets me about the right, they preach about user pays, everybody standing on their own two feet and write crap about benefits being a “gift” but when they want some of their toys ie Velodromes, Stadiums, Rugby Grounds, etc they do like the reversed socialism and expect the rate payer to cough up and subsidise them.
                    I have said this before but worth repeating, to quote Jeffery Palmer

                    “The needy subsidising the greedy”

                    • David C

                      Draco?
                      WTF?
                      Rates. Not debt.

                    • One Anonymous Bloke

                      Debt servicing has no effect on rates. None whatsoever. No sirree. Honest. No, I mean it. Why won’t you believe me?

                    • Draco T Bastard

                      WTF?
                      Rates. Not debt.

                      WTF?

                      you said:

                      You have seen your rates skyrocket because of rampant spending by successive leftie Mayors.

                      Given evidence that it was actually RWNJ mayors and their underlings spending that boosted debt you then turn round and say it’s not debt that raises rates?

                      So, according to you, debt and the interest it accrues doesn’t have to be paid?

                  • dukeofurl

                    “You have seen your rates skyrocket because of rampant spending by successive leftie Mayors.”

                    Not much different to rates increases during Banks and CR rule on Auckland City Council just before Super city

                  • lloyd

                    Aucklanders don’t pay enough rates.
                    Auckland rates are lower than many other places in New Zealand, They are way lower than what you can expect to pay in Australia and the USA.
                    An honest local body politician who really wants to improve the city would be telling everyone “we need to pay more rates.”

              • David C

                Ad.
                I will type this slowly.
                The total rates pool is set by the council planned spend. That $amount is then spread across the total value of the rated properties. If the total pool of property goes up by 20% they do not get 20% more rates they get the same.
                if the property values go down, they get the same amount in total rates.

                Having house values increase makes zero difference to the council.

                • Stuart Munro

                  No? Watch the resistance to rates increases in a city where housing prices are flat.

                  • David C

                    Stuart.

                    You think Goof gives a fuck what the voters think?

                    he railroaded his “bed’ tax thru, giving hoteliers a huge rea$on to put a slush fund together to depose him.

                    • Stuart Munro

                      Yeah – but firstly, that’s because he’s one of yours, a neo-lib, and secondly, they’d’ve done that anyway cos that’s how they roll.

                      Hope he raises enough for rail – it’s pathetic that a city not even half the size of Daegu has such dreadful traffic congestion.

                      But you’re right that he’s basically Banks in drag.

                • Ad

                  I am aware of the financial processes.

                  Are you saying that if the whole of a city’s real estate decreased in its capital value, there would be no effect on a Council’s ability to rate?

                  I’m sure you’re not.

                  Because not only is that not political reality, it’s also not financial reality for councils.

                  • David C

                    But that is what I am saying.
                    In ’08 when values went down rates still went up.

                    If you know of a rule that says otherwise feel free to post a link. I always like to be educated.

                    • Ad

                      My experience from inside Councils setting budgets is that they are pretty sensitive to economic recessions, and cut as much as they can. It really is a political contest that comes down to a fat list on a white board in front of multiple all-Councillor workshops.

                      And no, they are not perpetual troughers who do nothing except think about ways to suck us all dry. They are there usually to fight hard for their own projects.

                      Some elements of rates like Uniform Annual General Charge, GST increases, special rates, targeted rates, and the like, they do keep ratcheting up. And then sometimes there are separate water charges, other times there are integrated water charges.

                      But.
                      The general rate – the biggest component – is based on the capital value of the property. There are seven ways of calculating the general rate, depending on the type of property:
                      •urban residential – 1.0000
                      •urban business – 2.7375 x the urban residential rate
                      •rural business – 2.4638 x the urban residential rate
                      •rural residential – 0.9000 x the urban residential rate
                      •farm and lifestyle properties – 0.8000 x the urban residential rate
                      •no road access properties – 0.25000 x the urban residential rate
                      •uninhabited islands – 0.0000 x the urban residential rate.

                      The sensitivity to this is shown by the need to have a specific service to challenge the value of your property if you disagree with it. For landlords who are all about the yield, and those on a fixed income, this capital (or land) value v general rate contest is a really big deal.

                    • David C

                      Ad.
                      2009 Auckland rates went up 2.5% basically same as last year.
                      09 prices dropped 10%, last year they went up 10%

                      So try again.

                    • Ad

                      Rates go up for a whole bunch of reasons other than Capital Value increases. As I explained.

