Banking on the housing market

A crunch of bank lending figures over the past 20 years shows an ever increasing share of bank-borrowed money is going into houses rather than businesses or agriculture

3rd Jun 21, 8:00am by David Hargreaves

The figures are, I suppose, impressive, in a way. But are our banks just putting proportionately too much money into our housing market? That's my question.

The Reserve Bank this week brought out its latest series of month-ending figures around bank lending.

In the 12 months to the end of April the pile of mortgage money owed to New Zealand banks grew by over $30 billion.

That's a growth rate of over $2.5 billion a month.

Yes, that was affected a little bit by the fact that the housing market was temporarily put to sleep by the lockdown in April 2020, which means maybe say $3 billion-$5 billion worth of new mortgages were 'delayed' and so ended up in the latest 12 month period instead. But still, it was a lot.

While all that frenetic activity was going on though, it was a bit different in the business sector and down on the farm.

In the 12 months to the end of April the amount of money loaned to businesses dropped by about $4.6 billion (if you exclude the $2 billion-plus owed to UDC Finance, which is now no longer included in bank debt figures having been sold by ANZ).

And the agricultural lending amounts outstanding dropped by about $1.1 billion (very much driven by a $1.6 billion drop in dairy debt).

So, in the 12 month period, the amount loaned for our houses increased by over $30 billion, while that loaned to the business and agricultural sectors shrank by a little under $6 billion.

Property, property, property

If you are thinking these figures suggest the banks are a bit, er, property focused with the lending, then its possibly also worth having a look at the composition of the $109.5 billion outstanding of loans to businesses from our banks as at the end of April. In fact some $41.6 billion of this is commercial property lending - and THIS part of the business lending category did actually grow over the past 12 months, from $40.8 billion as of April 2020.

Now, in the interests of fairness, it it true a lot of businesses have diversified their funding sources. For example there's now over $40 billion worth of corporate-issued debt listed on the NZX (though sizeable amounts of this are actually issued by the banks themselves and local authorities).

But I thought it nevertheless worth a bit of trawl through the last 20 years of the RBNZ data to look at the trends in bank lending.

And, proportionately the banks now have a heck of a lot more invested in the housing market than they did 20 years ago.

In April 2001, the bank housing mortgage pile stood at $64.6 billion, while the amount outstanding to business from the banks was $40.1 billion and agriculture $12.6 billion. So, not actually much difference between the amount loaned for houses and the amounts loaned to the business and agricultural sectors combined.

Fast forward to April 2021 and the figures are $307.9 billion for housing, $109.5 billion for business and a little under $62 billion for agriculture.

Quite a change.

On the house

What that all means is that in the past 20 years the amount of housing debt owed to banks has increased by 4.7 times, while the amount of loans outstanding to businesses has increased just 2.7 times. And remember, something approximating 40% of the business debt is for property of the commercial variety.

The agriculture debt pile has actually increased by some 4.9 times - but to give it perspective there was about a four-fold increase in just the 10 years up to 2011 as there was a huge rush to dairy farming. As mentioned above, dairy debt has been dropping of late.

This overall pattern of increasing concentration on housing debt has intensified in the past five years, presumably driven by the ever-lower interest rates that have enabled home buyers to borrow ever bigger mortgages.

Between April 2016 and April 2021 the amount of mortgage money owed to our banks has increased by $92.4 billion. In comparison the amount of outstanding loans to businesses has increased just $16.8 billion (over half of which was for commercial property), and to agriculture just $4.4 billion.

Do we think this all just looks a bit unbalanced?

Running an economy on a housing market?

Doubtless the banks would argue that they are lending based on sound criteria and according to demand and therefore as the demand for housing is what it is, then that's where the explosive growth is.

But look, I hope that is the case.

Also, could it be argued that businesses and agriculture don't need to borrow as much? Well, surely not. Generally any business is going to need to borrow some money to help it grow.

I hope that people with sound business cases are not being turned away at the expense of the perhaps easier, low hanging fruit of housing loans.

We can try running an economy based purely around our housing market if we like, but I'm not sure exactly where it would take us.

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122 Comments

by B727 | 3rd Jun 21, 8:11am 1622664666

Smart folk have done well out of this situation by making moves when it counts. Sadly many DGMs have sat on their hands and watched from the side lines. Hopefully the FHBs in the comments section have not learnt the hard way!

by Nzdan | 3rd Jun 21, 8:19am 1622665191

I've certainly done well after buying in 2017. Astronomical price gains over the past 4 years, while on paper it shows that had we waited we'd be paying a lot more (opportunity cost).

If the market was to start falling, I think it'll be sticky on the way down so in my scenario a minimum of 4 years for prices to return to where they were. So call it 8 years on the sidelines, with rent at $25k p.a. that's $200k down the pisser waiting for a crash.

by thinktank | 3rd Jun 21, 8:31am 1622665876

Exactly right Dan. I value my security over gambling on a possible housing "crash".

by muzled | 3rd Jun 21, 8:44am 1622666663

My guess is very few are gambling on a crash (before buying).

They just genuinely couldn't afford to buy x years ago and now buying a house is unobtainium.

And that's the problem.

by Ezy | 3rd Jun 21, 10:40am 1622673637

The blinkers are still firmly on. These comments equate to: "I've done well personally, so bugger the rest of NZ". Meanwhile our economy has firmly moved into property as it's primary industry via the sweet drug of free money, lent out at less than the real rate of inflation (some say around 10%). Our so called leaders have been MIA, happy with their own fat property portfolios. So now we're in a situation where a property in a part of run down South Auckland will set you back about the same amount as the equivalent in a reasonable suburb in any of the richest cities in the world (Remembering NZs entire GDP is about 1/5 of Londons).

