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US GDP jumps; US jobless claims slip; Canada wages up strongly; US and Germany report higher inflation; company earnings reports strong; UST 10yr at 1.65%; oil up and gold down; NZ$1 = 72.3 USc; TWI-5 = 74

US GDP jumps; US jobless claims slip; Canada wages up strongly; US and Germany report higher inflation; company earnings reports strong; UST 10yr at 1.65%; oil up and gold down; NZ$1 = 72.3 USc; TWI-5 = 74

Here's our summary of key economic events overnight that affect New Zealand with news of generally positive economic news that is apparently gaining momentum.

In the US, economic activity rebounded better than expected in the first quarter on 2021, up +6.4% on an annualised basis. It built as the quarter progressed so the expectation is that Q2 is off to a flying start. And activity is probably back at pre-pandemic levels now. This rebound from the 2020 recession is very much faster than for the GFC. Whatever you think of the enormous stimulus support, it has seemed to provide a sharp V-shaped recovery and something that seemed optimistically unlikely a year ago.

American spending on services is rebounding, but it is not growing as rapidly as spending on goods, which is very sharp. And PCE prices were up at a +3.5% pa rate in the quarter. Given that PCE (personal consumption expenditure) prices are the Fed's preferred measure of inflation, and the Fed said yesterday that it will let inflation run hotter than it previously tolerated, this bolsters the view that a a period of financial repression may be ahead (inflating away the QE debt).

US initial jobless claims were marginally lower last week at 575,000, with now 3.8 mln on these benefits. Recall that 17.8 mln were on them a year ago.

Pending home sales rose in March, snapping two consecutive months of declines, but the bounce-back of +1.9% was far less than the expected +5%. Tight supply is said to be behind the miss.

In Canada, wages are still growing at a fast clip, up +9.0% in a year in February even as payroll employment rose. Higher-paid jobs were filled at a faster rate than lower-paid ones.

In Germany, there are signs of inflation too. Their April CPI was up at a +2.0% annual rate, more than expected and higher than the +1.7% rate for March. Their rise was driven by the price of goods, and fuel.

EU business sentiment rose sharply and by far more than expected in April. In fact it reached an all-time high. Consumer sentiment is improving, but it is still a net negative and a very long way from any records.

Airbus announced overnight that it had returned to a profit in the first quarter following a -€1.1 bln loss last year because of the pandemic.

In other company profit announcements, Big Tech stands out with huge earnings rises for Apple, Google, and Facebook in their Q1 results. Even McDonalds now say they are back at pre-pandemic customer demand. China is tackling their Big Tech companies on anti-trust grounds. The USA is likely to move in that direction soon too - and there is interesting bipartisan support for doing so.

In Australia, the trade data we reported a few days ago masked an interesting geopolitical point. Australian wine exports to China have fallen -96% since China froze them out as punishment for criticising China's human rights record.

The latest global compilation of COVID-19 data is here. The global tally is still rising, now 149,860,000 have been infected at some point, up 896,000 in the day, largely driven by rises in India where nationwide super spreading events are underway featuring a "double mutant" strain - and a huge global risk. Global deaths reported now exceed 3,155,000 and up +15,000 in a day. Vaccinations in the world are also rising fast, now up to 1.085 bln (+20 mln) and in the US more than half of their population (233 mln) have had at least one dose as they keep up their fast rollout. Almost 30% have been fully vaccinated (99.5 mln people). The number of active cases there remains stubbornly unchanged at 6,819,000 with just -4,000 more recoveries than new infections in a day.

Wall Street is firmer in afternoon trade, with the S&P500 currently up +0.7%. That is a fresh record high, bolstered by strong earnings reports. Overnight, European markets were very mixed although all lower with Frankfurt down -0.9%. Yesterday, Shanghai ended up +0.5% and Hong Kong ended up another +0.8%. But Tokyo only rose +0.2%. In Australia the ASX rose another +0.4% and the NZX50 Capital Index rose another +0.6%.

