David Hargreaves wonders whether perhaps we really can achieve a subdued, but not falling, house market - 'neither too hot, nor too cold'

David Hargreaves wonders whether perhaps we really can achieve a subdued, but not falling, house market - 'neither too hot, nor too cold'

By David Hargreaves

So, will 'Goldilocks' prevail in the housing market after all?

Economists like to talk Goldilocks when it comes to economic matters, referring to a situation where, yes, the economy - like a fine porridge - is neither too hot nor too cold and in fact, is just right.

From my experience the Goldilocks of economic prognostications is as much a mythical thing as the character from that popular fairy tale.

How often can we think back through history where the hoped for 'soft-landing' has ended up with something that had all the comfort of the average white knuckle flight into Windy Wellington Airport? 

Economic conditions too often veer from very warm to frigid - and so of course it can tend to be in the house market. Remember and shudder what happened as the white hot housing market days of 2003-2007 turned briefly into the ice age that was prompted by the 2008 Global Financial Crisis.

But I actually believe there is a bit of hope this time around that we might be able to steer a path through the uncertainties and have ourselves a housing market over the next three years or so that doesn't do a lot.

Now that wouldn't please anybody looking for a quick flick of a property (although of course the now five-year bright line test is a bit of a joy killer on that one). But it would give some satisfaction to the young people struggling to get on 'the ladder', while anybody staying put in an existing property can at least pay down the mortgage - with interest rates still at super low levels - and maybe even consider some improvements to the property too.

The nuclear factor

The great unknown 'nuclear' factor for the housing market remains, as it ever was, the possibility of some major global shock like a GFC II. And look, the odds of that happening still look - unfortunately - reasonable enough within the next three to five years.

Then there's Australia, where all the prognostications are definitely for a housing market resembling porridge that's been left in the freezer.

People look at the proximity of Australia and get worried - but the fact is that there are marked differences between our markets. The other point is that if the Australian housing market continues to teeter then this may put Kiwis off leaving here to cross the ditch. Kiwis staying at home have of course been a big factor in our net migration gains. 

I have expected a resumption of the flight of Kiwis across the Tasman, but now you have to begin to wonder.

So, anyway If the potential global (and nearer to home) threats don't come to pass in the medium term, there do seem reasons to be encouraged by the conditions for the housing market within New Zealand.

As we approach the end of the year we've now had most of last of the the big housing related data releases for the year (see here, and here, and here), with the last big one that for REINZ still to come.

Surprisingly strong

Most of the market commentary I have seen around these data releases has been fairly guarded and subdued, but I would actually say most people have been surprised how relatively strong the Spring market has looked.

Throw the relaxation of the Reserve Bank's high loan to value ratio lending rules into the mix from January 1 next year and the immediate prospects look pretty good.

It's interesting to consider what we would really consider a 'Goldilocks' market over say the next three years.

For me the ideal scenario would be that some meaningful progress is made in addressing the housing shortages, particularly in Auckland and that growing numbers of young people who want to can get into homes.

We've already seen signs that there has been a sizeable upward shift in the proportion of first home buyers coming through in the mortgage statistics. That's a good thing and a bad thing.

Yes, people are getting into homes, but yes, a lot of them are getting into debt up to their nostrils as well.

So, for those people this is the key time. 

Taming the debt monster

Interest rates are still real low, so, that means very big mortgages are just about affordable - at the moment. But any even modest upward move in interest rates would start to change that situation pretty quickly. The additional risk is if there is a downturn in the economy and people start to lose their jobs - well, that makes meeting the mortgage payments a very different proposition.

Falls in house prices are not necessarily a worry, providing people don't intend to move - and that they can meet the mortgage payments. But what you want to see happen obviously is for the first home buyers particularly to be able to get through say that first tricky, certainly two years, where their equity in their home is real skinny.

Get through that period - through the next two or three years - and we've potentially got large numbers of young first home buyers installed in their own homes and building towards financial stability. Great.

If the housing market did therefore track sideways for the next say three years and people could get their debt to income ratios in better shape then the country would be in better shape for it too.

Not what I expected

I admit to being surprised about how the housing market is performing at the moment because it looked six months ago as if it might really start to go 'off'.

Now I think from a strictly domestic perspective, the biggest thing is whether some meaningful progress can be made in getting the supply/demand equation into something that starts to resemble balance.

