'Just load up the young with debt'

Bernard Hickey says when houses can only be passed from one generation to the next with the help of obscenely high debt levels, we have a problem

16th Jun 13, 9:02am by Bernard Hickey

By Bernard Hickey

How will the generations born in New Zealand after 1980 afford to buy their first home?

This is the crucial question for the baby-boomer generation currently running the country.

It is the question central to the economic challenge facing the Reserve Bank and the government.

It is also a question that dominates New Zealand's social outlook.

The answer will decide how many of those New Zealanders born here will stay here and start their own families.

The answer will also be an epitaph for a generation who benefited from what now looks likely to be a tripling of house prices between 2000 and 2020.

Prime Minister John Key gave his answer loud and clear this week: load them up with debt and hope that very fast wages growth and low interest rates allow the young and indebted to dig their way out over the next 20 years.

The spotlight fell on this problem in an interesting way this week. The Reserve Bank reiterated its plans for 'speed limits' on growth of high loan to value ratio loans. This is one of its so-called 'macro-prudential tools' designed to allow the central bank to slow down Auckland's housing market without putting up interest rates for everyone.

Reserve Bank Governor Graeme Wheeler said he hasn't finalised these speed limits yet, but was clear it would apply to both first home buyers and rental property investors because first home buyers make up almost a third of the growth in new home loans.

This issue has John Key's political spidey senses tingling.

He knows it's not a good look to take away some of the rungs from the increasingly steep ladder to home ownership for many young home buyers. He said as much this week when he said he was pushing the Reserve Bank to give first home buyers some sort of exemption or special treatment from these speed limits.

This is the crux of the matter.

How does one generation get to sell their houses to the next generation at the very toppest of top dollars when that new generation can't leverage up?

Mr Key sees low interest rate debt as the solution to a older generation's desire to keep house prices at over-valued levels.

The irony is painful.

His government has staked its reputation on reducing government debt to keep interest rates low, but his solution to over-valued housing is increasing the debt for young home buyers. So debt is bad for the government but good for young home buyers?

Young New Zealanders are often already heavily in student debt, are on low post-tax incomes. The only way they can afford to buy a first home in the big cities is by gearing up to their eyeballs.

Taking away that ability for the young to leverage up breaks the model and exposes the problem New Zealand and much of the developed world faces.

When assets can only be passed from one generation to the next with the help of obscenely high debt levels then the question needs to be asked: are those assets over-valued.

The Reserve Bank certainly thinks so and that's why it is bringing in the speed limits.

John Key's opposition to applying these speed limits consistently betrays his unconscious purpose: to protect and growth the wealth of his fellow baby-boomers at the expense of those to follow.

It's not deliberate. He genuinely believes and is betting high growth forever and low interest rates forever will solve the problem.

That's a big bet and only one generation will pay the price if it doesn't come off: the young.

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This article was first published in the Herald on Sunday. It is used here with permission.

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73 Comments

by Donker | 16th Jun 13, 9:34am 1371332077

As a young person, I gave up the dream of home ownership in the current climate. It's actually not that bigger of a deal, its a myth of a false sense of security in owning a house....it's just a bit of timber on some soil in reality and I think people have associated too much with material items. I am not in denail, just living in reality of the current times.....I accepted reality and now the coffee tastes better

by Kate | 16th Jun 13, 11:06am 1371337564

One thought I had on this lately was that those folks we knew who were renting at the time of the CHCH earthquake were the lucky ones. They could up sticks and leave - and all we knew who were in that envious situation did just that.

by speckles | 16th Jun 13, 12:27pm 1371342422

Some lucky some not so much, interesting the numbers returning especially from Australia to Chch greatly out of pocket from when they left.

80% the people here will have more equity on paper in property than pre-EQ so go figure.

Mental health is important thou...

The key problem with renting is that not many rentals are stable because of landlord changes, one moment selling next renting to family members etc. For those on low disposable income the cost of shifting is immense and the disruption.

The key probem with renting long term is if someone can establsh financial assets to pay for a property when they retire or continue to pay rent when the cease to work to earning an income.

by speckles | 16th Jun 13, 12:38pm 1371343130

edited as double post,

BH where are the young actually going to go in the world, find work, a community they can intergrate into and secure affordable housing? I think they have little choice at the minute.

The landlords have a captive market.

by PhilBest | 16th Jun 13, 6:40pm 1371364818

Speckles,

Get a Demographia Housing Affordability Report, find cities in the USA with a house price median multiple of around 3, get on Real Estate sites for those cities, and start spewing about what our young are being defrauded out of.

This is purely random: Indianapolis properties between $80,000 and $300,000:

http://www.realtor.com/realestateandhomes-search/Indianapolis_IN/price-80000-300000/sby-1

Knock yourself out.