The UST 10yr yield starts today at 1.65%, up +3 bps overnight on the brighter economic prospects and higher inflation expectations. The US 2-10 rate curve is a little steeper at 148 bps. And their 1-5 curve is little-changed at +82 bps, as is their 3m-10 year curve at +164 bps. The Australian Govt 10 year yield is up +4 bps at 1.21%. The China Govt 10 year yield is little-changed at just on 3.21%. The New Zealand Govt 10 year yield is down -1 bp at 1.62%.

The price of gold starts today at US$1768/oz and that is down -US$12 since this time yesterday.

Oil prices are up another +50c today at just over US$64.50/bbl in the US, while the international price (Brent benchmark) is just over US$67.50/bbl.

The Kiwi dollar opens today at 72.3 USc and little-changed since this time yesterday. But it did reach much higher in between. Against the Australian dollar we are unchanged at 93.2 AUc. Against the euro we are softer at 59.7 euro cents. That means our TWI-5 is now back at 74.

The bitcoin price is now at US$52,636 and -4.2% lower since this time yesterday. Volatility in the past 24 hours has been high at +/- 3.7%. The bitcoin rate is charted in the exchange rate set below.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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86 Comments

31
up

50% of investors are using interest only (Is this not a confirmation of the role of IO loan in current housing ponzi ).

Even if as high as 50% of them are genuine investors than the other 50% are speculators - that indictates that 100% of speculators are using interest only loan to fund their speculative activity or even if not 100% cannot rule out 70% or 80% on conservative side (assuming some genuine investors are also using for emergency).

https://thespinoff.co.nz/business/30-04-2021/bernard-hickey-mortgage-len...

Merit in stopping interest only loan to control the housing ponzi cannot be argued but will they act for this very reason, as for them NZ economy = Housing Ponzi.

Also It mentions that overall one third are using interest only and if one goes into details will confirm that of this one third, most are speculators who are funding their speculative activity through IO loan and still Mr Orr is trying to delay - for what...... is it not evident of his intent.

30
up

To add to your excellent post, the latest government report on housing (see https://www.stuff.co.nz/business/property/300288828/govt-crunches-number...) highlights that property investors’ incomes from rents are low enough to indicate that almost all are banking on some capital gains to make purchases pay off.
If this is not a complete Ponzi and/or an gigantically over-inflated bubble just waiting to collapse, I don't know what else is.
Orr is delaying an intervention on interest only loans because he is well aware of the precarious state of this castle of cards, and he is aware that this bubble (that he has helped create) is extremely fragile and it risks taking the real economy with it, once it bursts. He knows he is walking on eggshells, therefore he is being very cautions.

10
up

Cannot find it right now but read on the same site that Finance Minister Robertson was well aware that removing LVRs and taking down interest rates would cause a more than significant switch into property investment causing in turn prices for same, to surge and keep on surging. If so, given that exact outcome, it is difficult to accept that he is suitable for his position by nature of indifference and dormancy.

16
up

But but but who will supply all the rentals to the FHB as they save for their deposit? We need highly leveraged/insolvent landlords to provide much needed rental stock to keep the bad bad cashed up investors away. Anyway, the Government is to blame because the pension doesn't pay enough.
How must one provide for their retirement without getting in quick and latching on to the next few generation's future earnings?

/sarc.

Great question NZDan, renters are not all of sudden have the deposits to buy the houses off their landlords, so, as you say, who will supply the rentals?

Ironically, I think this is a good use case for quick property prices collapse (e.g. hard DTI + forbid Interest Only + more importantly, forbid using unrealised equity to buy property) instead of being caucious and tinker the edges. In this "collapse" scenario landlords will still have to give 90 days notice ., but within 90 days price could go so low so that average renter could afford it :) Haha - never gonna happen here though

They might find themselves with adequate deposits if house prices came down to real world numbers, not distorted by the fact that for every FHB purchase there's at least another investor buying.