                      What Councils argue over really hard in workshops and in open committee is the formulas that I outlined. That is how they seek to rebalance different weightings. Auckland’s Watercare has similar debates with Auckland Council.

                      If you want to see an example of what happens when a Council takes its expenditure beyond what the rating base will stand, have a look at Kaipara District Council over the last six years.

                      Auckland’s Council is one of the most sensitive to capital value changes, believe it or now. A 2.5% increase while capital values have escalated has meant they have borrowed and borrowed to their neck to compensate the difference.

                      Other Councils like Christchurch, New Plymouth, and Dunedin have really large income-generating entities that soften the blow – moreso than Auckland’ has. If Auckland had not sold off so much of its assets, they would not be so vulnerable.

                    • One Anonymous Bloke

                      QVNZ assesses the capital value of a property every three years, not annually.

                      I think if you’re going to demand to be educated about this subject you should start using your manners.

                    • One Anonymous Bloke

                      David C, here is the Local Government (Rating) Act 2002. Councils are bound by it. I suggest you get to grips with it before being a cry-baby and whinging and whining and blaming.

                      I bet you voted for John ‘spendthrift borrower bigot’ Banks too, in which case you deserve every single one of the consequences.

                    • RedLogix

                      Essentially what Ad is saying lines up with my local govt experience too. Most councils are very sensitive to rate rises, but are equally concerned to ensure valuable services and projects are budgeted for in order to prevent their towns and cities from stagnating.

                      The single biggest challenge for many councils is the way central govt pushes down a multitude of expectations onto local govt, but rarely comes to the party in terms of funding.

                  • Gabby

                    Are you saying it costs less to pick up rubbish from cheap houses?

                    • One Anonymous Bloke

                      Of course it does: wealthier households tend to generate more trash, especially if you count the National Party sympathisers they spawn.

                      That’s before we even get to their carbon footprint.

                    • lloyd

                      cheaper houses are closer together than expensive houses. the truck uses less fuel to pick up a load from cheaper housing areas than from the lower density, expensive housing areas.

                • Muttonbird

                  Are rates not a percentage of the house and land value? Of course the yearly take will go up if house and land prices do. If property values go up, so does the take, if they go down so does the take.

                  The rate set by council changes which is why the amount a homeowner had to pay was more even though their house price dropped.

                  Your claim that the council only retrieves a set amount each year regardless of house prices sound like bullshit to me.

                  • Andre

                    The rates setting process first decides how much the council wants to collect from rates that year. It then uses the rating valuation of all the properties in its catchment to work out how to apportion that rate demand among different properties. Properties only get revalued for rates every three years.

                    In between the revaluation years, if the council wants 2.5% more rates than last year, everybody’s rates go up 2.5% (well, not exactly because of uniform charges and a whole lot of other complications, but close enough for this bedtime story).

                    In a revaluation year, if your property valuation goes up more than the average across the region your rates go up more than average. If your property valuation increases less than the average, your rates increase will be a lot less than average, or in an extreme case might even go down.

                    In the 2008 revaluation, most property valuations went down but those properties still got rates increases. The properties that went down a lot got small rates increases, the properties that only went down a little got larger rates increases.

                  • jcuknz

                    AS a ratepayer these past 40+ years I know that the council wants ‘so much’ and if the value of the whole area goes up evenly then there is little or no change. Trouble is when different areas have differing increases or reductions from the last years average. Fashions etc.
                    Generally folk winge about rate rises on principle but actually they usually are not worth worrying about. Though I guess Auckland is a pretty sick place so jaffas have real problems That when you are on the borderline even a small increase is serious.

  12. heman 12

    at one end you have banks giving 100% mortgages
    the other end is banks requiring 40% LVRs and possibly DTIs, where we are now.

    Both ends of the extreme and the housing still seems broken/too high.
    you would think something has to give.

    That’s without looking at the supply:demand angle.
    F knows!

    • jcuknz 12.1

      If more folk were willing to tailor their needs to their circumstances and go for small dwellings like Molly linked to last year the problem would be a fraction of what it is.
      [Sorry my copy of the link has gone with a computer breakdown]
      My wife and I did build our new home years ago but others tell me it is not so simple with the clogging regulations these days, and I am not writing about safety requirements.

  13. greg 13

    at the end of the day if you borrow money you have to be able to pay it back dti should have been in place from the start its not rocket science its good cash management .
    the banks have been reckless and greedy in handing out the loans to start with.100 per cent mortgages ,interest only loans ,gifts to take on more debt, banks in this country pushed credit like a drug dealer.