There are dozens of other US cities this affordable. Some of them are growing at a phenomenal rate. Most of them could fairly be said to be the strongest local economies in the world right now, too. There is a correlation between housing affordability and economic success.

I must pre-empt smart-arses dragging up Detroit and the rust belt - of course these are super affordable, they are just about giving decent houses away. But as I repeatedly point out: Liverpool is an economic disaster too, yet its houses are about eight times the price of Detroit's, for houses about one third the size on averagem and of greater age and lower quality. This is because of "planning" in Liverpool. Also because of "planning", Liverpool will never recover, wheras Detroit definitely will.

by speckles | 16th Jun 13, 7:21pm 1371367289

I know the US well having business there, the point you miss is the average kiwi can nort get a green card to work and stay there.

by PhilBest | 16th Jun 13, 8:54pm 1371372880

Correct, more's the pity.

There are longer-term ways besides the Green Card - you can apply for a work permit, then apply for renewal of it, then apply for citizenship after a few years. If you're a productive, tax-paying person you have a good chance of being allowed to stay.

But the point in getting as many Kiwis as possible to look at RE sites like those, is to show what can be done with housing affordability. We could at least learn something from the policy approach over there that has those outcomes.

by Kakapo | 17th Jun 13, 7:42am 1371411765

Phil,

Did you see the reports in the Guardian a few weeks ago about the large areas in Liverpool which were cleared of occupants years ago, in anticipation of some kind of building plan that fell over and never happened? They were forced to leave, and now there are streets and streets of boarded-up brick terrace houses and shops. I had a cruise around using Google Maps, and it was literally a whole neighbourhood - easily hundreds, and possibly thousands of houses. Last I heard there were schemes to put them on eBay for 1 pound each.

by speckles | 16th Jun 13, 12:30pm 1371342633

Well put, people adapt regardless...on the other end of the property market it is common for money to be left in (vendor finance) in the international cities of London and NYC on multimillion dollar properties. There are many ways to help out the next generation and maintain high property prices...

by Kate | 16th Jun 13, 1:30pm 1371346230

Vendor finance was really common/popular here back in the 80s, early 90s.

by Wolly | 16th Jun 13, 11:16am 1371338208

Agreed..but this public tiff between Key and Wheeler is so much humbug..fodder for the media circus...

The two of them are counting on a rise in the cost of debt worldwide..that will force banks here to raise all rates, deposit and credit....and will leave both Wheeler and the Beehive puppets in a position to claim..."don't blame me"

Peasants must stay awake and keep a weather eye out for the first bank collapse and the OBR theft of savings.

by Brendon | 16th Jun 13, 11:21am 1371338514

Not owning a Home for the childless is ok. But once you have children and you are committed to day care/ schools etc. And you might need to alter your house to make it warm and safe for young children. These sort of things are hard to do in rental accomadation.

One Christchurch family in rental accomadation I was talking to has frost on the inside of their windows. When they asked their landlord to install a heatpump. He just replied 'will that help?' and then left.

by Don m | 16th Jun 13, 11:28am 1371338932

I herd that a lot of rental properties in CHCH are for short term rentals while houses are getting repaired..Whith insurace co,s paying about $200+ A DAY!!! for rentals..

Good o..im glad the rest of us can help....

by speckles | 16th Jun 13, 12:19pm 1371341945

We are happy with the hotel rates down here as well, glad you can assist :-)

by Don m | 16th Jun 13, 11:24am 1371338697

.."Young New Zealanders are often already heavily in student debt, are on low post-tax incomes. The only way they can afford to buy a first home in the big cities is by gearing up to their eyeballs.".. ok by that you mean Auckland? so here is an idea DONT live in Auckland..Plenty of cheap houses in the provinces..move there and get a job or start up your own business.Do you Aucklanders realise that the rest of us just laugh when we see news items on how expensive Auk house prices have becomme ..or you traffic issues/expensive rail ideas..the only time we take notice is when you play the"biggest city" card and want us to help pay for it.Guess what if Auckland fell off the map we would survive just fine.You produce very little and consume a great deal

by Stephen Hulme | 16th Jun 13, 11:58am 1371340721

Interesting anectdotal evidence points to part time student work opportunities offering better returns - has that carried through to post graduate full time employment? Read more

Student jobs aren't what they used to be.

Dean Jervis, chief executive of the Government-funded Student Job Search service, said students were earning far less three years ago when he joined the service.

The nature of the jobs they were being contracted for had also changed.

Jervis, whose previous corporate experience was at Air New Zealand and New Zealand Post, said three years ago SJS was placing roughly 26,000 students per year in temporary jobs, and together they were earning around $48 million.