Let's do some numbers on that, so a renter can suddenly muster a... let's be generous $80k deposit, at 20% that means he can buy a house for $400k, that's less than half the average house price today. So. We're saying that current house prices need to half on price for this to work. Let's say this somehow happens, how many people will be upside down with their mortgages? So many will lose their houses that banks will go bust, everyone will tighten their belts so tightly that no one will spend, a huge amount of businesses will go broke, which means many, many people will be jobless, at which point if banks still operate, no one will be able to get a mortgage at all. WE ALL LOSE

Firstly we do not know what the average renter can muster up as a deposit, it could be less, it could be more. Why couldn't a house price halving happen? I mean it would be ugly yes. But what's stopping it from happening?

The fact that it would be very ugly indeed, so the RB will do whatever it takes not to let it happen

Let's do some numbers on that, so a renter can suddenly muster a... let's be generous $80k deposit, at 20% that means he can buy a house for $400k, that's less than half the average house price today. So. We're saying that current house prices need to halve in price for this to work. Let's say this somehow happens, how many people will be upside down with their mortgages? So many will lose their houses that banks will go bust, everyone will tighten their belts so tightly that no one will spend, a huge amount of businesses will go broke, which means many, many people will be jobless, at which point if banks still operate, no one will be able to get a mortgage at all. WE ALL LOSE

18
up

Not convinced a fall in house prices will impact "the economy". Not going to be a disaster at all.

If it takes out those people from the economy will that not be a disaster? The top 3% of income earners pay 25% of the tax, investors are likely over-represented in that segment. I think the intended consequences will be significant. Great news for those seeking a fair crack at owning a home but the generation behind them will be even more disadvantaged as first the government dives even deeper into debt to cover the tax gap and then global interest rate rallies smash both debt and asset valuations into space.

17
up

Investors big tax payers? Now that's a brave opinion.
And who will be "taken out of the economy" ?? And how?
Not sure how you connect the 'who' to falling house prices.

I make the tax payer assertion (and completely open to data to correct my view) based on the level of income required to service the excessive debt required. Please note that I am also assuming tax being paid on rental income post new-regs being implemented (NB: Edited to correct a previous lack of detail re new regs) Rental income is heavily discounted in the formula for granting more debt and banks still rely on significant non-rental income for mortgage servicing security.

Taken out of the economy due to being in significant negative equity positions. All future income will be required to clear that debt load before any new investment could even be considered.

Falling house prices will be benefiting FHB's as under my scenario above Investors are out of the market.

Aveage new tax on a rented house 4000 - 5000. And we are told the vast majority are mom n pop.
Those will eat those costs for breakfast.
Danage to the economy is just scaremomgering on this one

That's a good point - but assuming they will be up for 4-5k (and without interest only we could make this 7-8k) each year and being exposed to potential capital losses (as house prices go down) is the concern. I am not sure they would be up for it unless house prices continue to go up and there are signs that they might not.

Of course some investors have more than one property and they will need to pay multiples of 5k (or 8k) per property and unlikely to wear that so there should (in my opinion) be more housing stock available to FHB's.

More FHB getting housed. Now that's magic for them and the country both.

I dont buy that at all. If facebook groups are even a small % of the people that are involved in this investment, then Id say the name of the game is tax reduction at any cost.
People I know that I would consider wealthy are more likely to own non house related businesses.

About as much or less impact than cutting international tourists to zero.

Richard
Also worth mention is that RBNZ data shows just under two thirds (63%) of IO are OO - are they speculators too?
I really don’t think that given the current outlook for the property market that there will be many “speculators” other than the naive expecting capital gains.
The days of capital gains are gone other than discussions at the BBQ about “the good old days”- much like the sharemarket of the 1980s.

that just means that they could not afford the property at the first place. Solution - Forbid IO for ALL, They either will have to put the property on the market and someone who can afford it (paying full mortgage payments) will buy it. The MARKET will decide what the price of that transaction will be.

fortunr
You seem blind to increases in rent.
A premise for long-term investors: rent and therefore returns increase over time.
Capital gain is not realised until property is sold and for those investing for the long term such as to fund retirement it is not a consideration.
Pretty basic really but doesn’t fit the emotional narrative of many on this site.