While this has been going on, the behaviours that lead to the 08 GFC haven't changed, but rather have been amplified via bailouts and lowered OCRs. The result this article highlights, is that our country is probably in the worst shape of any to head into the culmination of the financial crisis. Our economy is literally a house of cards, with 80% of loans on 1 year fixed, and the winds of inflation starting to slip from CBs control. Given that, maybe it's not time to call out those DGMs just yet?

This storm has been brewing for a long while, and common sense left the building years ago. The boomers who mostly held the reigns while this occurred, and reaped much of the paper profits, are turning out to be a generation with a complete lack of wisdom. A rabble of self-centered spoilt brats, who never grew up. History (and the future maligned) will likely not look fondly on them. Just a thought, but it might be best to keep that self-centered nature front of mind when the time comes, and you look to the rest of NZ for help but there's none to be found.

by Independent_Observer | 3rd Jun 21, 11:10am 1622675421

I tend to agree Ezy - but I think boomers are missing the severe resentment that is building from younger people. Espeically when they see boomers cruising around the country on biking tours from the RV while receiving superannuation and rental income on their property investments, while each day the value of their property portfolio goes up 5x more than what a young person can earn by actually doing a job that gets taxed via PAYE, who then puts those earnings into a savings account, which earn a negative amount in real terms, then they pay RWT on the minimal interest actually paid.

Really is insanity. I think the greatest generation would look at what has happened since they've handed over to the boomers and shake their heads in shame. My experience with the greatest generation vs the boomer generation couldn't be more contrasting, but that might just be my experience and could be an anomoly.

I'm unsure whether its the boomers fault or not - either they're lucky enough to be in the sweet spot (right place, right time) due to the benefits of their large demographic and influence it has had. But as you say, they may not be looked back upon fondly by younger generations.

by JustAnOpinion | 3rd Jun 21, 11:54am 1622678098

I agree, there has been a uniform acceptance of "playing the system" as fair play. Their only defence really is that there was no main-stream alternative view.

Unfortunately my generation, X, has been no better and potentially worse by understanding the dynamics of inequity in the system and yet still playing the system. Millennials are now in charge but there is no significant change occurring as the extremity of our economic failing will require a significant period of negative growth or an even longer period of no growth to right.

I voted Labour for the first (and only) time in my life when I saw Jacinda making claims to take brave steps on housing. Although my main investment class is property (how could it not be in NZ) I could see with my own eyes the desperation of people who through little fault of their own are disenfranchised in this economy. It turns out not actually doing anything is not the answer (https://www.rbnz.govt.nz/statistics/key-graphs/key-graph-house-price-va…).

Generation Z - leave this country or get into the streets and start protesting like your future depends on it. Not at all fair of course but if there was change you might just be seen as the next great generation.

by EdwardD | 3rd Jun 21, 2:19pm 1622686760

I agree with you and also voted Labour for the first and last time. I'm a boomer (no investment property), but I feel ashamed of what we are leaving the next generation. If I was younger, I would be gone.

by Fairlyfrank | 3rd Jun 21, 12:45pm 1622681158

Many of the people in government at the moment including our esteemed leader are not boomers but they are responsible for current decisions and have been for the last 4 yrs

by rastus1 | 3rd Jun 21, 1:38pm 1622684304

..yes but they know where the votes are coming from and which group is the most powerful and vocal.

by kiwiwayne | 4th Jun 21, 11:45am 1622763958

Yes it is a trying time to get into your first home...I would encourage all younger people to stay away from the banks savings accounts and put what they can into your kiwi saver. A couple can use all their kiwi saver monies as a deposit on a house and the good growth schemes have been averaging over 10% P/A for over 5 years now...

by Pragmatist | 3rd Jun 21, 12:58pm 1622681937

>These comments equate to: "I've done well personally, so bugger the rest of NZ".

Not at all, just pointing out that waiting for an "inevitable" (it's not) crash and burning money on rent is getting you nowhere fast. I'd be quite happy for prices to stagnate for a decade or two, not that I think they will. Even a 10% price drop is fine, even if I think it unlikely. We don't have enough housing, and money is cheap and going to remain that way for the foreseeable future, so house prices won't fall off a cliff anytime soon unless the whole economy does.. at which point you'll have bigger worries than house prices.

by J.C. | 3rd Jun 21, 1:30pm 1622683851

so house prices won't fall off a cliff anytime soon unless the whole economy does.

'House prices' and the 'whole economy' are quite possibly more interdependent than you think.

by Spectators | 3rd Jun 21, 5:33pm 1622698421

One BIG assumption in continued house price appreciation or even stagnate prices is interest rates. The last 20yrs interest rates have been the cushion for a housing crash. Things look shaky? RBNZ just lowered rates. Now at 0.25% there's very little room left in OCR but unconventional monetary policy can still be deployed to save those in mortgage debt I guess. The real issue is if inflation comes hard and fast (not transitory as the RBNZ thinks) and they stick to their word of using OCR as their preferred tool to manage inflation. In that case they will raise OCR and just like lower interest rates pump up housing, higher interest rates will dampen it. Add those who have leveraged big to get into housing recently and boy do interest rate hikes look scary from a repayment perspective. "Quick lets sell to lock in those gains and move into something more affordable! Hey did you hear that John three houses down is selling, oh and Jane across the road, oh and..."

by Ezy | 3rd Jun 21, 6:45pm 1622702746

Yes. Liquidity is a pretty simple concept. People who poo-poo Bitcoin seem to find it rather hard to grasp though saying BTC has no utility. Ironically many of them also own property. Go figure.

by HouseMouse | 3rd Jun 21, 7:41pm 1622706098

Exactly!
Driving interest rates lower and lower to prop up the housing market has nearly been exhausted.
When the next financial crisis arrives, there won't be enough ammo left to save the market

by Pragmatist | 3rd Jun 21, 8:46pm 1622709980

If you stupidly over extended you'll be cooked, but with banks testing at ~6%, and wages going up with inflation I'm not worried, hell, rates have to go up ~1.5% to get back to what we're currently paying (for another month), and that wasn't a struggle, so unless rates go up 4%* in short order it's not stressing us.