Today, the annual number of placements was still around 26,000, but the students were pulling in $70m.

by south paw | 16th Jun 13, 1:22pm 1371345771

Are they taking on more hours to make ends meet? Leading to a drop in academic performance.

by south paw | 16th Jun 13, 1:30pm 1371346230

"in the provinces..move there and get a job or start up your own business"

But there are no jobs there - except dead end, low pay, death traps like Forestry.

Business doing what for whom? There is no one there!

"Do you Aucklanders realise that the rest of us just laugh when we..."

Do you lot south of the Bombay Hills realise we just laugh when one of you spouts off the usual parochial, insulated, small town closed mindedness you're always so eager to demonstrate?

by Don m | 16th Jun 13, 9:06pm 1371373600

if Auckland is so great and has all you need then.......why on every long weekend is there gridlock form from everyone trying to leave?

by Stephen Hulme | 16th Jun 13, 12:23pm 1371342198

Bernard, last night my my wife was reading through her recently deceased Mother's letters from her prior deceased Husband.

They were discussing the financing details of my wife's deceased uncle's house purchase arrangements, in Walthamstow, London, compared to their own in Formby, near Liverpool.

A clear decription of the uncle's house purchase, in 1951, confirms he put up a Stg 125.00 deposit to secure borrowings to purchase a property valued at Stg 2500.00. An LVR of 95%.

It would seem indebting the young for the purpose of buying property is endemic and is not a practice restricted to the current cohort of elderly owners seeking a sale.

by south paw | 16th Jun 13, 1:34pm 1371346456

But what was the house price to income ratio back then - as crazy as 6 or 7:1?

by Stephen Hulme | 16th Jun 13, 3:09pm 1371352170

Not sure for all properties - but page 7 out of 29 in this PDF doc claims:

In 1950 the average UK weekly salary was stg 7.28.

by iconoclast | 16th Jun 13, 6:01pm 1371362518

Weekly salary stg £7.28 = GROSS annual salary stg £378

Price of house £2500 is 6.59 times annual income

by PhilBest | 16th Jun 13, 6:55pm 1371365726

That's for ONE income earner, note. We are talking today about "household income" and "median" multiples.

Plus, the UK has almost always been the worst example in the first world, for housing affordability. They passed the Town and Country Planning Act in 1947 and it was all downhill from there.

by PhilBest | 16th Jun 13, 8:57pm 1371373028

I like it..... three income households - Mum Dad and WFF....

Could be a bit more of "5 income households" coming up too; mum, dad, and three earning adult children who can't afford to move out........

by iconoclast | 16th Jun 13, 10:03pm 1371376998

love your grandiloquent sweeping language .. implying in today's society ALL households have or comprise more than one income-earner .. simple .. clever ..

by Justice | 16th Jun 13, 12:40pm 1371343235

Unfortunately yet again the 'elephant in the room' is ignored in this article and virtually all articles on this subject by just about everyone.

Q: how does our global monetary system work?

Q: what does that system rely on to exist?

Bernard, this problem has not changed since the invention and implementation of that system.......primarily since Dec 23rd 1913 after the formation of the US Federal Reserve and Act.

When Perpetual Debt='Growth' and actual citizens are classed as nothing more 'economically' than "consumers".............don't expect any real change in the status quo from generation to generation until..............the inevitable collapse occurs of this debt funded ponzi scheme

by PhilBest | 16th Jun 13, 6:57pm 1371365878

How do you explain decades of stable affordable house prices in the USA following WW2, and so many cities never losing this stability and affordability even right through to today?

And in fact in much of the western world, this stability and affordability was typical. This was also accompanied by some of the strongest economic growth in history. Even in France, this period is referred to as "Le Trentes Gloireuses".

by Justice | 16th Jun 13, 7:24pm 1371367456

How you explain you total fabrication and economic assumption of such a state?

What is the current Federal Debt of the US?

Why was Fannie Mae and Freddie Mac created?

Who came out an economic winner after WW2 as a nation even though they remained on the fence right up to the day Europe was on it's knees and the UK essentially bankrupt?

Which country controls the Global Reserve currency, the IMF and World bank?

Which country has no debt ceiling of any kind being enforced by any other nation?

What was the value of the USD in 1950 and what amount of good & services would it buy you compared to today?

Please Phil, do not even try talking to me until you atleast have a minimum of real economic clue.

Deny the ponzi scheme all you like......It won't change the inevitable demise of it once the masses realize the jig, con, game, is up. They can QE as much as they like...........it won't save them from themselves

by PhilBest | 16th Jun 13, 9:20pm 1371374417

I understand what you are saying, and quite accept the validity of your points. But it is you who does not understand what I am saying.

In fact you insult me by telling me I am fabricating what I said.

I will credit you with being intelligent and knowledgeable (about what you do know) and ask you to bear with a little more explanation about what I know that you obviously don't.

