David Hargreaves says the Reserve Bank should not delay in reinstating lending restrictions on housing investors

David Hargreaves says the Reserve Bank should not delay in reinstating lending restrictions on housing investors
HERE WE STAND: For they shall have their house(s)

Frustration. That was what I sensed from Reserve Bank Governor Adrian Orr when he appeared this week at the Institute of Finance Professionals New Zealand (INFINZ) virtual conference.

He gave the appearance of an earnest economic theorist who has just run into a brick wall of human reality.

To explain: Economic theorist responds to a grave economic crisis by splashing great dollops of cash into the system and freeing the banks of constraints so they may lend to the people unburdened by regulatory shackles.

And why do this? So that the people will get out and spend this money evenly and wisely on things that would get the economic wheels turning and benefit us all. The banks will use their freedom to ‘be courageous’ and to lend to inspiring business ventures and generally push the path of economic good.

That’s the theory.

What happened?

The good people of New Zealand immediately gathered this extra cash up into a deposit-sized bundle and sprinted down to the nearest bank. This bank was then only too keen to stuff them an enormous wedge of loaned money. And then this was all parked on the first available house. And ‘available’ became a key word here - since the good people were immediately engulfed in a bidding war with every other good person in the country who had suddenly got the same idea.

And yes, that’s how housing bubbles grow.

So, if Adrian Orr is feeling frustrated, it is understandable.

We are only human

What I would say though is that an economist should never be too surprised if humans behave like, well, humans, rather than an economic model.

I’m a huge fan of the writing of Michael Lewis and was greatly amused by the way he referred in his 2011 book Boomerang to what different countries around the world did with their money when alone in the dark. This was a kind of tongue in cheek way of delving into the individual foibles of various countries and how they managed to land themselves in the custard during and after the Global Financial Crisis.

New Zealand was not featured in that book, but I have no doubt at all if one were to assess what Kiwis do in the dark with their money there's only one answer. They would buy houses.

They will do this at any time. They did it when mortgage rates were 20%.

There’s always a natural ‘pull’ factor with houses.

At the moment though this natural ‘pull’ has been augmented with the catnip of barely existent mortgage interest rates. So, the ‘pull factor’ has been turned up to 11.

But that’s not all.

We now have a massive ‘push factor’ as well. That’s because interest rates on deposits are now even more barely existent than the mortgage rates. Why park money in the bank earning nothing when you could park it on a house instead?

The old push-me-pull-you

So, we have a push-pull combo ‘dragging’ all too willing kiwis into house buying. And the banks are there in the middle as ringmasters.

What could possibly go wrong?

Well, actually quite a lot.

As things stand, if the debt-to-income ratios of house buyers keep blowing out the way they are, and if the economy struggles in future as the RBNZ expects, and if job losses mount...then, potentially, big trouble.

ANZ’s New Zealand chairman John Key warned during the same INFINZ conference of the possibility of “an asset bubble that’s going to burst on us later on”. “…We've just got to be careful we are servicing the sector not feeding a bubble." 

So, this is the chairman of the country’s largest home mortgage lender warning against “feeding a bubble”. Hmmm.

Key’s comments followed closely behind the appearance of Orr, who had directly addressed the banks with: “…Box smart. Do it yourself or have it done to you”.

By which you can infer: Lend sensibly or we will put you back on the leash.

And then there was this aside:"...I have to say the industry always just wants to have it done to them."

What might the RBNZ ‘do’ to the banking industry?

Bring them back...

Well, the obvious thing would be to reinstate, in some form, the high loan to value ratio (LVR) restrictions, which were lifted in May, for a stated period of at least 12 months.

Taken at face value, Orr’s comments would suggest he’s prepared to go back on the 12 month pledge and slap the LVRs back on now.

Or is he simply 'jawboning' and saying to the banks – behave and lend nicely (at low LVRs) or else?

If it’s the latter then Key’s comments almost come across as a ready rejoinder.  He talks about the pumping up of an asset bubble like it would be another bank’s problem – but clearly as the country’s biggest lender the ANZ would not exactly be uninvolved would it?

Whether meant that way or not, Key's comments could just about be interpreted as saying the banks would rather have restrictions be reimposed than everything be left to them. Because if it's left to them then their lords and masters in Australia would expect them to compete with each other for business.

Banks like to lend on housing because it's profitable and they can do lots of it because of the lenient treatment housing is given as a lending category in the calculation of bank risk-weighted capital ratios. And if bank A is doing truckloads of high LVR lending and expanding its market share then bank B would feel compelled to match its competitor. Or the lords and masters would be 'disappointed'.

Do it to them before they do it to us

Little surprise then that in the words of Orr the industry “just wants to have it done to them”. 

In a situation like we are now in the banks can’t be counted on to behave. ‘Someone’ is going to have to make them behave.

Over to you Governor.

The RBNZ has its next Financial Stability Report on November 25. That would be the opportunity, or even perhaps before then, to reverse the 12 month pledge on LVRs and put them back on. 