*Lol, yeah right, the RBNZ isn't trying to crash the economy.

by Nzdan | 4th Jun 21, 10:44am 1622760275

If interest rates hit 15% then my mortgage payments on a 25 year schedule would be the equivalent of market rent for our house.

by Carlos67 | 5th Jun 21, 9:57am 1622843849

Exactly Nzdan but thats just another fact the those opposed to home ownership forget to factor in. By the time you retire the house is paid off but you can only imagine how high the rent will be in 25 years time, what like $3000 a week ?

by theglc | 3rd Jun 21, 1:36pm 1622684177

Or cant afford to buy where they want to live.

Lets face it in Auckand the only affordable places are on the outskirts or in less than desirable areas

by Pragmatist | 3rd Jun 21, 2:01pm 1622685718

A Herne Bay appetite on a Ranui budget is a serious problem...

by pacifica | 3rd Jun 21, 7:14pm 1622704496

Are you kidding Ranui was selling for hundreds of thousands over half a million median even four years ago. Nowadays even the smallest cities have prices over that. If you want to compare the budgets of the great many nurses, police and teachers looking to buy you would be looking closer to Dargaville or Whangarei if you are lucky. The only people with Herne Bay appetites are those with a few properties already in their portfolio and at least one or two MPs in the pocket. Most people would be happy if they worked in Auckland with a place at least within 2 hours drive of their workplace going home (4 hours if they have to rely on public transport).

by Lord Dowding | 4th Jun 21, 11:19am 1622762355

So the less desirable areas have all the FHBs and young families buying them up lifting the area and the mongrels get priced out.

Gentrification is a good thing .

by Brock Landers | 3rd Jun 21, 9:16am 1622668576

It won't take four years to play out when it happens.

The current state of affairs has all the hallmarks of a Minsky cycle.

The ruddy faced RBNZ are drunk drivers and there is a brick wall waiting out there somewhere.

It's terrifying being trapped in the passenger seat and being forced to use their shitcoin.

by theglc | 3rd Jun 21, 1:39pm 1622684369

True

A Minsky cycle is the gradual accumulation of excessive debt, which inflates asset prices. ... In its purest definition, the lead-up to a Minsky moment occurs when investors are encouraged by low interest rates to take on excessive leverage, which leads to speculative froth. This is the later stage of a Minsky cycle

by Pragmatist | 3rd Jun 21, 8:54am 1622667275

Ditto, bought late 2019, and if we refix at the lowest rate offered for the full term our mortgage payments would be $20/week less that the last rental we were in is currently advertised for (Thats up $50/week from what we rented it at in late 2017). We'll fix on a 20y term and keep payments higher. Also paper gains of ~$200k in just over a year.

by ex agent | 3rd Jun 21, 9:10am 1622668232

Emphasis on the words” paper gains.” Unless you sell. We have interesting times coming up as inflation increases and reserve banks increase interest rates off their current emergency rates.

by brisket | 3rd Jun 21, 9:51am 1622670677

But they won't raise rates. We'll all just slowly get poorer as purchasing power declines.
I'm pretty sure the RB sees that as preferable to any sudden movement. We'll realise one day that we're not a First World country anymore, but it will have been a slow process.

by nigelh | 3rd Jun 21, 12:54pm 1622681643

I always took NZ to be a 2nd world country. Not developing, not third world but a first world wannabee.

by brisket | 3rd Jun 21, 1:55pm 1622685322

I think the original definition of 2nd World was the Soviet Bloc countries, which had a mediocre but not physically hazardous standard of living... Seems appropriate really. A guaranteed baseline standard of living, but with very little prospect of improvement if you're not in the right circles.

by Pragmatist | 3rd Jun 21, 10:25am 1622672721

The paper gains are irrelevant to me, I don't intend leveraging up. The fact we have a house we own, costing us less in dead money than renting, and that amount of dead money is decreasing over time, not increasing like rent will undoubtedly do as wages increase.

by Carlos67 | 3rd Jun 21, 11:58am 1622678325

Prag your attitude seems to have changed since you bought a house, funny that because everyone's attitude changes. The only regret for anyone buying a house is that they didn't do it sooner.

by Pragmatist | 3rd Jun 21, 1:04pm 1622682244

Yep, I realised that the previous govt was never going to free up building, so no reason prices were ever going to drop significantly, and this govt hasn't done anything to change my mind. And my partner and I realised we could easily service a mortgage and found a place we liked. You have to deal with the reality, not the fantasy.

by Lord Dowding | 3rd Jun 21, 10:12am 1622671973

Yes I bought end of last year so haven’t had the gains many have had over the years before but it’s a much better house than the one we were renting and costs us $140 less a week than what our rent was.

by northman46 | 3rd Jun 21, 8:56am 1622667394

And for those who were less smart by being born after you?

by Brock Landers | 3rd Jun 21, 9:03am 1622667791

Well they shouldn't have sat on their hands on the sidelines and taking so long being born. Idiots.