1929 was the last time for decades that urban land prices were a significant part of the economic boom-bust cycle in the USA and most developed economies. They always had been prior to that, too. The economic cycle of boom-bust tended to leave out urban land, for some decades after the 1930's; and everyone got casual about how easily bubbles and busts in the share market could be shrugged off by the economy.

Now that urban land prices are back with a vengeance as part of the boom-bust cycle, expect similar severity to the aftermath of 1929. Spain and Ireland are certainly proof. The USA is not so severely affected because it did have dozens of cities and States that were not affected.

The reason for this, and the reason for urban land escaping the bubble-bust cycle for so many decades after the 1930's, was high elasticity of supply of housing and land for it, due to automobile based development.

I was very encouraged recently, to have evidently succeeded in convincing none other than the great Ed Glaeser with this argument; he has come around to this way of thinking:

http://www.macrobusiness.com.au/2013/05/ignoring-the-land-price-gorilla/#comment-248361

And more very helpful confirmation comes from a Prof. Nicholas Crafts of the University of Warwick:

http://www.macrobusiness.com.au/2013/05/ignoring-the-land-price-gorilla/#comment-248360

He points out that the UK actually had a brief phenomenon of development of affordable housing in the 1930's; which was curtailed for all time by the Town and Country Planning Act of 1947.

You can also look at the Demographia reports to see that dozens of US cities still have stable house price median multiples at around three. So could any cities in any other parts of the world if they had the same elasticity of urban land supply. There is no inherent reason that housing needs to bubble in price, any more than cars and TV's bubble in price when there are monetary and credit shenanigans. If supply of housing is as elastic as that of cars and TV's, the price will remain just as stable. In fact in these supply-elastic markets, "consumer surplus" in housing steadily increases as households "bank" the gains in the form of larger sizes, higher quality, and more features, rather than spending less than 3X household incomes. The opposite applies in the growth-contained cities; households try to scrape by with whatever they can get for 6X to 10X household incomes: this indicates the prices include "monopoly rent", which is kind of the opposite phenomenon to "consumer surplus".

You seem to be quite well informed on the disgraceful racket by global elites to rip off the ordinary citizen: I agree with you about this. I am now trying to broaden your knowledge to include the role of urban planning fads in increasing the returns to the racketeers in recent years.

by Basel Brush III | 16th Jun 13, 1:02pm 1371344562

Gen Y have the ability to use their collective political clout to alter the status quo.

but they will never get themselves organised enough to block vote for their own salvation.

by PhilBest | 16th Jun 13, 7:00pm 1371366003

If they get sufficiently informed, that might change. There are interesting moves afoot in politics now. Once some young people wake up, the Twitterverse and Facebook and so on does wonders.

by 28_29 yr old | 16th Jun 13, 1:13pm 1371345234

If you are dumb enough to want to buy your 1st home in Mt Eden then don't whine about it

by south paw | 16th Jun 13, 1:38pm 1371346726

There is no cheap property left in Auckland - unless you mean the ones used by the previous tenants as a P Lab, or situated in the same street as the local branch of the Neo Nazi Skin Heads or Mongrel Mob.

by 28_29 yr old | 16th Jun 13, 1:58pm 1371347922

Ok I will bite. Give me your budget and I will find you one ;)

I wont be able to look for you tomorrow as I'm out buying another rental (ps it isn't in Mt Eden)

by JayKeyes | 16th Jun 13, 2:27pm 1371349652

If you are willing to go outside the inner 'berbs you can find quailty housing under 400k.

by Matt in Auck | 16th Jun 13, 4:59pm 1371358793

LOL! Where? Examples please

by PhilBest | 16th Jun 13, 7:10pm 1371366631

In a genuinely affordable city, you could find quality housing under 400k in the inner burbs, and much cheaper quality housing further out.

http://www.realtor.com/realestateandhomes-search/Indianapolis_IN/price-80000-300000/sby-1

http://www.trulia.com/for_sale/Philadelphia,PA/100000-350000_price/

http://www.realtor.com/realestateandhomes-search/Salt-Lake-City_UT/price-80000-300000/sby-1

Dozens more cities in the USA like those......

by KH | 16th Jun 13, 3:06pm 1371351964

We have a problem with high prices of houses. Full stop. Put it as income / price ratio if you want. But it's not just the young who are screwed. Midddle aged people are paying mortgages as well. 50 years old and every bit of spare cash disappearing to the bank.

There is a great big sucker machine taking cash out of everybodies pockets off away overseas to those who have saved and got capital.

Everybody but everybody would benefit by an income / price ratio of less than three.

by Basel Brush III | 16th Jun 13, 5:33pm 1371360788

You ARE THE problem!