Look, the RBNZ might not feel such a reversal would be a good look - but I think it would be well justified.

Earlier in the year I suggested reinstating 30% deposits for investors.

I think that ship has now sailed.

Brace yourselves

I would suggest something a bit more bracing.

How about clamping on 50% deposit rules for investors? And have a review in six months (at the next Financial Stability Report in May next year).

If things have quietened down in the housing market in six months and if the economy is struggling then the deposit rules could be relaxed then.

But this should be tackled now.

Whatever the economic travails that may lie ahead, they will be much worse with a burst housing bubble...

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126 Comments

18
up

It's too late for that. The RBNZ moves too slowly at times and too quickly at others. When it does burst, their response has to be ready to go - we need to talk about how that's going to work and have that discussion now in a very public way. We need to understand who will be taking the haircuts, who will be left in negative equity and what rescue packages we might see. This is going to happen whether we like it not, so we need to go into it with our eyes open. If only there was some sort of recent political arena we could have had this discussion in...

We need to understand who will be taking the haircuts, who will be left in negative equity and what rescue packages we might see

I don't think you understand the bubble. The ruling elite would not be particularly bothered if 10-15% 'felt' they were in negative equity. That is collateral damage. What the ruling elite really wants is for people to get out and spend based on their 'wealth'. That is how bubbles are managed and why they're tolerated. The NZ bubble is no different despite what you may think.

21
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I'm ready to throw in the towel. How do you fight the 4 forces of property push.
1.The Government 2.The Media. 3.The Banks. 4.The RBNZ They ALL want high prices, even both National and Labour said they don't want prices coming down. It's nuts! It's totally screwed up! and worst of all, it causes metal stress, family breakups, and suicide. It's a sick joke in disestablishing savings and equilibrium. Basically they've stuff the monetary system.

And satan

Everyone’s blaming the RBNZ, but if the RBNZ stayed out of interest rates altogether and left it to the free market, I don’t think things would be much different. The banks are awash with people wanting to give them money at almost 0% - why would they pay more for it?

That's because the RBNZ has created asset bubbles. Do you join the bubble or wait for deflation?

17
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Yes, we all know what should be done, probably 50% deposit for investors, and probably 30% deposit for FHBs. Unfortunately we need to be saved from ourselves.

Will Orr do it? Well if he doesn't, we know whose interests he is really looking after, he certainly is not "ensuring long term financial system stability" at the moment. In fact, he abandoned this as soon as he removed the LVR rules. If he does bring them back in, he should be apologising profusely and either him or Bascand (or both?) should be fired or retire, for such a stupendously inept decision to remove them originally.

Of course he's not going to move LVR's to 50% for investors, why would he? Banks price for risk, and how many investors have defaulted on residential investment property loans in the last decade? Maybe with prices moving up it will finally get some new construction going - the supply curve rises with price from recollection. That's how markets work.

And those who already own multiple properties that are more lightly geared would just increase debt on those to raise the 50% deposit for a new purchase.

18
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If they removed the gearing ability and based borrowing on what you could afford to repay from your income, 90% of the woes would be solved immediately.

Got no income because you're a pensioner and want to buy a rental? That's fine, go buy your next house with the cash you have in the bank. Once the cash is gone you'll need to save up some more, just like first time buyers. There will be some that have enough cash to buy more and more, but they'll be in a big minority.

Take gearing out of the equation entirely.

You buy a house to live in, not to 'get rich'.

Yep, so it's ok for a pensioner to buy multiple rentals with 10% deposit if combined rental incomes covers the mortgage payment/expenses, otherwise they'll be losing money/going bankrupt. So no need for LVR. Wonder why everyone here is pushing for LVR? Do the houseless know something more than multiple property owners? Or just red with envy and would instantly cheer for a 0% LVR if it meant property crash even though it absolutely does not make sense? :P

25
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Investors haven't defaulted because they get support from the government. Investors can deduct their lending cost and make tax free capital gains. that is why, investors and owner occupiers are not on the level playing field.
Government knows and Adrian Orr knows it. And this is for sure that they don't work for ordinary kiwis. they work for themselves.
Government either helps top 10% or bottom 10%. folks in the middle are left to fend for themselves.

11
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If you want to discourage investors, change the tax system. I could get around an investor restriction tomorrow by using my wife kids, parents etc.

Just the "free" market working..what a crock

Hardly a free market frazz when the gov and rbnz ensure that house prices always go up.

Owner occupiers should be allowed a deduction as long as they pay market rent to live in their house. Or make it easier and have a deemed rate of return on the house's value for both rentals and owner occupied. Fair is fair.

10
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If only a political party had taken the time to research and create such a policy. Oh wait...https://www.top.org.nz/housingmarketreform

Just a shame they didn't do a better job of it.

Owner occupiers do pay market rent - they are broken up into things called rates, insurance and maintenance. Why don't you know this? It's been discussed many times.