There's a lot of water to go under the bridge. As ever, the things that hit hardest are often the ones you can't see coming. But as we move from this year towards next, I'm quietly hopeful we actually have achieved the Goldilocks dream; that is we've gone from super hot housing to about right without having seen our houses go into the deep freeze for a while first. Fingers crossed.

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Hi David
Let's talk credit.
Do you believe that households can sustain a further increase in mortgage debt again next year which will have to significantly exceed the $63 billion of mortgages written this year to sustain everyone else's perception of house prices? If it stays at $63 billion then the economy flat lines, if it drops below $63 billion then the economy heads to recession.

If the economy can sustain another year of massively increased household debt and servicing costs. Will it be able to do the same again in 2020?
I only ask because you didn't really mention credit creation in the article and be keen to hear your thoughts.
best regards

Yesterday I had a look at the RBNZ household debt chart. The debt to the income ratio has flatlined for 4 or 5 quarters. Servicing to disposable income has essentially flatlined too. Of course it doesn't tell the whole story as these are just averages. The question I consider with debt to income flatlining is the ratio unsustainable?



If Wishes were horses....................

Reality is that we have had extremely Hot Housing market and what goes up fast comes down fast - Ecenomic Imbalances.

So prices have to fall (How much can be debated) to make sense before stabilising. Remember that the downward trend has just started so will be in for sometime to come.

It is a waiting game atleast at this stage and will have clearity hopefully by middle of next year (How much damage has been done).

Att he same time property investement is always good for long term but entry point is important and though one cannot time the market but try the get the best out of the current downfall.

What goes up fast comes down fast....not so far when it comes to the NZ housing market. Price increases have be exponential over the last 40 years. Prices have stabilized like the 20% on here predicted they would. There is always the potential of an external shock in the wings that could cause a nasty price drop, but until that event hits its business as usual. Any increase in interest rates will be a market killer, 1.5 to 2% increases will see the market dip and continue downward for years. I don't understand people that think there will be a massive correction without a trigger.


How many people in previous property crashes (Ireland, Japan etc) saw the trigger coming? It may happen, it may not happen, but now's probably not to be the best time to be balls in on NZ property.

I don't understand people that think that there will be continued exponential growth in housing values. They should learn how to use a spreadsheet, extrapolate the figures out and then make an informed statement based on that.

I am wondering about the share market at the moment. If it keeps trending downwards, a lot of FHB's will find their Kiwisaver deposit either stagnating or reducing which means lower house deposits...

It's the FHBs that feed into the housing market, replacing the retirees who sell up. I commute past this apartment village each day, there's 420 apartments in this one alone.


If the bottom end of the market slows down due to FHBers shrinking deposits then will there be less retirees able to sell up and move into these villages? There will still be a "housing shortage" but what about a glut of retirement homes?

Rent them out via housing nz to solo mums? Imagine how spoilt the kids would be, living with 20 grandmas right next store. All the hand knitted woolen jumpers a kid could ever need.

This is where the tradition of cash savings for a house deposit worked in the past. Although that was an era where you would save for a year or two for a deposit, not 10-40 years. Saving for a house deposit using shares or funds isn't the most reliable approach, and sacrifices retirement savings.

You don't see the trigger coming, even those that bet everything they have on it have been out by a year. Define "Balls in" on property ? A couple earning good money and paying off one house is hardly exposed, a speculator who is highly leveraged on several properties could go tits up in a crash but I'm hardly going to feel sorry for them, but at the same time if they make it big I'm not going to be full of Envy either, they took the risk and it paid off. Nothing stopping anyone on here taking a big risk but if you have not got the "Balls" then keep renting.

I interpreted the post to mean investing everything in property without diversification. That's what balls in would typically suggest.

A couple earning good money is hardly exposed.. until one loses their job in a slowdown.

Until they come out of their 1 or 2 year fixed term, with a 1% higher interest rate on their $500,000 mortgage. Yeah, they have no issues with affordability but they will have to forgo $100 a week in discretionary spending/savings/investment for the increase in interest dollars.

I dont think it has a lot to do with balls. The big driver for most is its the only game in town, lots of people talk about it, lots of people are involved, which leaves us as a country horribly exposed. All eggs in one basket.
If you have balls, dont follow the herd/leamings etc

Many more people in NZ are investing in stocks than in property... Over 75% of New Zealanders have stocks.

75%? What is that number based on? I assume your not looking at all ages and KiwiSaver would be the majority I gather?