fortunr
A take away from the article you reference is therefore landlords are not charging exorbitant rents then. Landlords must be decent honest reasonable people? :)
A fault of that analysis seems likely - as is often the case - that yields are calculated on current value. The reality is that long term investors who have owned properties for some time (4 years +) will be looking at returns on their initial investment and with falling interest rates that will have got considerably far better.
I don’t buy into the narrative that longer term serious landlords have been considerably affected by the change in tax status especially as the full lead in time is four years. Their returns on initial investment will be good and the loss of the tax on interest is no more than the equivalent of a 1% rise in interest rates.
Those investors bleating on are headless chooks . . . or the naive ones who looked to jump in in the last six months. I say naive as it was pretty obvious late last year that the then current rate of increases were not sustainable (and I was posting that last Sept/Oct). Any investor who cant absorb the equivalent of a 1% increase in mortgage rate is not prudent and is too tightly leveraged.

fortunr, of course we hope our investments go up in value over time, don't you? There's nothing wrong with that, it's actually the essence of investing.

11
up

There is some excuse for owner occupiers to be on interest only now. But there never has for speculators. Forget the bright line stuff, capital gains tax should always have been charged on those who sold a second home if they had had an interest only mortgage because if that isn't a sign of a speculator, I don't know what is.

20
up

Once upon a time an Interest Only loan was classed as non-performing, i.e. a distressed borrower may move on to this temporarily until they get themselves back on their feet.

I suppose next we'll have investors taking mortgage holidays to free up cashflow.

Isn't that just what happened this last year?

Touché' :)

10
up

Income tax laws have been clear on intent for a long time. The country has incentivised speculators by not enforcing the laws.

Those of us that interpret the rules in a logical way have been punished for 20 years. Just enforce the rules that already exist and stop blindly creating dumb, short sighted new ones due to a lack of competence.

Why aren't the old laws being repealed if they are so bad that we need new ones?

We must be going backwards at a great rate of knots. Lucky we have the current mob in power after the much cockled about "9 years of neglect".

https://www.interest.co.nz/property/109686/tax-only-paid-3698-property-t...
'Tax only paid on 3,698 property transactions in 2018/19 due to the bright-line test; No prosecutions made; Question marks remain over whether compliance will improve with an extension to the test.'

https://www.newshub.co.nz/home/politics/2021/04/covid-19-managed-isolati...
Seven in 10 applications to have managed isolation and quarantine (MIQ) fees waived have been approved by the Government.
Data obtained by Newshub from the Ministry of Business, Innovation and Employment (MBIE), which oversees MIQ operations, shows 5197 applications had been made as at April 11.
Of those applications, 4995 have been processed - 3928 approved and 1067 declined. That leaves 202 applications yet to be decided on.

Uninterested, you don't need an excuse to have IO loans as an investor since the tenant/lessee indirectly pays for the interest and the property goes up in value over the long term, this makes perfect sense. I agree it's a different proposition for owner occupiers since they need to pay for the interest themselves. How do you finance you loans for your investment properties? Don't you have IO loans?

It depends on how much of the housing stock you want returned from investors to FHB's and how quickly. At the moment the Gov has planned for this to happen over 4 years, if you take our interest only loans that will halve. Returning 50% of the investor housing stock to a market where maybe only 25% can afford a house will have predictable economic results. Investors will be wiped out due to a house price crash and be removed from contributing to the economy. Investors are likely to be in the top 3% of income earners in the country and as that segment bears 25% of the tax burden the Gov will need to burn even more of our young peoples future through a bigger debt bubble.

14
up

Yes, we’d really miss all that tax they’re not paying at present..?
And please save the sob stories about future generations. Our pathetic housing bubble is causing them stress and poverty right now, more than taxes in your imagined future.

Agreed on the stress its a bad situation.

With regards to the tax I was assuming a post new-regs situation where some tax would actually have to be paid - that was a clear miss on my part, writing too quickly sorry.

The point I was clearly failing to make was - if the market crashes the future tax take anticipated through these new measures will disappear. Perhaps that is a fair price to pay for lower house prices.