10
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Those are costs of ownership not rent.

Am I renting the car I own because I have to register it and get it serviced?

Cool. I take it all those costs would be deductible if I'm paying a market-based rent for my own house?

Assuming the theoretical world the OP pines for. If you try it under the current law with the use of a company you will likely be hit with tax avoidance by IRD (https://www.taxtechnical.ird.govt.nz/revenue-alerts/ra-0701-revenue-alert).

HG who would an owner occupier pay a market rent to? The Owner? Your comment is nonsensical. It is an utterly ludicrous argument based in rank jealousy that expects someone who owns their own house, or any asset for that matter, to pay rent on it. And yes that same argument can also be applied to the car you own, and to the bike, TV and so on. There is literally no limit to it once you start down that road.

You want a deduction for rates and insurance for the house you live in. Do you also want a deduction for your dog registration fees, your car registration, repair costs to your bike or TV?....

If you think it is ludicrous to rent what you own then it would be consistent to also think it is ludicrous that a person should get a deduction for the costs of owning anything which does not generate an income. However, you started down that rabbit hole. Probably because you want to claim your costs without returning any income, that's not how a functioning tax system works. Why don't you know this?

I don't get deductions for the costs of my house, or for that matter any thing else i own, and don't expect to. What are you talking about? Where has this come from. Have you gone down the rabbit hole? What make you think i make a claim on my costs? I am not a landlord, I am an owner occupier. You said "Owner occupiers should be allowed a deduction as long as they pay market rent to live in their house." Answer my question - who would we pay rent to? Ourselves? That's just nuts!

You said:

"Owner occupiers do pay market rent - they are broken up into things called rates, insurance and maintenance. Why don't you know this? It's been discussed many times."

Then you said:

"HG who would an owner occupier pay a market rent to? The Owner? Your comment is nonsensical."

You're so confused that you're arguing with yourself. LMFAO...

HG you said at the beginning of this thread; "Owner occupiers should be allowed a deduction as long as they pay market rent to live in their house." I ask again who would they pay rent to? My response to your comment was that we pay rent and it takes the form of rates, insurance and maintenance. You have then convoluted that into asking for deductions, but i have no idea where that comes from. Your whole response line is nonsensical. Try to keep a track of what you have said.

The OP stated owner occupiers should get a deduction for holding costs so as to be on the same footing as landlords. My response was that if you want to be on the same footing then a market rent would also need to be charged. You can deem a market rent if necessary under tax law. You stuck your nose in and missed the entire point. And then you doubled down on your ridiculous statement that owner occupiers already pay a market rent being their holding costs of their home.

So let's sort this out once and for all:
(1) Do you think owner occupiers should get a deduction for insurance and rates on their home?
(2) Do you think owner occupiers are paying rent when they pay insurance and rates on their home?

1 No I don't that is the cost of ownership. Don't forget maintenance.
2 More difficult; Renters for example do not have a cost of ownership, so they pay rent. For an owner occupier the equivalent of that rent is the cost of ownership.

The original comment was less about asking that OOs get those benefits but making the point that residential tenancy business's usually work off a basis of asset values and deduct their costs, and justify their rents etc based on that measure, but the change in asset values is not recognised as realised, taxable income. Indeed many are structured as LAQs, which is enabled by the ability to ignore the change in capital value, even though it is used in some parts of the business equation. Many OOs are not concerned with the value of their home until they need to sell it.

"Rent" is defined as "a tenant's regular payment to a landlord for the use of property or land" and "pay someone for the use of (something, typically property, land, or a car)."

You can't rent what you own, that would be "nonsensical", do you agree?

11
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"Craft, Speed and Courage" Mr Orr /Ms Ardern. Craft,speed and courage....

If 'markets worked' properly; ie: the OCR wasn't artificially constrained, where do you think mortgage rates would be at the moment? -5%, 5%? 15%? 25%?
That's the problem. The RBNZ must either control the whole market - exchange rate; interest rates, capital and trade flows, or none at all. 'Half of a bit of each' is never going to work in anything but the very short term (eg: The Lockdown to control an unexpected event)
The RBNZ needs to assert itself by determining where the future capital for the development of our country goes. The Government ditto. The capital that is already trapped in residential property speculation will either be forced out as prices correct lower, or remain where it is until such time as it becomes unviable to be maintained. It won't be a "A Disaster!!" if property prices fall. Quite the opposite. It will be the making of this country in so many positive ways.
Let's cross our finger and hope the have the courage to do what needs to be done.

Falling housing markets will result in economic carnage and unemployment. Bob Jones is smart enough to realize this, why not you

RBNZ role is to be forward looking, not backwards. Their mandate is to ensure financial system resilience for the future, not just to respond to previous events.

Booming prices in a market that is already one of the most expensive in the world is not a good thing and does indicate overvalued assets that could be in for a shock. Pretending that's a good thing because it will increase construction activity is as short sighted as was removing the LVRs was. Yep, you might get another 500 construction companies going which will all fall over creating mass unemployment when the market pops. Creating companies based on a bubble market is as risky as it gets.