by JustAnOpinion | 3rd Jun 21, 11:59am 1622678377

As for all those thickos who aren't even born yet! What a bunch of DGMs!

by Spectators | 3rd Jun 21, 9:01am 1622667671

Of course people have done well. Increased mortgage lending just means higher house prices. The problem with this is that we do so with no regard for the future. Where does it stop? When the average house cost $10m? House prices only go up if someone is willing to pay more than you did. Their ability to pay more is constrained by how much they can borrow. At some point people won't be able to borrow more than the last guy/girl (despite their eagerness to leverage more) and that is when this country will face a very real problem. So how far away are we from that point?

by HouseMouse | 3rd Jun 21, 9:26am 1622669165

Not far, I suspect although I suspect there is another little lift in the next year or so when all the high density rezoning occurs in our bigger cities.
And then all it takes is a financial crisis and the housing market is all over.

by MLSmith1 | 3rd Jun 21, 1:48pm 1622684930

Well done... simply put and the REAL ELEPHANT IN THE ROOM
Being burdened with this level of asset pricing will be a DRAG on our economy. To support the price, interest rates have to remain low or REAL OUTPUT has to increase. Considering NZ's productivity is going backwards I think we're be in a low growth (no growth) period for a long time.

by Averageman | 4th Jun 21, 9:45am 1622756709

It's already a signficant drag. Fortunately software and robotics offers a solution.

by Sluggy | 3rd Jun 21, 9:11am 1622668294

Oh Yah, its the only way to skin a cat... not. 10 years ago I sold the house and started a business. Roughly for every dollar I put in I now have 12. Also pays me and 5 staff, and I still rent. No intention of buying a house, its a fools game.

by npc | 3rd Jun 21, 11:06am 1622675176

That's a stretch. You could have both established the business and purchased a home at some point in the last 10 years. Your mortgage would likely be lower than rent.

by Sluggy | 3rd Jun 21, 12:35pm 1622680545

Whats a stretch ? Its an import business, they are very cash hungry with stock, I have a lot of stock, not many employees. 3pl for all our warehousing, contract out as much as we can.

I made a decision a few years ago to not buy. I have no debt either in the business or personally. Its actually a very freeing way to live if you do it by choice and not necessity. Instead of being house obsessed, renovations, rates ulcers, swimming pool dreams, life starts when I pay off the mortgage... no thanks..

by Independent_Observer | 3rd Jun 21, 9:25am 1622669147

Think you missed the entire point of the article

by company of heroes | 3rd Jun 21, 9:34am 1622669686

It's easy to say now when you are looking back, but we are not here looking for the advises for the past, we are looking at future. Every investment has risk, especially when you carry mountain of debts, if they can manage the risk then go for it. But if not, there are plenty other types investments they can look at. Not everyone needs to jump on the property train to make a gain. It's not supposed to be like that. If you put your money into stock for 5 years, you are still able to make some solid gains. You just need to find the right stocks. My investments in stocks has increased more than 30% since Covid happened.

by b21 | 3rd Jun 21, 10:41am 1622673660

Award winning FOMO commentator of the day. Sponsored by NZME maybe?

by Independent_Observer | 3rd Jun 21, 10:46am 1622674015

Bizarre how its an article considering the macro picture on whether we're lending in the right areas for the longer term benefit/health of the people/economy.

And the first comment turns out to be a sales pitch/FOMO/better buy now or live a life of regret comment from an insider looking to push prices higher for personal benefit.

What a sad society we've turned into...

by b21 | 3rd Jun 21, 10:55am 1622674536

Every day I am more convinced there's people on payroll who don't do this as a hobby. interest.co.nz should keep track of commentators IPs and ban those with multiple accounts. (cue to spruiker saying that not sharing my opinions not necessarily makes you an employee of the lobby).

by Independent_Observer | 3rd Jun 21, 11:21am 1622676101

Property is like bitcoin - if you own it, then its your job to ensure more and more people keep buying it so it benefits you personally.

Is it a ponzi - perhaps. But if you're in on it, you become a sales rep for it (for personal self interest).

by Carlos67 | 3rd Jun 21, 12:06pm 1622678778

Property is not like Bitcoin. Property you own a valuable asset and Bitcoin you own a USB drive. Good luck trying to live in your Bitcoin that by the way recently took a massive dive in value. Bitcoin is the ultimate Ponzi, I have the highest respect for it actually, create something out of nothing and then sell it for fiat currency.

by J.C. | 3rd Jun 21, 1:47pm 1622684850

Property you own a valuable asset and Bitcoin you own a USB drive.

You don't need a USB to own BTC. Best not to compare property with things you don't understand.

by frazz | 3rd Jun 21, 5:41pm 1622698917

So your say there will only be 24 Million houses ever built - interesting?

by Pragmatist | 3rd Jun 21, 9:39pm 1622713191

That's some good tinfoil hat material

by b21 | 4th Jun 21, 8:44am 1622753055

Sure, try to ask them directly, you'll se how they'll never reply to you just like it happened just here.

by Pragmatist | 5th Jun 21, 12:24pm 1622852692

>like it happened just here.

Yep, there is the delusional part. Tinfoil hat confirmed.

by Fluffybunny | 3rd Jun 21, 9:21pm 1622712106

Your missing the point. '

Yes many of us have taken advantage and become (relatively) wealthy in the process (myself included), but this greed distorts our perception of the big picture. In reality this is not something to pat yourself on the back about, look at me how smart I am! I played the system and now I'm rich! etc. Your all just a DGM! DGM vs BULL! RED BLUE! Tribal!

We are creating division and distinct social class based along lines of property ownership. Most real wealth allocation from here comes down not to merit, but by what family you where born into. If you are not now part of the land owning elite, its a bun fight just to even get on the ladder.

