Bernard's Top 10: A star system for landlords and tenants; NZ's crazy-high migration; Moral hazard and the death of trust; Why some don't care about the price of assets

Bernard's Top 10: A star system for landlords and tenants; NZ's crazy-high migration; Moral hazard and the death of trust; Why some don't care about the price of assets

Here's my Top 10 items from around the Internet over the last week or so. As always, we welcome your additions in the comments below or via email to

See all previous Top 10s here.

My must read is #5 on price insenstive buyers. And I love it that I have a cartoon with the phrase 'fiduciary responsiblities' in it.

1. A landlord and tenant register? - Wouldn't it be great to be able to name and shame bad landlords and tenants?

We're seeing many of the great peer to peer apps like Uber and Air bnb using star ratings systems and online feedback keeping everyone honest and on their toes.

Why couldn't tenants and landlords do the same for each other?

It struck me on reading this latest piece on a boy who got rheumatic fever from living in a cold, damp and mouldy house in Johnsonville.

New Zealand's poor housing stock is a national scandal and some sunlight could be the best disinfectant.

"She identified that our house had no insulation, which is why my sons were getting so sick," Aspinall said.

Capital & Coast District Health Board said that, although the landlord had installed a heat pump, Snow's assessment showed it was poorly placed to heat the lounge and bedrooms.

However, Auckland-based landlord Peter Moon said he believed the house was insulated and, when he found out it wasn't, he contacted the family to try to help. "I'm aware of the problems she's got with it, but I need it empty to do all the work." "I said to her, 'If you can find somewhere temporary for a few months, you can come back.' They are damn good tenants ... I look after them as best as I can."

The Johnsonville house had been a family home since 1969, Moon said. "I've lived in it. I grew up in it and we never had any problems. "Nobody has ever been unhealthy in the house. It is the overcrowding. There are too many people in the house."

2. Trust - American casino mogul Steve Wynn has a few apt things to say about the Chinese Government intervention in China's stock market in recent weeks, particularly around the the nature of trust.

“I am not an expert on China and I’m not even a Wall Street expert, but I am a person who’s been in a public company for 40 years,” Wynn said during an earnings call on Wednesday.

“And my own experience, had I been consulted, I would have said don’t do that exactly. Because if someone thinks that you’re going to close the door on their ability to sell or trade their shares, you can only do that for a certain length of time and then the minute you finish doing it, the people scamper for the door because there’s a loss of trust.”

3. Migrant nation - This map courtesy of Amazing Maps shows the countries in the world who have the most migrants as a percentage of their population. It's not clear over what time period they measure it, but it sure shows New Zealand has a lot higher migration rate than most. The countries in the heaviest blue have the highest rates.


4. Excessive risk taking - It's fascinating to see that APRA, the Australian regulator of banks, is about to launch a report on how banks have been lax in their lending standards to rental property investors. Couldn't happen here could it?

Here's the SMH on the practices:

The chairman of the Australian Securities and Investments Commission, Greg Medcraft, on Thursday said the watchdog would in August publish a report finding shortcomings among how some lenders were testing borrowers' ability to cope with higher interest rates.

The report, based on surveillance of 11 banks and non-banks, had also found some lenders' credit checks used inadequate estimates of customers' living expenses, he said.

Even though banks are offering new borrowers interest rates of about 4.5 per cent, Mr Medcraft lenders and customers needed to assess whether borrowers could cope with interest rates of 7 per cent.

5. Price insensitive buyers - Jeremy Grantham at GMO is always thoughtful and this quarterly newsletter is an excellent look at why some people seem willing to buy anything at any price.

Sound familiar? Sounds like Auckland.

He argues the 'grown ups' at global central banks have been doing it. Can the great unwashed be condemned for doing it too?

Moral hazard abounds. See #1 above.

The size of the price-insensitive market participants is impressive. Monetary authorities and developed market central banks have each bought on the order of $5 trillion worth of assets for reasons that ultimately have nothing to do with earning an investment return on them. Regulatory pressures have caused pension funds, insurance companies, and banks to do likewise.

While it is somewhat harder to put precise numbers to the size of these investments, it seems a safe bet that the total is in the trillions as well. Other investors are in analagous positions for different reasons, as strategies such as risk parity and the exigences of life as a mutual fund portfolio manager push such investors to also buy assets for reasons other than the expected returns those assets may deliver. To date, these investors have tended to be buyers, and given their lack of price-sensitivity, they have pushed up prices of assets beyond historically normal levels.