Im not sure what percent is KiwiSaver but regardless there are some major misunderstandings about the distribution of investing in this country.
Edit: age grouping is about 16-65.
Edit: majority is KiwiSaver yes:

Appreciate the response. KiwiSaver is important but it’s doesn’t detract from the fact NZ is heavily over invested in property in general. “Balls in” as it’s put above.

Most Kiwi's dont have any property investments and only have funds. Do you mean the homes they live in? NZ is not 'over invested' in anything, NZ, and almost all countries, are fundamentally under invested. Anything that is done to improve that is a boon, i dont care if its property, stocks or whatever, people should be investing more.

@Nzdan Even 1% growth per year is exponential, why would any asset class with long term demand do anything other than grow exponentially?
I think you sir need to learn how to use a spread sheet.

1% wage inflation and 5% housing inflation exponentially?

Actually household income rose at a cumulative 4.5% pa for the last 10 years.

Thanks for clarifying that! So we currently have a doubling time of 15 years for household incomes, yet people on here are adamant house prices will continue to double every 10 years.

Back to my original (poorly worded) point, take the current median household income and the current median house price and extrapolate those out in a spreadsheet (4.5% p.a. and 7% p.a. respectively). I guess we're in for a bit of wage inflation???

Housing in NZ, when correctly adjusted for the high inflation period, only grows at a cumulative 5.6% pa. the high figures sometimes reported do not remove the inflation correctly. You need to obtain a net real figure form the 40 year period, which is about 3.6%, and then add an up to date inflation figure back in, probably about 2% for a combined ~5.6%.

Damn, the RBNZ inflation calculator is broken then.

Wages over 40 years = 5.6% p.a = Doubling every 12.5 years or a 692% increase on the dollar.
Houses over 40 years = 8.3% p.a. = Doubling every 8.5 years or a 2208% increase on the dollar.

The data i have starts in Q4 of 1985. Pulling inflation out from each quarter the compound annual growth rate of NZ property is 0.0365. That's data from the reserve bank. Without pulling inflation out its 8%.
Where are you obtaining household income from that period? Or are you literally using wages only?

I used nominal wage inflation because that provides a constant. Household income is subject to variables, particularly over the past 40 years as house price to income multiples have crept up, forcing both parents to seek full time work.

If i'm wrong then sweet as!

Households buy houses rather than 'wages' as such but it's probably okay given nominal GDP works in the place of households.
Anyway the historical gap between income and house prices is because of falling interest rates.
Going forward there isnt as much scope for divergence. Growth will be somewhere close to household income.

Pretty hard for a household to buy a house in the absence of wages though?

Agree, falling interest rates have enabled people carry more debt on an average income basis, and you're correct in future growth. In the event that the OCR is dropped to zero, i cannot see banks passing on much more in the way of mortgage interest rate reductions. If they did, they'd need to drop deposit rates to maintain a reasonable NIM and the deposits will start chasing yield elsewhere.

Great, great post at 10:47 Carlos67. You've got it nailed, everyone should listen to that advice

taimai.. "Reality is that we have had extremely Hot Housing market and what goes up fast comes down fast"

No, that's not reality at all, if it was house prices would be the same as 10 years ago, and the same as 20, 30 …etc years ago. Clearly they are not

What do you do if the boat has sprung a leak and it's full to the gunwales with passengers? Keep them quiet and still.
So it could be with the local debt/mortgage market.
Keep current mortgage holder 'still' and get them to pay off what they owe with ever-lower mortgage rates ( the faster the better if the boat is badly holed!) and stop new passenger getting on board with a "7% assumed repayment rate" and another impediment to curtail new borrowing.
But as we all know, once the passenger get wind of the hole, they aren't going to sit still!

Got a question. There seems to be universal consensus that house prices must fall. As a commentator points out above, the question is how much? But the debate is about addressing the housing crisis, so taking this from a strictly pricing perspective, the level they fall to in an ideal world would be to where they are imminently affordable for FHBs (F = First, not foreign). Possibly to the 3 - 4 times the median wage? Here is the question - how do we stop the investors hoovering up all the properties, thus manipulating the market, and locking this generation's potential buyers into a rental rip off?

Recycling of equity for down payments should be a big regulatory no-no.

Yes, there will be investors out there with enough cash to buy investment properties so you cannot stop them.

The universal consensus is that prices should fall to meet affordability figures, not that they must fall. I'm waiting for a Porsche dealer to have a 50% off sale as well, what do you think of my chances ?