We are seeing trends of increasing hours of work required (for less family time) just to get by, with all the downstream impact this has our our quality of life and on things like decreased fertilely rates etc. Take away immigration and we are a declining population. Yay team of 5 mil!!

We continue to pour money into an industry (residential housing) that is not creating anything of real value & is only really sustained via the creation of new debt or via handouts from the government. This is money and energy that should be spent in driving the technical and social changes that we NEED to adopt over the next 60 years in order to avoid cooking ourselves to death and running out of energy in the process.

And as you congratulate yourself, sitting in your new spa pool, you miss the fact that Elon Musk, Donald Trump, and Murdoch have recently increased their wealth by how many billions??

Who's playing who mr property bull?

You may feel good, but this is not a good situation. Its a hole we keep digging due to a collectively poor social mindset & not something any of us should feel proud about.

by Theoracle | 3rd Jun 21, 10:53pm 1622717624

But I like my new spa pool.

Which I bought after the lockdown.

Along with everyone else in Aotearoa who went on a home improvement spending orgy.

I wouldn't have bought my spa if the house hadn't gone up in value.

Think I'll have a spa now.

by Antz | 3rd Jun 21, 8:24am 1622665497

Genuine question: how much of residential lending is actually (small business) lending secured against the family home? Look, I know housing has gone ballistic, but is some of the shift from business to residential lending, just the fact that a small business owner looking for a loan is going to face a choice of paying 8%-12% on a business loan which also has to be re-paid in 5 years, or securing the same loan against their home and paying 3% interest, and having 30 years to re-pay the loan. That is, is some of the shift to residential mortgages, actually for business purposes? If so, how much? A lot? Or is it trivial, with house price increases by the far the majority of the increase in residential lending? Do we have this data anywhere?

by Squishy | 3rd Jun 21, 8:31am 1622665870

Whenever a bank draws down a loan they are required to ask its purpose and make sure that it is used for it's used for that purpose. The figures are probably accurate.

by thinktank | 3rd Jun 21, 8:34am 1622666068

I've fixed a revolving facility with no questions asked several times. Could have thrown it all on black and the bank would be none the wiser.

by Antz | 3rd Jun 21, 8:35am 1622666158

But are they? If a business loan is secured against a house, is it counted as a business loan or a residential mortgage? I think it's counted as the latter (because it is a residential mortgage!). The purpose - that it was taken out to start a business rather than to actually buy a house - is irrelevant. Is this a significant proportion of so-called 'residential lending'? I don't know, hence, genuine question. Does anyone know? David??

by Squishy | 3rd Jun 21, 8:50am 1622667032

It is a requirement that banks record the purpose of a loan, not just the asset securing it, or they would be in breach of their CCCFA obligations:
https://www.legislation.govt.nz/act/public/2003/0052/latest/DLM211512.h…

by KH | 3rd Jun 21, 9:03am 1622667829

No Squishy. Listen to what folks above are saying.
And me too. I used revolving credit from house mortgages for many years as business finance. Not much because I hated debt, never more than a few hundred thou.
But the bank had no way of knowing which purpose, I could just load it up or down on the good old interweb.
Banks couldn't be meeting the rule obligation legitimately, because they had no way of knowing, and in my experience didn't care.

by Squishy | 3rd Jun 21, 9:12am 1622668376

Your bank would have had to ascertain a reason when you applied for the revolving credit facility product. Call them and ask if you don't believe me, there's no reason to languish in conjecture.

by Rex Pat | 3rd Jun 21, 9:53am 1622670824

Correct and incorrect. I have just put $300,000 on my revolving facility limit. There was a cursory question (planned non building permit renovations) but there is no monitoring. I’m exploring business ideas and will probably use the funds for that. The official records will not record it as business lending.

by Squishy | 3rd Jun 21, 10:07am 1622671633

Be careful doing that, I knew someone personally who used funds drawn down for other than for the purpose stated and her bank declined further lending subsequently. She ended up having to switch banks so she could start again with a clean sheet. It was really silly as well, she inherited some money and it paid for redecorating so she used the loan funds to pay off a credit card instead (allegedly.) Bank wouldn't have a bar of it.

Strange the lines banks will and won't cross.

by Theoracle | 3rd Jun 21, 11:05pm 1622718340

Disclosure/ confession... former broker here.

Aus banks were the best for ticking up stuff on revolving. We'd have off the record phone calls with customers, come up with a token scenario which seemed half plausible then write the deal to satisfy the lenders. Everyone did it. We all did it, customers did it, I did it... bought toys, boats, vehicles, businesses, more property, holidays, whatever all on revolving, no questions asked. Good while it lasted but banks much tougher on that sort of thing now. NZ banks esp Kiwi most painful for getting deals past the gatekeeper. Ah the good old days. Use your house as a giant ATM.

by KH | 3rd Jun 21, 3:30pm 1622691046

They may well have asked back in 1996. And in the following 20 years didn't care.
End result. The stat used in the article here is inaccurate.

by General Comment | 3rd Jun 21, 9:28am 1622669283

My wife has been asked in the past for the purpose of new lending against equity. She told them it's none of their business, and the bank didn't push it. Still gave us the money, of course.

(Note this was at least 5 years ago, YMMV)

by Squishy | 3rd Jun 21, 8:32am 1622665926

I enjoyed the article David. Banks know that Government and RBNZ will always act to support house prices, it's a moral hazard the country defacto accept. So far it's worked out pretty well for banks as successive Governments have been impotent in even slowing the market slightly.

by murray86 | 3rd Jun 21, 8:31am 1622665896

Many have commented on the risk weightings applied to the various types of loans, and I do wonder about the bank perception of risk weightings for housing loans. Clearly it is not changing (much) as evidenced through offered interest rates, yet most who express an opinion in this forum at least seem to have quite a different perspective of the risk.