Market works, as per Banks price for risk.. this article elaborate clearly what that risk means, ... risk more for not harnessing more profit to the share holders etc. https://www.stuff.co.nz/business/opinion-analysis/300138418/think-mortgages-rates-are-cheap-think-again

13
up

"then this was all parked on the first available house."
The problem with all of this in one simple line.
The lower interest rates go, the more parking that will be done; the more debt assumption will occur to ....park in more houses. Economic lunacy, writ large.....

Policy 101. Perverse incentives. A country, I think Taiwan, capped rents in an attempt to look after the poor. Rents were capped for existing buildings. Cue a lot of old buildings being torn down and replaced with new, buildings with uncapped rents.

The NZ tax system is one giant perverse incentive. Ironically this is turning NZ into a place many of our ancestors fled in the 19th century - a land of tenants and property owners on "$10,000 a year"

21
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All Kiwis are NOT buying houses actually: FHBs and investors are
41% of Aucklanders do not own a house.
Investors, we are informed, buy 25% of currently being bought property (about 6000 pa in Auckland therefore)
As developers are currently planning (or actualising) to reduce spending on building houses, consents have already peaked. So, what investors are buying is not available for sale to FHBs or ordinary purchasers (ie people who have a house and want to move - remember this group is least active at present)
So, more places investors buy, less stock available for other buyers.
Meaning their activity is partially responsible for driving up prices.
Also, investors are able to leverage more on back of existing houses they rent.
Also, hence disadvantaging those NOT in that privileged position.
So, removing LVR has (predictably) given more advantage to investors and it is pushing prices up.
Ostensibly this is to induce wealth effect confidence.
Real effect and spending in real economy (as opposed to increased debt which gives more profit to Aussie banks to remove from NZ) would be if those renting were not having rent increases whilst those 7% of mortgagees got til next March with no payments.
And investors would not be so keen on property income if it were taxed equally with other investments.
Etc. it is not like the Governor did not know all this surely?
So, no wealth tax, no CGT, no rises in other higher tax rates; favouring investors over FHBs and those renting?
No wonder 10% of National voters felt ok in voting Labour

13
up

Auckland is fast becoming a city of migrants with 40% of residents now not born there. As in most countries migrants take years to establish to a point where they can afford to own a home. This makes the citing of declining home ownership rates in NZ as though it is a social disgrace, nonsensical. Investors are piling into renters because there is demand from tenants, a good part of which comes from the flood of low paid migration to NZ.

15
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A big part of that 'demand' is due to the necessity of having a roof over ones head, and it's coming from people who want to, but cannot afford to buy through no fault of their own. People who are doing everything they can to be prudent in their personal choices and improve their position, in order to secure a home of their own - yet we have created a system that increasingly works against them, and highly favours investors instead. The privileged position of investors to act in this market with a level of power that FHB do not have, allows them to keep potential FHB at a continual disadvantage, then turn around and pass on the costs (and then some) of this speculation to the people stuck renting the houses that they are priced out of buying.

Everyone should have that opportunity. That a civil society would deny this to even one person, through no fault of their own, is a disgrace. In this country we have a large portion of the population completely locked out of ever owning their own home, unless we see substantial change.

22
up

I agree. One of our FHB kids is trying to get into the market but is being repeatedly outbid by others paying crazy money. So we understand the pain and yes, that kiwi kids born here are denied home ownership is a scandal. But this outcome was 100% predictable when successive governments opened the floodgates to mass low quality migration at a rate exceeding the country's build capacity. Investors are being scapegoated but they are only reacting logically to market conditions created by government policy.

10
up

We can blame politicians/government all we like but in a democracy they/it are simply a reflection of societies values. And in NZ (and perhaps a lot of anglo-saxon countries at present) that would appear to be greedy, self centered, short term focused, ignorant...(list continues) people/attitudes.

We could of course become the opposite if we collectively choose to. That would be giving, caring/kind, long term focused, open minded...But we all think that we can 'get ahead' of each other and 'beat' each other - not realising that because society is interdependent, getting ahead of or beating others simply means that we then need to carry and support those people who are on the losing end of those attitudes and behaviors (all those requiring welfare to simply get by without even thinking about 'getting ahead'). Is the invisible hand real? Was Adam Smith right? In part I think he was, but if it goes too far, then I tend to disagree as persuit of self interest (in modern society) appears to turn people into narcissistic psychopaths (Donald Trump etc etc) who have no morals, values or princpals other than 'winning'. And that isn't beneficial for a healthy society.

Can we change? I hope so and history suggests so, but it also suggests that it could get uglier before it gets better.

So if NZ has poor societal values, which country is the benchmark?