As I see it, that is 12 owner-occupiers unsatisfied.

by tosca | 16th Jun 13, 3:39pm 1371353970

I cannot see what the problem is? Everybody dies sometime and dead people have an extremely difficult time living in houses and paying rates. The NZ population is aging at a good clip so in time there will be many more houses than people and the prices will fall.

What will happen is that people and governments will do things at exactly the wrong time and make things worse. If you want to buy a house, do the research needed to understand the demographics of your housing area of interest and buy at the right timel. Now may not be a good time, maybe next year will be a lot better.

by Grant A | 16th Jun 13, 9:32pm 1371375151

Hugh - truly with respect, whilst acknowledging your knowledge of the property market, comments about Key's "banker mates" clearly shows you don't know the man other than superficial if that, and does question what else you say. ..I'm normally a very interested reader of what you write, but this does you no credit. Sure express your opinions, disagree or even get stuck into him on things that are knowns, but personal character assassination based on no facts defeats the good stuff you put up.

by Stephen L | 16th Jun 13, 6:34pm 1371364487

Rather than a generational battle, current settings could arguably better be described as a conflict between the wealthy and non wealthy; or property/finance/government vs trading/productive industries; or foreign capital interests vs domestic wealth growing interests; or the highly leveraged vs savers. (In each case, for those not following things closely, the current winners are mentioned first and are in italics).

Am not really sure that rising property prices help mortgage free baby boomers, while those boomers who don't own a house are in deepish poo. Those who have bought with a large mortgage in the early 2000s must be laughing, and fair enough.

Wheeler, I suspect, would like to balance things back towards New Zealanders growing their own incomes and wealth, preferably on the back of improved trading enterprises; albeit with reduced foreign debt driven consumption. Even Bill English used to talk of this sort of rebalancing, (although am not certain he understoood what might bring it about) but has largely given that up.

Key's motivations are less clear; he is either captured by foreign capital interests, or he is betting that foreign debt driven property appreciation and building will get him through the next election.

Because the current settings are not sustainable, they will not be sustained. Will the eventual get out be high inflation, property and asset collapses, or a twenty year drift like Japan? Best at least to not make things worse now, and slow down the foreign capital coming in that seems clear to me to be the underlying cause of all of the above imbalances. Wheeler seems keen to do just that. Key, not so much.

by PhilBest | 16th Jun 13, 7:16pm 1371367005

You are onto it, mate.

.......property/finance/government vs trading/productive industries......

And their workforces.

The latter are what create wealth; the former merely get to transfer it to themselves and call it "wealth creation".

This racket has been going on in the UK for decades and their economy is close to completely destroyed now because of it. The only thing keeping it going, is the fact that the economy of London takes in massive fee income from global capital flows.

Guess why the Poms are the world's strongest opponents of Tobin taxes?

by SimonP | 16th Jun 13, 8:12pm 1371370365

I just watched the Sunday documentary on Auckland house prices. Irrational exuberance everywhere, David Whitburn was the worst. It will end in tears.

by south paw | 16th Jun 13, 11:46pm 1371383169

Watched that TV1 Sunday, On Demand version.

I saw RED watching the decent young white kiwi couple and their chances of a family home being smashed down by the grinning Asians in the auction bidding.

Then the 21 year old Chinese "student" who buys $5 million+ freehold property.

Where does a "student" get that money? Smuggling P ingredients or is daddy a Communist Party "money for favours" apparatchik.

Why is an "international student" allowed to buy up Kiwi property?

Slam the gates shut, cancel all their visas and send them back to their 3rd World dictatorships.

I never would have believed it but I'm voting Winnie/ NZ First next time and I hope lots of other Kiwis see the light too, and he gets enough votes to be a MAJOR headache to either the Blue Rich Jerks or Red Radical Feminist Marxists 2015 government.

by iconoclast | 17th Jun 13, 10:33am 1371422009

I've been warning you of this for 3 years. Now the students are buying $5 million houses. Now you are seeing it first hand. It didnt just start yesterday. Wake up.

Iconoclast 13 September 2010

There's evidence of 20+ year old overseas students successfully outbidding and obtaining $2 million properties in affluent suburbs. Further evidence has been reported of groups of these properties being purchased and remaining unoccupied. What raises questions is when more than handful of these expensive houses remain unoccupied simultaneously in one street. That should be an alert.

http://www.interest.co.nz/news/50660/90-seconds-9am-bnz-earthquake-legislation-new-basel-rules-hanover-allied-farmers-legal-challenge#comment-577138

by speckles | 17th Jun 13, 10:42am 1371422538

It has been going on for way too long however self interest or client confidentially precludes people from commenting.

Recently people are trying to play it down, not just here but it has accelerated or been more overt in the past 12-18 months. China is looking sick from a recent trip and I expect the QE will restart in the US post summer, the Fed is trying to see if it can wean the US economy off it stimulus over summer..however the headline stats are not going to be good as they expect over summer...looking at what is happening on the ground in the big economic states like California.