Equally clearly, while at the front it is the buyers who have driven the house prices up, but this has been enabled by the banks willingness to loan into that market, apparently oblivious to the risk they were creating. I strongly suspect that if things go south, the banks have some expectation that the tax payer will bail them out to some extent.

I would have a message to the Government in that event - DO NOT bail out the banks. Bail out the people in a structured way to help the most vulnerable (depositors, business owners, FHBs ) first. If necessary let the foreign owned banks fail (do you really believe that there will be no one to step in the fill the gap?). My concern though is that the Ts & Cs of the mortgages will mean that the banks already have all the protections they need at the expense of their clients.

by Tom Joad | 3rd Jun 21, 9:00am 1622667657

The banks love lending against housing as with a 20% deposit they have a buffer against a fall while the borrower holds all the risk.

The problem comes when there is an unexpected fall of more than 20% which will take a large chunk out of the collateral backing bank's existing loan books.

What follows is forced sales, tighter credit conditions, lack of demand from buyers and panic from sellers. A reverse of everything the market has become accustomed to and a painful lesson in behavioural psychology.

I saw it in London in the early 90s and it wasnt pretty.

by Brock Landers | 3rd Jun 21, 9:18am 1622668736

A lot of people in this country haven't been exposed to very much beyond the shores of New Zealand. The vibe of the https://en.wikipedia.org/wiki/Island_mentality here is absolutely cringeworthy.

We can rest assured though, that when the time comes, those that privatised the gains will use every trick in the book to try to socialise the losses.

by Independent_Observer | 3rd Jun 21, 9:28am 1622669325

New Zealanders are immune to this type of psychological weakness (sarc)

by Lord Dowding | 3rd Jun 21, 10:18am 1622672312

Sure but look at what’s happening in London and the UK now.

I watch BBC news every night and the market is going ballistic

by KH | 3rd Jun 21, 9:05am 1622667918

Bang on comment from Murray

by Squishy | 3rd Jun 21, 10:14am 1622672046

The lesson from Ireland was that banks can be in too deep to be saved. Governments are better off letting them collapse and picking up the assets (e.g. loan books) for cents on the dollar and creating new banks to manage those assets. Trying to stop them restructuring after a property bubble is like trying to catch a falling knife.

by Ezy | 4th Jun 21, 6:48am 1622746136

You're starting to understand how people will be forced into a CBDC squishy. Welcome to the debt created surveillance state.

by Te Kooti | 3rd Jun 21, 9:19am 1622668798

It's all about the balance sheet though, YOY NZ housing debt is +$30b vs the value of housing stock +$250b

We are a lot wealthier.

by Independent_Observer | 3rd Jun 21, 10:48am 1622674098

Is that why so many people are living in motels and receiving welfare payments just to get by - because 'we're a lot wealthier'?

Or do you mean, the wealthier are a lot wealthier now? There is a difference.

by b21 | 3rd Jun 21, 10:59am 1622674780

"we"? Meaning "you"?

by Te Kooti | 3rd Jun 21, 11:49am 1622677743

I don't own all the houses b. As a nation we are wealthier, I did not say it was distributed equitably. Where is it in a socio-capitalist economy?

by b21 | 3rd Jun 21, 12:06pm 1622678802

Devil is in the details.

Houses being more expensive does not make us wealthier as a country, just the opposite.

by donny11 | 3rd Jun 21, 12:01pm 1622678464

How are we wealthier? If the exact same house goes from being worth 800k to 1.1 million over the period of a year. Hasn't the value of money fallen relative to the value of that house? Rather than the other way round. As I see it the house is still exactly the same & has the same intrinsic value over the time period. What has changed is tool you are using to measure the houses value. This tool "money" has lost value relative to the house over the time period.

by Te Kooti | 3rd Jun 21, 12:33pm 1622680405

I agree, that is a logical line of reasoning however you could apply that to most other assets as well and those that own >1 property are genuinely wealthier.

by b21 | 3rd Jun 21, 12:46pm 1622681177

Please tell us how you can be wealthier unless you sell your house unless to choose to live in a smaller house or a cheaper area.

You guys lack to understand what unrealized capital gains are, you cannot buy food or go on holidays with those.

by Te Kooti | 3rd Jun 21, 1:40pm 1622684407

You have greater equity in your house which you can access, to start a business for example. You don't need to sell the house to access it. I get your point, but you are wealthier.

If a year ago I had a choice to either buy a house or rent and invest in the stockmarket, both would have made money and you cannot argue because one is shares that's the only wealth creation.

by b21 | 3rd Jun 21, 1:53pm 1622685200

Nobody would give you a mortgage on shares equity, makes no sense they'd do the same on a different asset which is prone to devaluation.

by Te Kooti | 3rd Jun 21, 2:11pm 1622686274

The deposit went into shares b, keep up. The house was leveraged so would have made more money there.

by b21 | 3rd Jun 21, 2:44pm 1622688253

Well you obviously didn't understand.

by Fluffybunny | 3rd Jun 21, 9:35pm 1622712955

The majority of people in this country do NOT own 2+ houses.