The way I see it is that there is no capital left to grow the value of the housing stock. It's all been largely exhausted; interest rates, foreign investment. Plus wage growth is really shitty in a country that is dominated by low value add exports.

If you are looking for substantial capital growth in the housing stock in the next 10 years, I think you will be disappointed. HP growth will be heavily anchored to income growth at this point.

Is there a crash on the horizon?
Not with the current MO. However we are particularly exposed to global shocks, and this will be the catalyst for any dsubstantial drop in prices.

"Must" v "should" For houses to become more affordable to more recent generations, then the price of them MUST fall or alternatively those generations income must rise to an appreciable level. The first is much more likely than the last. i do not believe finding someway to loan them the money, in other words locking them into a debt burden as an acceptable solution.

Your dream Porsche is a luxury item, while a house/home should be a basic right.

Not all houses are Porshes, just like not all cars are Porshes. Your analogy might work if you were suggesting people want half price properties in Parnell.

Spelling Porsche wrong twice should be a criminal offence. Well like a guy I spoke too with a McLaren said, "You can sleep in your car but you cannot drive your house"

Incorrectly using too should also be a criminal offence.

At least the sentence makes sense. Pretty rich coming from the guy whose sentences are usually disjointed, incoherent ramblings comprised of incorrect assertions sprinkled with a seemingly random selection of economic terms and/or acronyms that make no sense in the context you’ve chosen to use them. Really is like a monkey pretending to know how to use a calculator - funny at first, then just plain annoying.

"Well like a guy I spoke too with a McLaren..."
"At least the sentence makes sense."

Carlos and BLSH; like two peas in a pod.
I'm glad you have found each other.

Very telling that it takes only one word to be out of place or misspelled for you to have no idea what the entire sentence means. Shame.



You’ve neglected to take into account that the principal of diminishing marginal returns applies to capital constrained housing supply and aggregate demand. Not to mention the indifference curve and the fact that only an idiot would use median indeces when considering allocative efficiency. I mean, facepalm, hello?!



Please note that ‘comprised of’ is incorrect. You should have written either comprising or consisted of.


Please note that ‘comprised of’ is incorrect. You should have written either comprising or consisted of.

Who gives a f##k? Really?

If Ferrari, Bentley, Lexus, Aston are all dropping their prices - pretty good.

You may not get 50% off a brand new one, but 50% off a 6 month old one can definitely happen in a downturn.

Keep building more state houses and as people are moved into the new state houses you start removing accommodation supplements ($2billion a year of taxpayer money).
Raise minimum standard for rental accommodation till they actually have to supply decent housing.

Once enough state houses are built to accommodate those that need subsidised housing then also start offering a rent to buy scheme on the new state houses to those that can afford market rentals but haven't got a deposit or the credit history for a mortgage.

At that point there will be no demand for crappy private rentals, and the "investors" divesting themselves of the shitboxes that they own will bring down house prices, killing off capital gains for a decade or so. Why would you invest in housing if its low yielding and low likelihood of capital gains?

Make the taxpayer play the part of last cab off the rank investor in a property bubble? The taxpayer stumping up $20billion plus per year to support the current housing market bubble and all done on the notion in the far off future housing may become cheaper? That seems very dubious.

If the state has to intervene with direct investment at all, it should be in the event of a slump - when costs fall. Getting the state to intervene sooner is just inflating the bubble.

Where does your $20 billion per year figure come from, and whats included?

I've checked and the source appears to be Simon Bridges, so might not be accurate.


And it's kiwibuild... Which I'm saying we should scrap.

As someone mentioned earlier. I'd just wait for the retirement developments to go bust. RBNZ create money to buy them off the banks at 10c in the dollar. Return to the government for social housing where the government receives the housing benefit back as rent.
There are thousands of these retirement properties that no one wants to buy and they are all around the country.

Yes, saw you on DFA. Seem like a bit of a beatup. Rymans, Metlifecare et al seem to be doing pretty well overall, which they wouldn't be doing if they were building lots of units they couldn't sell.

Hi Pragmatist.
Metlifecare haven't been doing so well of late... It all comes from over-extending yourself during an unregulated credit boom, it appears that a lot of large kiwi firms seem to have done the same thing over the last few years and got a bit carried away. Still does provide lots of properties that will need filling up. Easy solution, lower the average age limit to 25, quarter the fees, the younger residents won't need as much care. They won't be able to do that unfortunately so will suffer losses over the next few years.