Although property is looking good....for now. A lot of people internationally cashing up out of Rio and the US now..plenty of asian buyers still everywhere....

by south paw | 17th Jun 13, 1:58pm 1371434293

There was an article in the local rag about a Malaysian or Indonesian kid who went to Takapuna College followed by a Commece Degree at Auckland, then he in his own words "mucked around" before dabbling in real estate.

Suddenly he has stitched up a $70 million commercial property deal in central Takapuna plus bought the 2 level penthouse in that tallest apartment tower there in Takapuna for multiple millions.

Where did he get the financing? Is Daddy a corrupt politician or army general back home?

Cancel their visas, confiscate their assets, send them back to their corrupt 3rd World hell holes.

by bob | 17th Jun 13, 2:17pm 1371435431

Neither. Sells a product - lots of it. That's all.

by Belle | 17th Jun 13, 2:32pm 1371436346

Mind altering?

by south paw | 17th Jun 13, 2:41pm 1371436918

Who are you kidding?

"mucked around" then dabbled with real estate, in a few years making those kinds of deals.

The kid is a front.

Why are you so keen to bury it bob?

by bob | 18th Jun 13, 3:14pm 1371525251

Bury what? You're speculating about people you don't even know.

You asked the question "Where did he get the financing? Is Daddy a corrupt politician or army general back home?"

Answer is neither. The family sells agricultural products. That's where the money comes from. Not environmentally friendly (or mind-altering) products - but completely legal.

by Stephen Hulme | 17th Jun 13, 8:27am 1371414477

The off- shore speculators will lose interest very fast … and spare us the political torment of giving Winston Peters political oxygen. Sadly, Prime Minister John Key is playing right in to Winston Peters hands at the moment, by persisting in dithering . It is unbelievable.

Hugh, you are inflaming me and similar supporters of Winston Peters . He is a legitimate politician who exercised professional duty and care in past cabinet roles.

I consider my self a responsible person running a well thought out existence that restricts my speculative activity within arenas that do not impact those wishing to buy homes or any other domestic pastime and will vote for Winston again and again if the opportunity arises.

by Roger Witherspoon | 17th Jun 13, 8:56am 1371416206

Methinks the flood tide is peaking. Meaning, the flood of freshly created money from China has reached the most absolute outer limits of the Chinese diaspora, the nether regions of Auckland down under.

All is not well, and flood tides recede at great speed.

http://www.telegraph.co.uk/finance/china-business/10123507/Fitch-says-C…

by powerdownkiwi | 17th Jun 13, 9:33am 1371418404

Roger Witherspoon - there we agree entirely, as do others here. But there is a variable that is different this time, a crucial one.

I spent all day yesterday, with Nicole Foss. It was a symposium/forum - good long talk with her at lunch, probably the sharpest, fastest intellectual grasp of the bubble, the size of the bubble, and where it will end.

Her graphs of Tulip and South Seas and '29 bubbles, with the credit-extension ramp post 1970 then overlaid, are too credible to be challenged. Every one drops like a stone, and settles somewhat below where the original y/x2 curve started to climb out.

But - tulips weren't driven, or reliant on, an ever-depleting, ever-reducing-in-quality, energy-source. You could start back into tulips, with exactly the same parameters as before you started. We can't. The underwrite is depleted.

Which means Hickey sort of gets it right, and that the HP/PB/DS crowd get one side of the equation right, but - despite persistent prodding - they refuse to contemplate that the other side of the equals-sign is also a variable, which puts us into Boolian Algebra territory.

1970's housing values - if she's got it right - are where we end up; but that makes no allowance for increased space-scarcity (wait for the yowling!) , finite resource (materials) depletion, and finite energy depletion - nor of descending EROEI. It tells us that credit will be a thing of the past, but not what happens to those left holding prior debt.

by iconoclast | 17th Jun 13, 10:07am 1371420438

Small correction. Boole's the name. George Boole. Boolean algebra

by powerdownkiwi | 17th Jun 13, 10:35am 1371422112

Chuckle. I was just reading that 'Smoke and Mirrors' fellow as you wrote that - how is it that entirely smart folk - Sir Peter Gluckman is another in the Cudby camp - who don't query what underwrites money?.

Just what it is they think all that extra money represents, I'm not sure. Something other than processed bits of the planet, obviously. Cudby also falls at the post with the assumption that efficiences can outpace depletion and demand. Seems not to understand cherry-picking and falling EROEI. Also - and he's not alone in this - introduces ideology/emotion to the 'debate'. Sure sign of potential blind-siding.

Go well Icono. I'm off to check my re-vamped water-intake aprez le deluge. See if I can find Father Berkenkopf downstream.....

by PhilBest | 17th Jun 13, 11:14am 1371424480

All that intelligent-sounding stuff ignores one crucial issue.