Scandinavian nations

11
up

I'd say New Zealand 20+ years ago. Internationally its hard to say right - we're all human and have flaws and the world seems to have gone a little crazy post GFC (in my view). It would appear that we're promoting self interest over the collective good (i.e. me vs you, landlord vs tenant, democrat vs republican, labor vs national, old vs young, my social media account vs yours etc). We need to get back to 'we the people, together' because ultimately society is interdependent. So whats the point in owning 5 rentals if it means your younger brother, sister, son or daughter can't then afford to buy a house?

Having lived overseas in a few different countries NZ has a very odd passive aggressive competitive thing going on. We like to pretend we're very nice but there's a pretty insecure and selfish shadow behind that friendliness I've found.

Try 40 years.

Ah the good times of almost bankruptcy, fay richwhite, brierly, etc? Or do you mean when the poms paid top dollar for our meat due to the commonwealth?

I was reading that NZ until the sixties many people lived in employer-subsidised housing, when many of the bog companies (the employers) were state controlled. That all went away during privatisation.

Very well said.

10
up

I don't see why the powers that be cannot communicate a bit better. They should clearly message us all about what they want to happen. Interest rates will go down but this is to free up more money for consumption. Mortgage holders could also use the extra cash to reduce the mortgage and many landlords can now enjoy being positively geared. Businesses will benefit.

They should also indicate what will happen if people decide to not follow this advice and instead blow up the asset bubble. They will introduce strict lending rules to suppress rampant price rises. Be warned.

Instead the message seemed to be, "We will never allow house prices to fall"

What's this "Potentially Big Trouble" everyone is scared of if prices fall? Who is at risk if there is a bubble burst?

Over leveraged borrowers (reap what you sow)?

Banks and deposit holders who will become forced shareholders under BASEL (i.e. the rich)?

None of this is of concern to many people and if anything may be an opportunity for those who to date have not been able to afford to buy.

Assuming that they will have a paying job. If the bubble does not cause a recession, then you are right. But if it does, then a lot of people will be collateral damage, and contrary to what you think (poor will be able to buy), in a credit crisis, the super rich with cash will be buying everything for few cents in a dollar.

How will the bubble burst cause a recession?

I would imagine because mortgages probably underwrite many 'safe' investment portfolios (and the creation of money, for that matter).

Most small NZ businesses have loans backed by residential property.

17
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50% deposits and stop investors from using unrealised equity as a deposit - it creates a huge imbalance that favours incumbent asset owners.

50% deposits and stop investors from using unrealised equity as a deposit - it creates a huge imbalance that favours incumbent asset owners.

Impossible. Most NZ households barely have two sticks to rub together in terms of cash deposits. The nation's savings are in the houses.

Erm, that would be the point.

If you want to buy a second house using the equity in your principal home, then:
1. Sell your principal home (i.e. realise/liquidate your equity - get *cash* proceeds); and
2. Split the *cash* proceeds to use as a *cash* deposit to: i) purchase another principal home; and ii) your 'investment' property.

Would have three-fold benefit of:
1. increasing liquidity of property in the market (people need to sell before they can buy);
2. reduce the inherent advantages that incumbent asset owners have - they effectively have to raise a cash position just like FHBs;
3. result in more accurate price discovery in the housing market

You're missing the point. You can't sell into a market where buyers "can't afford the deposit" unless the central bank / retail banks play their role.

I think the point is to change the rules.

And therefore the banks have to play their role.

If you have a point then its hellishly nuanced and not being articulated.
I fail to see how it's any different to the market we're currently in except that it's less exposed to paper/unrealised valuation risk.

FHBs raise a cash deposit, as they always have.
FHB purchases Property A.

Vendor of Property A receives cash proceeds and applies them to:
i) Property B, new principal residence; and
ii) Property C, new 'investment' property

Vendor of Property B receives cash proceeds and....

We know exactly what they'll do if the bubble bursts. Same as they always do: Inject even more cash, lower the OCR further (negative if necessary) and voila, the can is kicked down the road.

What would twiddling the RWA weightings on categories of the banks' loan books do? As the upthread comments note, the weightings are assessed in terms of likelihood of default, which in the case of investor-purchased residential property is very low. But what if a modified weighting were to include elements of desired investment direction - for innovation, research and other development, and against residential property that was not the primary home? Inquiring minds and all that......

Banks have no "desired investment direction", they want the most money for the least amount of risk. Innovation types ventures are not funded by commercial banks the world over. They are funded either by government spending or private equity or investment banks. Commercial banks may be involved once the venture is more than a vague promise and has some tangible potentials and some financial balance.

Yesterday. Wednesday 21st. 227 dwellings newly listed for rent in Greater Auckland on Trademe. Is that normal?
30 days up until 20/10. Stats NZ travel data. Arrivals vs departures net loss 1627 people.

Bugger all in Wellington though.

10
up

Public servants are not losing their jobs and leaving the country. Best year ever for them. Living their best lives."Working" from home.

Public servants are not losing their jobs and leaving the country. Best year ever for them. Living their best lives."Working" from home.