And many of those that do do are leveraged more than 50%.

by J.C. | 3rd Jun 21, 2:12pm 1622686341

As a nation we are wealthier

Really? Lending money into existence to bid up house prices makes a nation "wealthier"?

by jim hansford | 5th Jun 21, 9:30am 1622842200

In fact we are weaker at a global strategic level than we have ever been. Anyone with designs on this country,, is secretely smiling to themselves. When the rug is pulled out from under the ponzi stack of cards they will make us an offer we are too weak to refuse. We all know who has a firm grasp on the edge of the rug.

by tim52 | 3rd Jun 21, 11:33am 1622676806

That's paper wealth. You know better than I do that our banks don't have balance sheet capacity to facilitate the liquidation of any more than a small fraction of the market cap and that's just one of the many issues.

by Te Kooti | 3rd Jun 21, 11:52am 1622677969

That's a fallacy that is trotted out now and then, it's real wealth in the way that any asset can be. There are funds out there big enough to buy all of NZ's houses and rent them back to us, not that that would ever happen.

by tim52 | 3rd Jun 21, 1:02pm 1622682163

No, some assets (e.g. businesses) have real buyers that willing and able to buy the whole lot, that's close enough to real wealth. Less than 30B of real wealth (inefficiencies) was made and that's it (you could provide subsidies and do some other things to juice it more but that makes the new lending figure higher).

This is a housing market most of the wealth from cashing out or use as collateral comes from lending. Can anyone else compete with our banks balance sheet efficiency advantage and support large scale buying without additional collateral? If they can't do it, it's not likely possible (legally or politically) from elsewhere. Bernard Hickey thinks we can service double the amount so in theory we can get eventually get that out but then we are stuck swapping mortgages and houses with no money able to extracted from the system.

by ham n eggs | 3rd Jun 21, 1:10pm 1622682612

Actually, we are simply more leveraged
The financial system has had to continually increase the leverage on all Income streams to appear solvent

But Debt is Wealth , so technically you are correct

by Ezy | 3rd Jun 21, 4:26pm 1622694409

Debt is slavery. People don't realise it, but they are selling off democracy to the highest bidder by becoming indentured servants in a debt fueled society. You only truly own something when it is debt free. Up until that point it's creditors own you. The word mortgage comes from French and Latin roots meaning "death pledge". This definition is becoming more relevant by the day. Our governments will never pay off their debts, and neither will our population. But when Fiat collapses and banks fail, defaulting their loan books to CBs, you can bet your bottom dollar governments will socialise their losses onto the debtors on those books using CBDCs pegged to a dis-inflationary asset like BTC (most probably the only true utility for a CBDC). You won't choose CBDCs, they'll choose you. God defend New Zealand, because the only thing you'll be left with is your soul as long as you haven't sold it already. Orwell would be turning in his grave.

by DaveRennie | 3rd Jun 21, 10:02am 1622671362

Interestingly many of my clients who do not wish to invest in stocks, options, etc ask what else besides property, and my honest answer is, if you don't have control, then don't touch it. At some point soon the stock market will have a large correction.
Would love to hear some suggestions from you fellow writers?

by Squishy | 3rd Jun 21, 10:24am 1622672689

Out of interest, because I face the same dilemma, what are they doing?

I've not found a satisfactory answer myself but I've taken positions in a few places that might be redoubts including water resources, farmland, aftermarket/discount automotive parts manufacturing, alcohol and tobacco.

by Ezy | 3rd Jun 21, 4:30pm 1622694641

Robert Kiyosaki is right on when he says, "Buy gold, silver, bitcoin". There's literally no other market founded in reality RN. https://twitter.com/theRealKiyosaki

by b21 | 3rd Jun 21, 10:39am 1622673578

What kind of control do they have on the housing market? Sorry but this argument does not hold since a correction is likely in both housing and stock markets.

by blobbles | 3rd Jun 21, 10:48am 1622674107

You should tell your clients that if they believe they are in control of the housing market, they are delusional.

All investments come with risk. In NZ the government and RBNZ have essentially de-risked housing for the past few years, but that won't go on forever unless they go against all of the things they claim to want to change (immigration/low productivity etc). Hang on, they are doing this, so please just ignore my comment. Oh god, they are trying to turn NZ into a basket case with no real economy...

by iconoclast | 3rd Jun 21, 12:55pm 1622681737

Here is a post from back in August 2011

The opening article was by Neville Bennet who used to be a regular article contributor
Read his article first

The link at the bottom of the comment deals indirectly with some of your questions - 2008 was the final stages of the blow-off - 2011 was the mid-point of the GFC

https://www.interest.co.nz/opinion/55061/opinion-beware-investing-share…

by JustAnOpinion | 3rd Jun 21, 3:47pm 1622692029

Yes it is an interesting challenge. Shares - overvalued (P2E ratio hehehe), housing - very overvalued but at least the RB is on the home team - Cash - lol.

Basically there is an un-hedge-able level of risk in every asset class. Perhaps that means specialist investing, FX, Futures, Crypto etc is not as risky as old models would assume?

by b21 | 3rd Jun 21, 10:34am 1622673298

Proof enough that we cannot let private banks alone be responsible for lending. They have always done and will do whatever brings them the highest returns regardless of our common interest as a country.

by Bobby Cricket | 3rd Jun 21, 12:58pm 1622681919

Lending on property brings banks the highest returns because of RBNZ regulations. The RBNZ requires a bank to hold more capital for most forms of business lending compared with home mortgage lending. So the government could add more controls around bank lending and distort some other part of the system in doing so, or it could look at the root cause and question whether NZ really needs the highest capital requirements in the world to sit behind business lending.

by stuart786786 | 3rd Jun 21, 10:59am 1622674752

Banks are supporting and promoting what Government and RBNZ wants and also know that is risk free as in NZ, message by Jacinda and Orr is clear come what may, we will never allow house price to fall and is also followed by their action or inaction.