6. Why don't we work less - Planet Money checked with Keyne's grandchildren recently about the great economists' prediction that his grandchildren would only have to work 15 hours a week because of massive productivity gains and the rise of the machines. It turns out his grand nephew and grand neice (he didn't have any children) work just as long and hard as the rest of us.

TIm Harford also has a look here at FT

So where did Keynes go wrong? Two answers immediately spring to mind — one noble, and one less so. The noble answer is that we rather like some kinds of work. We enjoy spending time with our colleagues, intellectual stimulation or the feeling of a job well done. The ignoble answer is that we work hard because there is no end to our desire to outspend each other.

Keynes considered both of these possibilities, but perhaps he did not take them seriously enough. He would not have been able to anticipate more recent research suggesting that the experience of being unemployed is miserable out of all proportion to its direct effect on income.

Perhaps Keynes also failed to appreciate that there is more to keeping up with the Joneses than conspicuous consumption. We want to live in pleasant areas with good schools and easy access to dynamic employers. As a result, we find ourselves in ferocious competition for a limited supply of desirable houses.

7. Tax cuts for the rich don't actually work to boost economic growth - As this Brookings Institution piece shows:

The record is clear that tax cuts have not boosted growth.  When growth is (appropriately) measured from peak to peak of the business cycle, the vaunted Reagan tax cuts in the early 1980s produced a period of average growth. Indeed, research by Martin Feldstein, President Reagan’s former chief economist, and Doug Elmendorf, the former Congressional Budget Office Director, concluded that the 1981 tax cuts had virtually no net impact on growth.

Virtually no one claims the 2001 and 2003 Bush tax cuts stimulated growth. Despite cuts in tax rates on ordinary income, capital gains, dividends, and estates, economic growth remained sluggish between 2001 and the beginning of the Great Recession in late-2007.  The growth that did occur, however, is generally attributed to the Fed’s easy money policy.

Tax rates as determinants of growth fare no better in cross-country comparisons.Research by Thomas Piketty (Paris School of Economics), Emmanuel Saez (UC-Berkeley), and Stefanie Stantcheva (MIT) found no relationship between how a country changed its top marginal tax rate and how rapidly it grew between 1960 and 2010.  For example, the United States cut its top rate by over 40 percentage points and grew just over 2 percent annually per capita. Germany and Denmark, which barely changed their top rates at all, experienced about the same growth rate.

The story is much the same when total tax burdens are compared. Over the 1970-2012 period, taxes as a share of GDP were 7 percentage points higher in the rest of the OECD countries (32 percent) than in the United States (25 percent). Yet, per capita annual growth was virtually identical in the rest of the OECD (1.80 percent) compared to the United States alone. 

So, there is no reason to believe that tax cuts are an elixir for economic growth.  There’s another problem here as well. As Piketty and company note, with or without the elusive supply-side effect, high-end tax cuts have exacerbated income inequality.

8. Totally John Oliver on mandatory minimum prison sentences. It's funnier than it sounds. And more serious.

9. Totally Clarke and Dawe - Justin Credible tries to answer a few questions. Or ask them. Or something.

10. Bonus Totally Clarke and Dawe with a report on the cricket.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.


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Despite ANZ's desperate attempts to talk it up, the business confidence survey out today shows faith in the economy rapidly evaporating:

Full blown NZ recession by this time next year?

#1 - well there's your answer in a nutshell. It wouldnt work properly.

cold damp mouldy houses don't exist because of lack of insulation. Mould occurs when moisture is trapped and energy and food is available (which is why the bathroom roof gets most mould, and the floor doesn't - why the shower/tiles that get hotwater get mouldy when the cold opposite wall takes longer.)

Put the insulation in and the kid will get rheumatic fever AND pneumonia.

Teach the people to air and dry their homes and the rheumatic fever won't get in.

Mold doesn't grow above 18°C & won't germinate above 16°C. Best thing you can do is keep a home warm, which also lowers the relative humidity. Human exhale 1L of water vapour per day, so yes you also need to air out and dry your home.

#1 something seems wrong there, heat pump facing the wrong way? strange. i'd wonder on a health nurses capability to assess that myself. Was it even used? My house has no heat pump and is only partially insulated but I dont get such problems but then winter heating costs me $400+.

"no insulation, which is why my sons were getting so sick,"" um no it just means it costs more to heat.