And still not even be under the threat of losing their income due to accountability and competence. Sounds nice for many. But to me, the Gliding On existence would be soul destroying.

With no pay cuts or reduced hours. Saving money on childcare and transport to boot. No wonder everyone has a spare $50k to drop on an investment property.

CBD apartments have very high vacancy right now due to dwindling student numbers. Lots of rent drops coming through (+10%). A more granular level of detail for anyone that has it would be very helpful (i.e. the change in dwellings available and if they are apartments vs houses).
October through to Jan does tend to be when those vacancies increase before the typical new year ramp up.

Agreed, it would be interesting to have some analysis of this.
Seems to me we should see a drop around Nov as those intl. students who stuck it out for the year return home.
What happens early next year might depend on student enrolments for next year -- it's not looking good, time is running out to 'return to normal' for 2021.
Will apartment owners faced with vacancies try to sell, or hold on and compete on rent (willing to take a hit on returns hoping for a future bounce-back)?

I think there's a strong chance we will see students back, with controls in place.
With the right controls, it could work out well. With our covid status, NZ could become a more attractive place to study.
Also, with the ockers pissing off the Chinese we might get a few from them.

Work out well for who? Property investors? Not sure those at the bottom of the heap would benefit from tens of thousands of foreigners being brought in and given work rights.

I'd really like to be a fly on the wall at Labour's discussions on immigration right now.
I think they know that the public will *not* be happy if there's an influx while unemployment grows. And I really think there could be, once controls are lifted.
At the same time, it's still a given in public discussion that having a huge number of students and work visa holders is a good thing. There are an unlimited number of business owners who will take their grievances to the NZ Herald about not enough fruit pickers, tourists, students...
One of their trickiest assignments.

Lets be honest they don't really care that much now the election is over.
They all have property and want it to keep going up.
The only plan (whether National or Labour) is the status quo of bringing in more immigrants to keep the house prices going up once covid is under control. In the meantime the plan is money printing to tide the country over until immigrants can be brought in big numbers.

Applied for a role in a "worker crisis" industry that I read about in the newspaper. Despite the cries of worker shortages, and despite that I was certified and qualified for the job, the offer was barely above minimum wage. Yeah right, gonna uproot my life and home to go and work for low wage in a (freezing cold) province far away. My experience leads me to think that employers want only to import workers in order to keep wages low.

For the universities, primarily. Pretty important institutions for the nation I would have thought.

Universities have been dumbing themselves down, turning a blind eye to cheating and relying on domestic students to babysit foreign students in a bid to build their empires.

Hopefully the pause Covid has provided us with will be used to reassess the nations priorities; universities business models being one of them.

The education industry should have matched the political donations of the fishing industry. Then they would have been all sorted by now.

Their is a saying that ' Its never too late' but here it is too late as house prices which were already high before the panademic, have now shot by anything between 15% to 50% plus since May.

A friend bought a house in March for 840000 and just sold for 1060000 and he too was surprised as was expecting being boom to go for 930000 or if lucky 950000 and for him financially, panademic has been a boom though is working reduced hour till December.

So it is not rise by few percentage but by heaps and if earlier we were talking about bubble what is it now - Hyper Bubble.

Still Mr Orr though it is too late BUT Better Late Than Never.

Just like you acted swiftly to support Housing Ponzi.. Now when Ponzi is at peak, should you not act swiftly Agree with David - JUST DO IT. Even in Australia LVR has been removed for FHB.

So your friend lost $7M in 6 months. The crash has begun. LOL

Bright Line Tax gets him - doesn't it

No bought his first home and lost earning due to coronavirus so sold.

Brightline does not apply to owner occupied homes, so as long as he lived in it he is all good.

Corrected :)

26% rise in 6 months. Translates to what? 60% rise YoY?

Nah, the market is fine, operating normally (so says anyone who owns property and has a hand on a lever of power... i.e. Robertson/Orr and co).

Most here were predicting 20% to 40% falls in March, now we are staring at 20% to 40% rises.

The tone of the comments has become dark and resentful in line with this development, I would describe it as a brutal lesson in the power of a central bank.

Great to see central banks are leading NZ'ers away from the darkness and towards the light - as is the responsibility of respected leadership (um...!)

20 to 40% rises? This year, or until the next peak?
I think at most, across the country we will see a 10-12 % rise this calendar year

I would describe it as a brutal lesson in the power of a central bank.

You mean the power to destroy money as a store of value? Because that is what is being achieved. People think they're being made 'rich', when in fact the opposite is happening. The value of labor is being destroyed and so is purchasing power.

The brutal lesson here is exactly as JC describes, plus a bit more as the lesson is the rich are allowed to massively benefit, while the poor/middle get thrown under the bus. All so that we are "saved" from the good ole fashion clean out that real capitalism requires. So the lesson is f&#k the people, we care only for the rich and to avoid negative consequences forever while the only game in town is how you can get as much of the printed money as possible. That means a weird form of non-competitive communism going forward where everyone is competing for the attention of the RBNZ to please throw them some more keystroke created money in their direction.