Outcomes are significantly different in urban land prices, if there is a regulatory growth boundary or not.

Even if what you are saying, is correct in the long term, you stand to be judged on your position on a morally repugnant racket meanwhile. This racket is worse than irrelevant to your long term concerns. It makes things worse, not better, even by your standards of concern.

You are so intellectually and morally incoherent on this point, that it is impossible to regard you as sincere. You live on a lifestyle block yourself, like Len Brown, yet you support urban growth containment and forcing people to live in apartments at obscene rental costs that are greater than what family houses should cost.

You claim that there is a coming "post energy" future that you proudly describe how you are going to survive it on your lifestyle block. So presumably you want everyone else in apartments rather than on quarter-acres, so they will die off? NIIIIICE. I hope followers of this forum remember this about you every time you comment.

But you never tell us about your armoury of sophisticated weapons and your stockpiles of ammo, that will be required to defend your block from the starving hordes from the city.

You try to make it appear that you (bloodymindedly) don't understand that zoning causes massive distortions in land values - according to you the massive distortions are merely manifestations of the looming shortage of resources - yet you still manage to claim offense when someone suggests that you have your beady eye on the potential gains from a rezoning up the Kilmog.........

You're all over the place, mate.

by powerdownkiwi | 17th Jun 13, 11:43am 1371426193

Try listening, and without prejudice. Hard, I know, but just try.

For folk who see what is coming - and I think you actually do see what is coming - there is a 'tragedy of the commons' problem. The presentation immediately after Nicole Foss, yesterday, was from a young scientist/engineer US couple, who chose NZ as the place to be.

Individually, they (nor I) can change the world. They (and I, and ho knows, Len Brown?) can choose to opt out, and can choose to do so legally, illegally, or somewhere inbetween. (The problem is that it is what you're opting-out of that makes the rules, and of course, they won't fit.

Our block was started as a multi-owner carbon-sink, not for money (which is the problem) but to do something real, about the real problem. The previous owner had the same goals, so since '88 that's what it's been about. We shifted onto it, knowing that the next global 'doubling-time' couldn't happen, and that therefore Dunedin wouldn't get to us. We set up to be resilient - in terms of energy supply/demand/depletion, food supply/demand/depletion, resource supply/demand/depletion.

Can everyone do that? No, as I repeatedly say. That goes with a planet which is grossly overpopulated. You have to deny the latter, I don't. I choose to do what the Maori did, in pre-European ttimes; support the tribe/whanau, but fight everyone else for the scarce resources. So we are part of the local resilience organisations, but don't give to World Vision. I make no apologies for that.

Don't confuse the 'most logical individual step in the circumstances' with what I advocate we all should do - that's classic Tragedy of the Commons stuff. Which is why free-markets ultimately can't solve macro problems. Which is why Copenhagen was a failure.

The 'price of land at the urban fringe' is the least of our worries at this point. We're setting up (and it was interersting to hear that US couple are doing the same thing) to share our land with young folk who won't get the chance we did. Perhaps you missed that comment when I've made it. The difference is, you don't think they are about to inherit a less-resourced, more polluted, more demanded planet. I can't help you there, and no amount of outpouring, no screaming of 'Communist', or any of the other fear-propagandist labels past present or future, can change that fact.

There will be enough land when the Big Ag model falls over. As it will/is. The problem at that oint is indeed the potential for being overwhelmed by refugees, anarchy etc. Which is why I try and change societal thinking. As stated, one person cant change the world, but they can do what they can do. I don't think it's fair to cajole all those youngsters into motrtgages they have no hope of repaying. We have to offer better than that.

by Stephen Hulme | 17th Jun 13, 8:18am 1371413927

by kin | 17th Jun 13, 9:43am 1371418990

I hope everybody still remember in the 1980s Japan introduced their "Two Generation" loan programme. Housing cost was so high that most people cannot afford any housing loan unless their children was a joint borrower.

The original mortgager cannot repay the loan within his lifetime and their children agrees to take over the repayment...(at that time a good deal as prices kept rising)....We now know what was the end result f this Two Generation madness !!

by Boatman | 17th Jun 13, 10:08am 1371420530

Our Kids want everything made too easy for them. They need to realise that home ownership has always been a tough and expensive thing to do, involving hard choices, ( see the 2 inter-generational examples below), and Stephen Hulme has a valid point about his parents home price comparison .