You forgot the /s

Bernard Hickey expects that Mr Orr will act on interest only loan but only not sure if it will ban or limit this loan (may be target - so called investors) BUT think that Bernard along with many other experts will be surprised that Mr Orr may just be silent on the issue and may not act at all despite all arguments and data indicating towards it.

"We’ll get an indication from the Reserve Bank next Wednesday with its Financial Stability Report about whether it may ban or limit these loans."

https://thekaka.substack.com/p/dawn-chorus-marchs-mortgage-madness?token...

Richard, how do you finance you loans for your investment properties? Don't you have IO loans? I really don't understand why people would be against it for investment properties since the tenant/lessee indirectly pays for the interest and the property goes up in value over the long term, this makes perfect sense. I agree it's a different proposition for owner occupiers since they need to pay for the interest themselves.

It does make sense but not when house prices are jumping in double digit on a monthly basis as it gives undue advantage to investors over FHB in the auction room as interest only multiplies the purchasing power over PI loan.

Also if tax change was done to remove the advantage that investor had over FHB, interest only loan should have been first on the list as is the biggest advantage that Speculators have over FHB.

Role of interest only should be to support home owners in time of crises and emergency like last year or redundancies and not to support speculative activity.

It is not what I feel but what the data suggest and if government is in favour of controlling the ponzi should act or are they just talking under pressure for affect with no intent.

Supply too is important and will take time (though will always be short of demand) so it is important to control demand specially speculative demand and no God will do it unless people in power who can, go for it over comming conflict of interest.

"It does make sense but not when house prices are jumping in double digit on a monthly basis" Huh ? It makes even more sense to have IO loans when property prices rise sharply, surely you must see that?

You are correct. Specially from Speculators perspective as otherwise will not be able to fund the speculative activity despite greed.

My argument is simple that if the government actually wants to control speculation as they say, they want to do than why not do something to control unless have no intent and talking under pressure only to create a smoke only.

PM says that do not have a silver bullet, agree but in absence of silver bullet why not use a bullet nearest to silver bullet in given situation. May be not used up till now as even they are aware and afraid that if used will actually contain the ponzi.

The ability to use interest only loans for kiwifruit orchard investments was removed by government decree (via the banks) at least 5 or 6 years ago (possibly the same for the horticulture and ag sector). This occurred to me with ANZ. The rationale given at the time was "financial stability". And yet here we are in 2021 with residential housing investors still using interest only loans (particularly on existing housing stock), with major negative externalities/distortions for the NZ economy. Why should residential housing be treated differently from other sectors? I can't help thinking the answer is political.

Because when something stalls, it can also fall. So it is full steam ahead on the property Ponzi and don't let anyone at the banks, government, or central bank tell you otherwise.

Interest only loans increase systemic risk, as I think you are well aware.
That led to the GFC

The UST 10yr yield starts today at 1.65%, up +3 bps overnight on the brighter economic prospects and higher inflation expectations

US Sells Treasury Bills At 0% For The First Time Since The Covid Crash

Deflation comes first: meaning that out-of-control govts are taking advantage of the situation which has co-opted bond vigilantes who would otherwise end this madness. Liquidity risk before credit risk. Link

There is an awful lot of (borrow, 'print') spending and 'investment' (spending) involved in calculating GDP. Anyone who thinks it is a measure of a nations productive output is sadly mistaken.
So the US government pours in trillions of borrowed & 'printed' money and that equals an economic recovery(?)
Is it a recovery with very strong roots, when the government is sending direct 'stimulus' money (helicopter money) to citizens?
The following equation is used to calculate the GDP: GDP = C + I + G + (X – M) or GDP = private consumption + gross investment + government investment + government spending + (exports – imports).

The US prints to fund consumption, China prints to fund production - 2 peas in a pod!

The very fact that Mr Orr has to come out with clarification indicate that something is not right between Robertson and him

https://www.stuff.co.nz/business/124976981/reserve-bank-governor-incredi...

12
up

We argue about whether the RB is independent of govt - the real question might be is it independent of the Fed?

12
up

Mr Orr blindly follows the Fed to cover his back as can always hide behind the excuse that if US can fail, so do we or may be if fed experiment fails ( which seem is failing) can hope that no one will question his wisdom on assumption that if fed can fail, so can rbnz.