If that's the lesson, I want no part of it.

I'd suggest it demonstrates not the power but the fear of the central bank

Yip they're shitting their pants that we might fall into a deflationary spiral with this amount of debt in the system while at the same time trying not to promote the property bubble any further using their primary tool to avoid deflation.

Thanks David. An insightful, balanced commentary. The antithesis of a standard Greg Ninness article.
Doubt the RBNZ will carry out your suggestions though.

Agree with David.

Just Do It and not be just Spectator, specially when you too are aware that your reckless action has done more harm than good.

With interest income on Term Deposits held by Superannuitants reduced to zero
What did they think would happen
With $50 billion QE being thrown around the Government would have been smarter to take on responsibility and pay a guaranteed 4% interest to them. There were currently $200 billion sitting in term deposits. 5% would cost the Government purse a meagre $4 bn per annum. Cheaper than the damage done on property market soaring 9% in 6 weeks

Socialism for the old farts while throwing the young people to the lions? Not very fair is it?

On top of their ageist UBI (aka NZ super) those old farts would live a very good life suckling on the taxpayers' teat.

Now the only discussion when one socialize is housing and think is on risky territory.

Only way to avoid the inevitable is by RBNZ and Government to provide more stimulus and incentives to support housing bubble as by itself will be very hard to sustain and more bigger is created more the problem in future.

Surprising , why everyone is worried about economy cycles as is better to have up and down (not crash) for healthy exconomy and sustainability.

Reserve bank and Government should have helped to avoid crash but instead went all out to support and prompt artifical rise in house price. Worse having realized still not acting to calm the speculative demand.

Governor, just ask Cindy to introduce stamp duty and higher interest rates for purchases other than family home! Across the ditch they already implemented it i some states.

Did that work?
Judging by house prices in Australia, no.

To understand, how fast the house prices are moving and churning has started (sign of bigger ponzi) :

House bought last month for 817000 and now wants 900000.

https://www.trademe.co.nz/a/property/residential/sale/listing/2822435201

https://harcourts.co.nz/Property/928269/BW33575/1-9-Merriefield-Avenue

Sold around June for $935k. Sold again last week for $1,025k. Looks like they only spent about 3k on some cheap renos in the kitchen.
Not even sure it was ever lived in (furniture looks staged)

Hope the taxman is watching these people

The listing agent and principal of the agency advertising the property also owns it through an investment company. They're "professional flippers" that use industry knowledge of buyer demand to get in front of the market in the right areas and then flip them back to FHB, et. al. Very clever setup. There are also several Auckland (North Shore/Hibiscus Coast) based accountants that operate similar vehicles which target regional centers on behalf of the more affluent "Mum and Dad" investors. Their strategy is more of a "buy and squeeze" based on investor activity, as in, based on industry knowledge (usually through financial institutions...) they know where investors are focused and buy the upmarket houses in the area on the basis that people selling out of their first homes to investors are looking to up-size or up-grade. Again, very clever setup. Knowledge is power. Imagine if you could see the current and (potential) future address of every mortgage applicant in the country...

How about removing the punitive taxes on international shares so that Kiwi's have other investment options than just local housing? The NZ stock market is too small and of such low quality to be a good place to invest money, yet you can't buy quality international shares like Apple or Amazon without being hit with paying income tax on the value of your shares regardless of whether you have sold them at a profit, or even sold them at all. If there are no viable investment alternatives, Kiwi's have no choice but to buy houses.

Yep dead right. We have an asset tax already..but just s foreign stuff. Just like we have a cap gains tax when gst reg property is sold.
Tax system is all over the freaken show. The absence of tax on a home a part of this ponzi creation.

You and I are in total agreement.
Taxing on foreign equities even if you make a loss in kiwisaver each 1 April. The tax working group recommended reducing the FDR rate to 3% from 5% but just ignored.
if you invest directly a 1.65% tax bill on your foreign equities.
The robbing of the compounding by wealth taxing each costs kiwisaver retirees $150k plus at retirement.
I have been trying to resist but may buy some houses in Auckland and lock them up and alarm them with a gardener visiting once a month and just hold for 10 years for tax free gains. The only outflow is rates as they will be debt free. I have no desire to be a landlord but the Government is forcing me to do this. Holding $2m in amazon stock costs you $33,000 a year with no dividends.

The fug, firstly Amazon isn't a dividend stock, and secondly, what about the massive gains they've made in the last 5 years?

But if you are holding the stock gains are unrealised. Unrealised means you can still loose them as happened in March there was a big drop in value.
Happy to pay tax on a realised gains.
Nobody mentioned it was a dividend stock. But it can pay in the future.
Xero pays no income tax and no dividends and investors pay no tax on the huge gains they have made in NZ.

If they had not screwed up inflation numbers. We would have maybe less problems down the road.