Perception and is also a reality that for safe and fast money best is to be involved with real estate sector than any other business and Bank is doing what any sensible business will do.

by J.C. | 3rd Jun 21, 2:17pm 1622686661

Bank is doing what any sensible business will do.

No business could do what a bank does. They'd be locked up in jail if they even tried.

by stuart786786 | 3rd Jun 21, 4:40pm 1622695226

If anyone to be blamed, it is government and RBNZ as everything is happening as planned by them.

by ham n eggs | 3rd Jun 21, 1:06pm 1622682418

3 words ... Population Ponzi scheme

by JustAnOpinion | 3rd Jun 21, 3:12pm 1622689923

Texas has grown by almost 4 million people in the last 10 years. (https://www2.census.gov/programs-surveys/popest/tables/2010-2019/state/…)

NZ is only about 2.5 times smaller than Texas. (https://www.mylifeelsewhere.com/country-size-comparison/new-zealand/tex…)

"The typical home value of homes in Texas is $235,834. This value is seasonally adjusted and only includes the middle price tier of homes. Texas home values have gone up 10.7% over the past year" (https://www.zillow.com/tx/home-values/)

It's not population, or at least not just population.

by RCD | 3rd Jun 21, 4:12pm 1622693568

No, its about life.
No free healthcare, no free education, surrounded by Americans, and likely to be shot at any time (600 random mass shootings a year in the US, thats 2 a day, do you feel lucky...?)

by jboss | 6th Jun 21, 8:44am 1622925885

You missed a few. Other things that are different in the US:
o True 30/20/10 year mortgages which provide security against interest rate rises while still providing an avenue to refinance when rates go down.
o True competition in the realestate agent game: An MLS system, buyers's brokers, etc. No ridiculous "tender" process that can be actively gamed by agents.
o DTI restrictions at most banks. When I received my first home loan, my DTI could not be above 3.
o Private Mortgage Insurance (PMI) if your deposit is less than 20% (insurance against defaults)
o Most banks requiring independent appraisals and inspections of the properties as part of the mortgage approval process.
o Proof of income stream. You can't leverage "the paper value" of your existing investments to the extent you can in NZ. You need actual income.

by kiwiana02 | 3rd Jun 21, 2:56pm 1622689002

A graph would be helpful - as the saying goes a picture is worth a thousand words...

by CWBW | 3rd Jun 21, 3:11pm 1622689867

Look on the bright side, NZ is among the top 7% in the world in terms of human development.

Well done Helen Clarke!

Conceição, P. ed., (2020). Human Development Report 2020 - The next frontier - Human development and the Anthropocene. [online] United Nations Development Programme - Human Development Reports, 1 UN Plaza, New York, NY 10017 USA: Human Development Report 2020 - The next frontier - Human development and the Anthropocene, pp.241–244. Available at: http://hdr.undp.org/en/2020-report [Accessed 3 Jun. 2021].

by JustAnOpinion | 3rd Jun 21, 3:40pm 1622691623

Not so sure Aunty Helen gets the credit, but good news all the same. Not a huge fan of UN statistics but the HDI does measure progress (or lack thereof) along a western set of values.

by kiwi_overseas | 3rd Jun 21, 4:11pm 1622693511

1) Real house (LAND) prices in NZ have been rising since the 1980's.

2) Factors:
a) too higher an immigration rate
b) falling interest rates over that period pushing up asset prices
c) introduction of the RMA (as another town & country planning act) with inelastic land use rules planners don't have to bear the costs of
d) recourse mortgages - these should be banned & would level the playing field with business loans
e) tax rules - free capital gains on housing (land)

All except b) are self inflicted.

Until the financial incentives are changed politicians will continue to make policy & decisions which aren't in the best interests of all New Zealanders.

Politicians need to be paid on the net improvements in wellbeing per capita they produce not a salary topped up with donations & swayed by lobbists.

by SocialCredit | 4th Jun 21, 10:34am 1622759670

Billions - created out of thin air by the banks - on which we're all paying rent (interest). But....but....but...don't banks lend their deposits? No they don't! https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/20…
Notice how they're all declaring record profits - despite most businesses doing it tough.

by NWP Willemse | 4th Jun 21, 8:36pm 1622795809

You are kidding me right??? Banks for the last 40 + years have always favored housing (pref) or Commercial /Industrial buildings ETC. They have never been pro-business unless the business is or was so big that they were onto a winner. As a small business person in this country the Banks have always stayed clear away from business contrary to what the government was dreaming about. Then to top that off, they have done nothing but whine and complain that "New Zealand" has an unhealthy obsession with property, (housing wearing the brunt of course)

by jboss | 6th Jun 21, 8:28am 1622924930

Lots of comments blaming the current government in relation to housing prices. I think it's time for a review on the actions Labour has tried to tackle the issue. 1) Changed the law on foreign ownership 2) Closed the tax loophole that benefits property speculators 3) Extended the bright line test. When the Nat's were in power, they pretty much had their collective heads in the sand while repeating "Nothing to see hear". And then there is the RBNZ who hit the gas peddle on house prices during the Covid crisis by removing the LVR so that speculators could jump back in and leverage up. Some may say this was an unintended consequence, but the fact that the biggest move the RBNZ came up with during Covid portends just how precarious our house of cards economy is. So yes, while I am disappointed that CGT and other blunt measures weren't part of Labour's housing plan, I think the dynamics of the housing market are complex and will take time to sort thru.... and at least they are trying. There is no magic bullet here. And, the one change that we can all make is to stop viewing a house as a retirement plan and start viewing it as a place to live.