Our first home ( 1980's) was a tiny place in a terrible area , behind a row of noisy shops , and the purchase price was astronmical (many times our annual income ) the deposit required was 20 % and repayments were at 16% interest , it nearly destroyed us. Then interest rates dropped and prices shot up and we sold and moved to a slightly bigger place. And we had property transaction tax / Transfer duty to pay , etc

I was talking to my 77 year old mother , and she told me their first home cost 6,500. Pounds and my Dad( who if alive would be in his late eighties now) earned 11 pounds a week . They had to put up a deposit of 20% ( some of this came from a Government scheme for first buyers) and their parents stood for ( pledged ) another 20 % in fixed deposits in the Bulding Society.

Repayments were 6 Pounds a week, so their home repayment costs were nearly 70% of Dads take-home pay, which is ridiculous by any measure!

Simply put , the problem is nothing new , but the effects can be ameliorated through policy initiatives

by powerdownkiwi | 17th Jun 13, 10:48am 1371422899

The first initiative being removal of usury.

Those cultures which ban such, tend to be in places where there are few resources, so that the charging of usury (indeed, growth of any kind) soon has to implode.

Then the cost has to still reflect the ability to pay the original sum, and that's a game of musical chairs - a sinking-lid scenario.

Those who scream - at length - for 'cheaper housing, will have their way in spades. But it won't help, given that their incomes go down the same plug-'ole.

by dobrydan | 17th Jun 13, 7:35pm 1371454528

Yes and no Boatman, my parents bought early 80's and had to front a 25% deposit on 29k. Rural township NZ.

Earnings were low, interest rates high.. difficult times indeed.

What you failed to mention was that in less than 20 years the property value increased by 1000%!! Suddenly the "baby boomer" generation have tons of equity and cheap credit available causing average earners to speculate on the property market without putting a cent towards the purchase of a rental.

Between 2003 and 2006, their rental's RV jumped from $230k to $400k. That's in Palmy!

Can you now see why gen Y might be a tad wingy regarding excessive property prices?

either way the horse has bolted and even if Mr Key really gave a monkeys about first home buyers then it would be too little too late.

by starfish1 | 17th Jun 13, 11:48am 1371426520

I think if we look around the world all assett prices are overvalued. Money printing and low interest rates have helped keep a lid on prices collapsing. There will be bigger collapses in the future. Society is being brought up where lots of debt seems to be the norm and leaving the debt for future generations. Countries that have high saving ratios, manufacturing, and governments that don't get into debts are the winners. Western Nations cannot even afford to pay for higher interest rates as they have so much debt they would not be able to pay interest that they owe not alone anything else. We have been so reliant on cheap credit and keep repeating the same mistakes as in the past.

by powerdownkiwi | 17th Jun 13, 3:06pm 1371438393

Starfish - agreed. Sorry to see you're underwater yourself :)

by iconoclast | 17th Jun 13, 1:32pm 1371432735

Sunday on TVNZ 16 June 2013

21 year old chinese student buys 3 properties worth $5 million in total - Freehold - no finance required

Peter Barfoot of Barfoot and Thompson states 40% of all AKL auctions are knocked down to asians

If you havent seen it - Watch the video and listen carefully

http://tvnz.co.nz/sunday/2013-06-16-video-5466290

http://tvnz.co.nz/sunday/2013-06-16-video-5466290

This is not people buying a home to reside in - this is people doing what they can't do in their own country - own multiple properties in the main city - and using students as fronts

by south paw | 17th Jun 13, 2:02pm 1371434567

Confiscate the assets.

Deport the buggers.

Shut the immigration gates.

Remember to vote for Winston Peters.

by dobrydan | 17th Jun 13, 7:38pm 1371454688

... and with Mr Key's new "fast track" visas for wealthy Chinese they'll be able to pop down to little old NZ for the weekend for a spot of shopping in the suburbs of Remuwera before a quick splash at the casino!

by iconoclast | 17th Jun 13, 3:04pm 1371438281

A case of the slows - Par for the course

Government agonises over getting the economy into surplus and selling off the power companies to do so .. while right under their noses are rivers-of-gold .. all that is needed is to introduce a 10% stamp-duty on all property purchases by (a) non-residents (b) anyone who does not have an NZ.IRD number (c) anyone who has obtained nz residency but has not paid tax in the past 5 years (d) any second (and into infinity) property acquisition by anyone who is not a natural born nz resident

These buyers see new zealand property as cheap, and will pay the extra 10% without flinching

All non-residents should be required to produce a tax-clearance-certificate from their country of residence to prove the provenance of the cash being used.

by iconoclast | 17th Jun 13, 4:05pm 1371441940

no problems .. make the stamp-duty rate 20% .. make them pay for the gold-plating of the title

by wtf | 17th Jun 13, 4:40pm 1371444009

Have to laugh at the old property ladder metaphor. The first rung is now so far off the ground many people can't reach it and the other rungs are so far apart most people will never get past the second rung unless they buy multiple properties and use the capital gains from the extra properties to fund their primary residence. Of course there are not enough properties to go round so will only work for a few.