Steadfast Mr. Orr & team, increase the QEs/FLP/LSAP, put the OCR quickly into negative for sure don't budge LVR is clearly a restriction for NZ growth & post pandemic recovery. So ensure NOT/Never to put it back on - The higher we can push the RE prices, the higher that trickle down economic wealth theory come to fruition - Home is that intrinsic value thingy, long term investment, peace of mind, feel security for many Kiwis. RBNZ is on the right track here, once in a life time for wealth trickling down distribution effect. We need FIRE flame to sustain NZ economy. The very highest cost of NZ housing, will ensure to act as invisible carrots for NZ workers productivity (the ones that decided to stay here for sure).

the higher that trickle down economic wealth theory come to fruition

Don't expect incomes to rise though. This is the whole thing. You might see incomes rise if you work for the govt, council, or central bank. Even the foot soldiers at the retail banks will be lucky to get anything. Cruella and co should be OK.

Nice wit and irony in the post. My son, worked last 3 years sometimes 13 day weeks and late nights, saved very well, enough for a nice deposit, only for those savings to have 30-40% value shed from them. This aspect makes NZ pretty shit at the moment.

I await with interest the asset register of the new govt MP’s. I expect few will be in the multiple rental ponzi game. If that is the case, then I can’t see too much motivation to keep being so nice to specuvesters.

Why pick on investors? They are the least of the problem. The real problem is the Mums and Dads buying homes to live in for short while, then on selling for mega tax free profits. Moving on every two years, pocketing hundreds of thousands of tax free dollars each time makes for a comfortable lifestyle. If there is anything in the tax system that needs fixing, is to tax profits from selling the family home. If all the proceeds are used to buy the next home, then no tax, but if a chunk is kept back and pocketed, then taxing that would make better sense.
Three years ago it was "Speculators" and "Foreign buyers" that were the culprits. Now it's "Investors". It's always someone else or a group that are to blame for a problem. That takes the blame off you and puts it on someone else. History has taught people nothing.

So are you suggesting that the Mums and Dads spend less on the next house and pocket hundreds of thousands of dollars in 2 years?
Where do they buy the next house for hundreds of thousands less than the previous house in a fast rising market?
Your logic seems crazy.
But happy to be convinced?
As for the tax system we need CGT on everything houses, shares, businesses and farms. With roll over relief if the money is reinvested in the same within 6 months.

Why would taxing everything at the same rate make one investment more attractive than the other? The money will still flow to where the best returns are, and as long as supply is constrained then that's going to be housing.

Isn't BigDaddy Ollie Newland - the godfather of NZ landlords? I wouldn't expect much of a balanced view if that's what you were expecting....

Those who make snide or personal comments about those who express their views on this site, have run out of ideas and arguments.
Their actions arise from desperation rather than logic.

'Those who make snide or personal comments about those who express their views on this site, have run out of ideas and arguments.
Their actions arise from desperation rather than logic.'

Don't worry about that - we're just warming up on the landlord bashing (Ollie?)! Plenty more ideas and arguments to come, and of course they're all highly logical - unless you own more than 2-3 properties then you'll probably hate them!

Why don't you answer the questions I raised above?
Perhaps as you are talking rubbish?

Bring back LVR for investors asap. Then bring in DTI of 5x with 18 months to phase in. End of the day houses have to drop, or everything has to go up which punishes everyone, especially the retired.

Voted to have a tax and lower income tax, but no one else did.

I also voted for this.

RBNZ don't have the stones

Not sure about trying to shape the market by targeting specific groups. What about 25% deposit plus 2.5 times main earners income and 15 year payback for all? I think that was the rule when I bought my first house. Since then bank standards have just been gamed by management and the institutions and politicians have acted as their useful idiots. Not sure how we turn it around though, pain now, or more pain later, presumably.

When you screw Peter to pay Paul, do not be surprised, if the shite hits the fans of Housing eternal leverage.

And that includes all Politicians, bwankers and Landlords, who think they can lord it over all they surveyed.

Cos there is a swell rising and the continual debt has to be counted in all future Orr and ANZ calculations, when us misers leave the Country for a change of scenery from all this continual talk about bleedin Houses.. and the Benefits that have to be endured, therein.

If you can buy a simple house fine. If you cannot, leave for another Country, where you can.

And take your cash with you......Get the picture Mr Key, Mr Orr, Mrs Prime Munnyster....debt is one way of funding shite houses, but some of us have had enuff of the New Slavery Order, mortgages for ever and a Day.

Enuff said....shite happens.

Money is crap, but it travels better than a shite House, you put on a 400meter section, that you can buy a Farm for in another Country...

Even at todays...Exchange Rates.

Better to Work together and take your money abroad, even if Covid19, makes it even more Worth While, after Lockdown.

Some think NZ is a Safe Haven... Your money is not safe in NZ, especially in an Aussie Alernative Location Bank...with a Former Prime Munnyster as its Chief Theoretician.