Don't know if same applies to heats pumps as fireplaces, but always found a fireplace placed in the northernmost part of the house practicable was the most efficient, as heat traveled more naturally from the naturally warmer north to the south. Placed in the south it still tried to do the same and it took much, much longer for the heat to travel in the other direction

a) A heat pump as a single unit with one outlet is not designed to heat the entire house just one room which is why I have not had one fitted. b) A HP heats the air so as the warm air moves about (not to well) it warms other parts of the house a bit, but if you close the door(s) on spreading effect. I fire is far more radiant in output so no not really similar. In terms of air travel its quite possible the building was leaky and the dominant air flow was in the "good" direction or following the wind.

Personally I dont think they have used the HP or heating at all, insulating in this case (if you dont heat) would make little difference to health, might stop the worst of the mold, maybe.

I could get on about why having 4 children but I'll pass, I have had enough arguments with "fellow" greens on that in the last 2 months.

the south is damper as that's the side the moisture condensates first, then the lighter drier air rises to ceiling displaced by cold air.
Putting your air con on that side means you're heating all the moisture and evaporating it, before the room will heat - all the warm air going to the roof.

Putting the pump in the drier North side, rapidly increases the temperature in that location, which because of the temperature differential you're probably already using that side of the room more. The south doesn't warm as quickly this way, but you don't notice it because you'll stay where it's warm and dry.
Putting it in the north you will aim it at the area to be warmed, which will be in the direction of the natural air convection. Putting it in the south, aiming it low will create turbulence against the natural air movement, reducing the penetration of the heated air.
Also heating warm air gives very warm air. Mixing heated air with cooler air only produces warm air. the higher the temperature the faster the heat effusion (making it feel warm, also evaporating faster); warm air is slower "heating" than hot air i.e. it's not just linear rate.

You put the air con in the south to remove moisture, and must blow it downwards - but you need a unit that cycles through its settings - talk to expert about which model.

So it's not just your observation, there are actual physics and engineering behind your opinion.

Correct, that is essentially the core of the 2nd law of thermodynamics.

You are right Steven. There is something odd going on here. When I grew up we never had insulation. We kept our living rooms warm with a good fire, but the bedrooms were perishingly cold. It was not unusual to wake up with frost on the insides of the windows. We kept warm in bed with blankets, eider downs and a hot water bottle. I was never cold in bed. We never caught any more illnesses than we do today. I suspect you are right. Poor ventilation (open the windows in the morning) and overcrowding.
More years latter than I care to acknowledge I prefer our bedroom cold and have the windows open, summer and winter (we do this in both the South and North islands) All our insulation and double glazing is almost a waste in the bedrooms.

It is not odd at all - it is just a politically motivated "media" story.

Must admit, a good fire kicks out a _lot_ of kWh. Also older places used to have solid chimneys which work as thermal store.

Lets not get too carried away, this is sub tropical Auckland we are talking about, AKA the winterless north.

Most likely wooden framed windows that over time don't fit anymore. In welly you need to use a lit of sealing tape to stop wind ripping through any gaps. But insulation wouldn't change this, they need to make sure doors and windows are sealed first. Problem is there isn't much money to be made selling foam tape so that's why it hasn't become media hype.

I'm with you Cowboy, I moved through 7 rentals with a young and growing family as we progressed from Taupo to Papakura via Hamilton and Rotorua. We then owned 2 houses in Papakura for 8 yrs before moving to Aus. As a Telecom repairman I saw the inside and underneath and ceiling spaces of countless homes in south Auckland.

The biggest contributors are closed up, unventilated houses and the use of clothes driers in them. Mould build up is only there because it has not been periodically removed by simple cleaning with a mild bleach solution.

Insulation may keep it warm for longer but trapped moisture will condense in all cases on exterior walls and windows as well as the ceiling.

If you don't open the windows and don't clean occasionally you will have this problem.

..prob right. My kitchen in the mornings is often 0 and stays that way until home from work. House is aired right through winter. None of the family ever get sick with colds.... but they sure complain at times that I'm a heater scrooge!

@#5, Those mentioned are indentifiable as not having earned the funds. They have been given them and tasked with their management. For them, it holds no value and is simply stock in trade. So much the better if they can show an equity increase to their paymasters but if lost they accept no fault. Same for ill-gotten graft, realizing clean cash will cost you a premium as a cost of doing the business.