Should realise the size of the US economy compare to ours and US also have lot many businesses and industry unlike NZ, where today only business in NZ is housing business.

The FED is holding the whole show together, if they fail we all fail, so no point it trying to take another path.

The FED is responsible for this frass show. They've been cooking up GFC II ever since they created GFC I.
GFC II will make GFC I look like a sunday school picnic.

Whatever you think of the enormous stimulus support, it has seemed to provide a sharp V-shaped recovery and something that seemed optimistically unlikely a year ago.

Words have meaning for a reason, to convey precise ideas easily and readily understood by the reader or listener. If you use the term “stimulus”, as its root already suggests you’d expect something to be stimulated by whatever is being classified using this specific grouping of letters/sounds. Context rounds out the meaning.

For the last twenty years, you’d have been wrong to associate the term in the monetary context with its definition. QE was born in March 2001, and from its very first day it has been called “stimulus.” Yet, going back to its genesis, the idea’s creators weren’t really sure it would amount to much. Discussions held in private were very different from those offered to the public.

Stimulus. Money injected into the economy. Accommodation. Easing. Science.

None of those words have ever applied to the program. Two decades later, the actual science is very clear on this point. Even studies conducted by the central banks who have used the tactic, those whose researchers are often palpably desperate to find and sugarcoat any gray area in order to shade it favorably in QE’s direction, these most charitable of reviews can only ever say at best the thing maybe helped lower interest rates a touch more than the market had/has.

Inflation? Economic growth? Recovery? Forget it. Government bond yields drop on liquidity and safety preferences and here comes the central bank to arguably lower already low rates a few bps more. If you’re wondering how this might help, you’ll have to get in line behind all the central bankers standing there already these last twenty years hoping to eventually figure that out. Link

Great post Audaxes.

Lower interest rates raise the discounted present value of future liability cash flows.

Government may axe promised roads, as costs mount in $12b infrastructure package

I doubt that this particular case is due to the fact you cite (the lower the discount rate, the higher the PV). It has to do with crazy inflation in anything construction related (material really crazy, labour and equipment not as much, but increasing faster than general average).

Thanks for this Audaxes and Snider has been consistent on this for some time. Given the now somewhat uniform research on the failure of these measures it now looks like a game on thermo-nuclear chicken. Inflation or bust? Your thoughts on a potential meta-game on this?

Feels like the market is now turning downward. A 4 x 2 bedroom in Devenport passed in yesterday at $1.7 Million ( 1 bid) it sold in 2016 for $2.35 M and its 2017 RV was $2.36M - so it was valued yesterday at 650K below its RV. Even if the house was a leaky home - $1.7M would be below the land value. Another property sold in Torbay for 100K below its 2017 RV

Looking at the Hutt valley market- 16% of houses now have a listed price (with 2 taking 50K off their listed price this week) - with approximately only 50% selling at tender each week for the last couple of weeks .

I've also been tracking a number of "nice " houses passed in at auction since the 12th April- real estate agents / auction houses are claiming those houses are selling within a couple of days- I suspect this is selective data as all the houses I've looked at are still on the market asking 100-150K over the passed in value.

This is exactly the data that Robertson will be looking to call his housing announcement a success and for Mr Orr to find excuse to avoid taking any action on interest only loan as it is IO loan that is supporting speculative activity, which is the heart of housing ponzi and keeps momentum going in creating and adding FOMO.

RBNZ wont ban Interest Only loans (they may limit them the same way Aussie did in 2017 ie to a percentage of loans on banks books- if I recall I believe it was 20% of their loan books - from a record of 40% in other words they were required to half the number of interest only loans they had). The reason they wont be banned is Interest only loans are often used when homeowners get into financial difficulties ie illness, redundancy etc. An interest only loan can often be the difference between a mortgagee sale and a family keeping their home.

Agree that rbnz may not completely ban interest only loan but can ban investors and should be only allowed for emergency like illness, redundancy etc as you rightly mentioned for a short period.