    • David C 13.1

      greg.
      It was the no income no assets no job loans that got USA and the world into trouble on ’08.
      Banks here are now required to have proof of income to sustain payments for the loan, but what is proposed in this article goes a step or two further than what is required at present.

      • Stuart Munro 13.1.1

        Rubbish – it was the financial predators who devised banking products based on the state loans and repackaged them that caused the crisis.

        You’re repeating an alt-right meme designed to deflect blame from the banksters. Prior to that repackaging it wasn’t problematic because the poor folk the loans were designed to help were not aggressive in pursuing them or tying them into subprime bundles.

        • David C 13.1.1.1

          Stuart.
          You are being a dick.
          Yes the banks caused it, but by lending money to people with very little chance of paying it back and yes they did that for big fat bonuses.
          But to say it wasnt a problem because the banks “were not aggressive in pursuing” ? fuck me.
          A debt is never a problem until it becomes due is it.
          105% loans @ 2% and no repayments for a year then floating to market % rates after 3 years?
          LOL
          no problem there !

          • Stuart Munro 13.1.1.1.1

            Fannie May & Freddie Mac had those loans available FOR DECADES before the banksters tied the two together.

            It was the banksters – but the Wall Street friendly government decided not to pursue them.

            And this little rort caused a collapse that affected the whole world.

            So let us be clear you mammon-worshipping moron of infinitely flexible morals – a financial instrument created for poverty relief and converted to enrich dodgy bankers does not invalidate poverty relief.

            It validates stronger penalties for financial predators.

            • David C 13.1.1.1.1.1

              Stuart.

              I just saw your comment above about Phool Goof being “one of us”

              So I will just leave you to your sandpit. Enjoy 🙂

      • dukeofurl 13.1.2

        “It was the no income no assets no job loans that got USA and the world into trouble on ’08.”

        You sure are plying all the absurd but wrong talking points from the USA right.
        Forgetting Wall St, The Credit Agencies lies. General Motors bankruptcy etc etec.

        As for low doc loans, they were in Australia too during the GFC. ANZ bank was supposed to have its housing portfolio 40% under this category

        This category still around
        No BAS or Bank Statements Purchase or Refinance up to 90% LVR
        http://www.nonconformingloans.com.au/

      • Ad 13.1.3

        Exactly right.
        Bundles of NINJA loans tied with A grade loans in quite deliberate fashion.

        The NINJA’s – No Income No Job Applicants – were those that the HSBC economist (cited above in the post) explicitly noted would not have been as damaged if they had not been induced to take on mortgage debt that they could not service.

        Hence the discussion about Debt To Income ratios.

  14. greg 14

    i don’t see a dti as radical what is shocking is that the banks were allowed to hand out credit recklessly in the first place

  15. Keith 15

    Joyce will NOT want kill the golden goose, not just yet. The property casino will remain open until the election, untouched, to preserve the National Party facade of the Rockstar economy.

    But it is chilling out there in housing land nowadays, isn’t it?

    • greg 15.1

      debtors who used there homes as ATM machines these people deserve everything they get a defaulter and there assets are soon parted
      including there kiwi saver funds that are know open for confiscation and why should a debtor not pay back the money they willingly took and squandered it is savers who need deposit insurance and a higher interest rate to account for the higher risk

      • One Anonymous Bloke 15.1.1

        What is the relationship between literacy and compassion?

        Discuss.

      • Keith 15.1.2

        If some greedy fucks known as investors crank the price of houses up as they have done, and deny ordinary people the ability to realistically own their own home I certainly hope and pray that the investor parasite class burn in hell!

        • jcuknz 15.1.2.1

          If ordinary Mums and dads were educated properly they wouldn’t have fallen into the trap …. I can only say I was lucky that the depression was only a few years gone when I was brought up and I never had very much money … lucky to get 5centspw pocket money. [six old pennies … chocolate was one penny an ounce and quarter pennies — a farthing — had value ]

  16. Pat 16

    “The Federal Reserve raised the target range for the federal funds rate to 0.75 per cent to 1 per cent, in a move that has come earlier than markets were expecting as recently as last month.

    Fed policymakers stuck with previous median projections that there will be a total of three increases in rates this year, defying predictions from some analysts that it would release a more aggressive set of rate-raising forecasts.”

  17. Peter 17

    They have DTI limits in the UK.

    Those limits only apply to owner-occupied housing. Property investors are exempt.

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