@#7, Not having to work out of necessity differs markedly from unemployment and, different again, retirement. No mention in here that there is a toll which must be paid to sustain ourselves in our societies. This is done with money and this can only be gained by receiving it from (ultimately) the entity which distributes the currency where you reside. If less work was required the state would have less control over the population as the reliance on money would be lower. Governments don't like losing the ability to control their populations.

#5 Price sensitivity
I suspect that the housing market is rather inelastic in classical economic terms. If you need a house and there is a shortage, you have no option but to pay a ridiculous asking price because you don't have much choice. If you need a house you really need it. It is not not like TV's and other discretionary spending where if the price is too high you do not need to buy it or buy something else. This is why the the behaviour of the government is so disgusting as they tacitly support the councils constraining supply (despite all their hot air and window dressing) while pushing immigration and sales to foreigners.

#8 is scary. We ensure poverty (as a 'motivator' for any successful capitalist country), then people seek relief, we lock them up for their efforts, with heightened disregard in our less homogeneous society, with the downstream effect on their families and passed through the generations. Their kids lose moral compass, they commit crime, then jail them. The circle of life, wheel of misfortune eh Cecil

Its also big business in the United States. Judges in Pennsylvania were found to be taking kickbacks for sending minors to a private juvenile detention centre. I doubt its an isolated incident

An astonishing $32 trillion in securities changes hands every year with no net positive impact for investors, charges Vanguard Group Founder John Bogle.

Meanwhile, corporate finance — the reason Wall Street exists — is just a tiny slice of the total business. The nation's big investment banks probably could work for less than a week and take the rest of the year off with no real effect on the economy.

"The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings," Bogle told Time in an interview.

"What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It's a waste of resources."

From a physics perspective

Model shows how surge in wealth inequality may be reversed

Interesting thing on inequality its measured on known / taxed income/assets. Ergo is 50% of one's wealth is offshore and un-taxed the real situation is far worse than shown.

Here is some doom porn for you, how did this get past the editor. From someone in the club as well.

Seafood industry leader Sir Peter Talley.... predicted a 40 per cent job loss in the western world over the next five years.... he also predicted China would devalue its currency by up to 20 per cent in the next six months "for no other reason but to keep their domestic peace amongst their huge population".

He said this scenario would trigger a landslide in the Auckland property market as Chinese owners of Auckland property would sell to pick up the 20 per cent gain.

"This, combined with job losses will almost certainly force New Zealand to be more controlling on immigration policies and to re-think our current policy of issuing work permits to migrant workers," he said.

Two courageous predictions by Talley .. keep a diary note and dust them off in 6 months time

1. China will devalue against the USD (?) by 20% while NZD less so
in response ...
2. Chinese nationals owning Auckland property will unload and repatriate to capture the gain

Reason given - to keep domestic peace

If so. it will leave behind an Auckland scene of serious carnage and social disruption

Thanks for coming


Over a million people living in the country not born here, productivity hardly moved since the 70's. All we have done is divide our wealth between more and more people and used debt to hide the cracks.


Dead right

The lever pullers in wellington have perpetuated the lie that everyone will be better off

It hasn't happened - GDP per person (per capita) hasn't gone up

A smart person would say - well that didn't work - let's stop doing it - and ask
Why didn't it work?
Where did we go wrong?
What could we have done better?

and have you been listening to the answer?


per capita, however its worse as when you look at one time ie non-renewable resources you have to consider future generations %/ownership. If you dont then the real wealth of your grandchildren is going to be considerably less than yours.

My parents are having a hard time conceptualising how that real wealth is affected. To them they got good capital growth on their investments/work, and I finished college, so why haven't I got a great career and substantial nest egg... (and why am I worried about what my children and grandchildren are going to need for university, as they might not even go - because in my parents day, most people didn't and they had good jobs and have plenty of capital gain)

If Auckland property prices plunge, it will be a great thing for people who want a house to live in. These are the ones it's been carnage for up until now.

Chinese factory replaces 90% of humans with robots, production soars

Is China going to have a growing middle class?

This doesn't bode well as an indication of a growing prosperous middle class does it?

"As China tries to evolve from "the workshop of the world" into a more technologically advanced service economy, however, a swelling glut of graduates is threatening this age-old compact. This year alone, Chinese universities are expected to produce a record 7 million degree holders, more than seven times the number 15 years ago. This rapid expansion has vastly outstripped demand: Unemployment among recent graduates has rocketed to 16 percent, four times the norm, while the wage premium they receive has plummeted by 19 percentage points. In some cities, semiskilled factory workers now make more than university graduates in office jobs. "

Kind of a reprise of the economist Joseph Schumpeter insight that "the expansion of higher education beyond labor-market demand creates for white collar workers “employment in substandard work or at wages below those of the better-paid manual workers.” What’s more, “it may create unemployability of a particularly disconcerting type. The man who has gone through college or university easily becomes psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work.”