BUT

No excuse for allowing interest only to be used by speculators to fund their speculative activity specially in such low interest rate environment.

I can see lots of rentlords applying for interest only loans as they get ill watching their future capital gains start to reverse..oh the humanity!

I think Investors who have been in market won't be too adversely affected by having to sell their properties at prices close to what they originally paid.

They may have to make new plans for retirement as their current one will have disappeared. At least they will still have super much like their peers who did not build any new houses.

However young investors who are at high levels of leverage will indeed face a life of negative equity (inflation will not rescue them other than to potentially lift their salaries) so maybe be more specific in your unfounded spite?

Have a sprite and a sense of humour JAo - its Friday for heavens sake (PS I'm a landlord as well..supporting the poor boomers)

Fair call :) have a good weekend

13
up

When NZ lost its captive market of the UK, it lost the ability to attract abnormal premiums for its exports. Such abnormal added values (which where due to the market dynamics of the time and not the inherent ability of NZ) had underpinned NZ high standard of living up to then. Since then, NZ economic fortune is going down while every one expects the living standards to improve (a contradictory situation where a country is creating less value yet it expects to be able to spend even more than when it was wealthy).

To offset the economic decline, and in the face of real inability to compete on a global stage in anything other than primary industries (expensive labour force, high environmental standard, tightly regulated business environment etc), the NZ government has decided to ride two tigers: immigration and housing "market". These two tigers have carried the economy in one way or another, but have also devoured many NZ things along the way (e.g. social equity). And as the saying say: it may be easy to ride a tiger, the real issue is when you want to come down.

400 truck loads of logs going into Mt Maunganui every day, and the nation faces a timber shortage.
NZ is addicted to the laziest ways possible to earn a crust: exporting (very) raw materials, & selling houses back and forth to each other.

We're happy reaching for the low-hanging rotten fruit.
The government won't lift a finger to make manufacturing more sustainable in NZ, on the contrary has been adding to the costs borne by the handful of remaining players; on the other hand, hundreds of millions in subsidies go to foreign filmmaking crews each year that come with the promise of more low-paid tourism jobs in the regions.

Processing lumber in NZ and competing against subsidised offshore mega mills is a very tough ask. Not really down to lazy.
http://www.dana.co.nz.cms.cgdesign.co.nz/downloads/Failed-mills-for-hype...

We've got a horrible track record on protecting our local producers from foreign players dumping subsidised products into our markets.

How about we start with Kainga Ora and MoE making it mandatory for suppliers to source a fourth of their timber from local processors 2023 or so onwards and slowly scaling it up to 100% when there is enough capacity.

It is not just the subsidy:
1) energy is much more expensive in NZ compared to Canada, US, Russia, Nordic countries (both electricity and gas) who are log producers.
2) Labor is expensive compared to Russia and US and on par with others (with lower productivity though).
So NZ is not competitive with it peers (well, with Russia, sort of). Now if you have China who can do to its workforce what the UK did to its 18 and 19 century workforce and who also have access to even cheaper energy (due to lower environmental standards) then even before any "subsidies" or "currency manipulation" or other tricks in the game, NZ has lost.

Great point - 100% agree with this.

NZ lumber demand/supply has been flat for a couple of decades. Sawmills can't afford to keep spare capacity mothballed in expectation of another global post-covid demand spike.

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It’s nice to read someone with a bit of perspective.
Seems to me that NZ is really a 3rd world country with 1st world wages. Theoretically we’re pretty rich, but look at how people actually live and it doesn’t add up. We have a growing underclass who live in appalling conditions and a middle class who live in mediocre properties with $1m mortgages, who have to watch every cent they spend. The pockets of genuine wealth are small.

It seems the place is becoming dumber.
https://www.odt.co.nz/star-news/star-business/amount-paid-emergency-hous...

National's Nicola Willis asked MSD for information about any discussions with suppliers about "costs for damage or concerns over bad behaviour in their premises" in January and February this year.

General manager of housing Karen Hocking responded by saying that would be held with the "ministry's frontline staff and recorded on individual email records or case files".

The request was refused as it would require staff to "manually review thousands of individual emails and file notes... the greater public interest is in the effective and efficient administration of the public service".

Following from yesterday, Carmel looks a further fool (Carmel twice the clown now) by having Hocking running a muck.

Think of it.
Answering the question fulfilling the greater public interest [is] in the effective and efficient administration of the public service
Is refused because...
the greater public interest is in the effective and efficient administration of the public service.

Is the thinking here demented or deluded?

A major issue that ANY media has yet to pick up of is that the Social Development ministry is full of social degree educated types whose role was originally to get people on the right track and authorise a simple benefit. It has now become a monster and is responsible for allocating massive sums of cash and income and asset testing thousands of applicants. They do not have the financially literate staff nor systems to do this with competence. Just ring and ask how they deal with company or trust income. They have prosecuted no one for covid fraud. How the media are missing are not questions this is bizarre.

the Social Development ministry is full of social degree educated types

There's no shortage of jobs in those departments paying 80-150k in return for making no real contribution to the organisation. You'll see them loiter around the floor all day complaining about the high price of avocados and houses in NZ.
Most of the actual work is delivered by a small number of underpaid consultants who neither understand the processes nor the background of the work at hand because their KPIs are all about maximising firm revenue with minimal effort.

Or paying solo mums $78k per annum for lying on their backs.

https://ibb.co/dDDr9bk

The divergence in GDP from GDP per capita in this graph says it all really.

https://milfordasset.com/insights/productivity-concerns-and-signs-of-sta...

'Recently released findings from the Productivity Commission suggest the productivity of leading companies in New Zealand is on average less than half of that found in the top companies in other small, advanced economies (e.g. Singapore and Denmark). This is evidenced by a divergence of annual gross GDP growth and GDP growth per capita, something that has put significant pressure on infrastructure and the housing market.'

I personally do not like this approach of ban this ban that. The RBNZ is responsible for maintaining the integrity of NZ financial system and banks. The profit seeking motives of banks drives them to take excessive risks at times. If banks are putting themselves in a dangerous territory by reckless lending, then the RBNZ must stop them.
Why banks agree to lend interest only to certain borrowers? Is this "dangerous"? the RBNZ at least must formally consider this and give us answer. The answer would inform the response.
But I feel that many people on this website just want credit rationing. This is understandable, as credit allocation under current model always favors the wealthy (who has the collateral for safe lending). This would make entry for others harder and harder (as more and more wealth, fueled by debt is concentrated with fewer people). But I fear that credit rationing will not only fail to create a better outcome, but it may create a much worse situation, where credit rationing is concentrated at the hands of a government who uses it as a method to rewards those loyal to it, and punish those who are not conforming.

One of the feature articles on The Spinoff today:
Bernard Hickey: Mortgage lending needs restricting, whether banks like it or not
I think it will go over the heads of most of their readers there but its a good read and is progress for public understanding of the demand side.

Indeed I hope someone in government (not in policy as they are not being listened to at the moment) gets to read this article. It's a point BH has been making for a while, at this level of interest house prices are not just supportable they are quite able to rise.

What he might also have factored in though is the changes being bought in that will tame demand from Investors.

Banks will be more than able to work with FHB's to manage the transition of housing stock to them from Investors. I think whilst the controls he is discussing might still be useful to bring in, the uncontrolled debt expansion he is worried about will be tamed by demand controls rather than supply controls.

Every day that this runaway bank lending is allowed to continue amounts to more bullets being loaded into the 'too big to fail' housing gun.

What on earth is going on at the banks and in government. Why are we deliberately accelerating on a icy high-way in a car with brakes liable to fail? Is there some sort of unspoken pact of mutual self-destruction that our society is now bound to?

Yes it is really interesting! As Audaxes pointed out elsewhere the research on this is in, QE does not work. Is it a game of chicken? Inflation will likely show up at some stage in non-asset consumption and that will start the asset price reduction (in relative terms) but will it be controllable?

The debt leverage will be unbearable, moving from 2% to 4% for example sounds like a small move until you realise it's actually 100% rise in debt payments!

Lame duck media no longer fulfilling its role doesn’t help.