Jobs lost to robots doesn't concern me because they are a great solution to the dilemma posed by the division of labour. That being the resulting output being more productive and a higher quality, but the work is soul less. Robots promise higher quality again, however the focus should be on a return to craftsmanship for the labour freed up by their introduction.

interesting, they have been able to undercut the developed world manufacturing by keeping production costs very low with a huge supply of cheap labour. they must be slowly getting towards where the workers want more so they can buy things that production cost have risen too much, as has happened in the past another country has come on the scene which is cheaper and they will need to transition their economy to a consumer one. not sure how that will work in a communist country with high corruption amongst officialdom

Too late for China - technology has moved on. Cheap labour does not equate to cheap productivity.

"BCG, the Boston consultancy, estimates the average cost to manufacture goods in the U.S. is now only 5% higher than in China and is actually 10% to 20% lower than in major European economies. Even more striking: BCG projects that by 2018 it will be 2% to 3% cheaper to make stuff here than in China."

cheap labour still important. otherwise China wouldn't have been competitive and push out all the US and Eur folks. US stlil much higher the 5%. quality is a big issue

Best think you can do with all the old housing stock is bulldoze it and start again. There is no need for houses to be cold in the New Zealand climate if you follow the two key rules, orientation to collect the heat and thermal mass to store it.

Would be an economic benefit to this approach similar to that of the Chch earthquake, all that rebuilding would create economic growth. Or maybe it wouldn't because it isn't insurance money coming in from offshore.

Nope, I odnt agree of bulldozing. Just strip the linings out and put in 110mm wall insulation, 150mm in the roof. ie in effect re-cycle the wood as if its in good condition (ie not wet etc) it will stay that way for another 100 years. Thermal mass is one way to allow heat into the evening but it isnt the only way especially if lack of sun is an issue. The other big loss is 1/3NV ie air infiltration so minimalising that saves a large amount of $s. Ideally 1~1.5 air changes per hour, not 5+ which isnt that unusual on older houses.

Think of it this way, all these property investors are actually sitting on piles of junk if the land beneath devalues.

Point is with orientation is you only build on the north slopes, hence why there is some sense in bulldozing, or at least relocating. Embodied energy is worth saving, needs the reversal of labour vs capital so the labour is content is worth the effort.

Leakage isn't such an issue if you have enough radiant heat from the thermal mass. On a cost vs benefit analysis the money spent on thermal mass will win in a lot of instances.

Re bulldozing and rebuilding, come of Steven, Keynesian economics says so it must be good.

Have either of you guys actually done anything like that in real life?

It's really expensive, and requires lots of skilled certified people, and is extremely fiddly.
That might be worthwhile in your million dollar Auckland mansions (huts), but in the rest of the country such work even for basics is like to be 30- 80% of the purchase price for the whole property.

Remember these places only generate about 3 - 6 % gross yield to work with, that means 30 - 80% is going to take an incredibly long time for tenants to pay back.

#6 "So where did Keynes go wrong? Two answers immediately spring to mind — one noble, and one less so. The noble answer is that we rather like some kinds of work. We enjoy spending time with our colleagues, intellectual stimulation or the feeling of a job well done. The ignoble answer is that we work hard because there is no end to our desire to outspend each other."

The voice of privilege again. How about another option... that the privileged (that's tim and co) are busy trying to outspend each other, while most of us are just trying to keep dry, warm, food, clothing, kids, educated, health paid for, retirement covered.... but we don't have the monetary privilege. We aren't trying to outspend anyone.... but that level of overspending that the privileged want is sucked off us via poor policy, outdated economic theory, and compliance costs designed around seeing that the privileged keep getting more. This continually pushes up the prices for everyone, especially as the privileged seldom get their over-spending money from real produce or simple services (ie often from forced parasitic ones, doctors for the sick, lawyers for the threatened, government employees because they can extract as much as they want from their victims). this constant rise keeps everyone enslaved.

And rising population demands makes this worse... but to the privileged over-spenders it's just more victims they can use to grease their wheels. In fact one of the easiest ways to spot the over-privileged is to look for a pro-immigration stance...