Not watched the DFA post yet, was it good?.

The very first line of the article "Retirement giant Metlifecare halved its bottom-line profit from $251.5 million net profit after tax last year to $125.1m this year."

Bugger, only $125 million profit after tax.

As for the DFA video, no it was a waste of time, I'm mostly only watching the Martin North videos, the ones with You and/or Adams in them make me feel out of place.. need to reach for a tinfoil hat to fit in.

Profit of $125 million on revenue of $115 million shows a bit of wizardry with the accounting. What are the empty properties really worth?

I agree with you on DFA, I prefer Martin North's posts too! Albeit John does get very passionate about stuff which can be fun to watch.

Feel free to pay for regd valuations on all their properties to decide if their "fair value" movement in investment properties was legit or not.

The main source of profit is unrealised investment property gains.

Property valuations are conducted on a mark to model basis - note the valuation approach uses Level 3 "unobservable inputs".

The valuations are highly sensitive to changes in underlying assumptions. The annual report for 2018 provides valuation sensitivities for you in Note 3.1 to the financial statements.

A combined adverse 0.5% change in both discount rate and growth rate of nominal property prices would impact property values by an estimated 9.4%, and shareholders equity by 9.1%.

I mentioned it earlier, citing the 420 apartment complex i commute past every day in Petone. It literally borders the railway line. It’s a monstrosity, and this is only one complex in this country.

But is it full/fulling up fast? We do have a lot of old people, and plenty more coming thru soon.


They’ve started going vertical on what appears to be the last stage of what I assume is 4 stages so I they must be filling fast.

Decent option for the older ones who are hard of hearing.

murray86, "There seems to be universal consensus that house prices must fall"

That's just not true, Interest from time to time, publish data about future house price expectation in NZ, I cannot remember the data exactly but it's roughly even between people expecting house prices to decrease and people expecting house prices to increase

Are you refering to what people "expect" or what should occur to address the housing crisis. The current discussion is about what should or must happen, not what people expect will happen. Quite different

OMG Yvil I didn't know half the population must also believe the earth was flat.

Actually I was wrong, a net 49% of the population expect house prices to rise (net mean people expecting rises minus people expecting decreases)
Thanks for the data Cowpat

Yvil, you were right to question the "universal consensus" claim though. That implies that something like 99% of folk think prices will go down.

C'mon Zac, you are smarter than this, despite being a property investor with a strong vested interest. That is an entirely different debate. Peoples 'expectations' versus what must or should happen? I fully understand that there is a wildly varying range of expectations out there from a variety of individual. Some of those will have strong veiws based on their vested interests to protect their own personal position. I do not believe that there can be claimed to be a universal consensus on 'expectations'.

What should or must occur for housing to become more affordable is an entirely different matter though. this is a necessary outcome for our society if only to protect the 'values' that we hold dear. It is generally aggreed that housing should be a basic right. Do you agree? If not why not? If so then it must be affordable for the individual, without having to be subsidised by the taxpayer. The question at hand is how to achieve this?

Murray86, I agree that housing should be a basic right for citizens but not that ownership in any location is a basic right. There is a lot of affordable housing throughout NZ. There are a lot of affordable rental properties in most locations.

For those that fall on hard times or who simply don't have the wherewithal to manage housing themselves the state should intervene and assist. Things should be managed so that their numbers are kept as low as possible and people should be scrutinized before assistance is granted.

I guess you could say I am happy with the status quo. In the type of society we have in NZ housing should be a commodity subject to market forces. I know you have some fairly radical ideas concerning equality but I don't share them. It would require a revolution and I don't believe we have the human capital to make it workable or desirable.

"Ownership being a basic right" ? I suggest that the option of ownership must always be available irrespective of location. I do get that the status quo would essentially be favourable to you, and while i do not agree, I really enjoy and respect that you are prepared to present your perspectives and arguemnts to the debate, as they only add value. I have found your perspectives educational and enlightening. On subjects other than residential housing, i find i often agree with you. So keep them coming!

If houses were a third the price they are now, you'd actually be in a postion to make more money than now, but through the rental income, without having to screw people into the ground with exorbitant parasitic rents and relying on government subsidies. At the same time people would actually have the choice of being able to rent or buy, where today most do not, even in the regions. I'm picking the entire rental picture would be much more healthy too.

Thanks murray86, I appreciate the feedback. These debates are good to make one think deeper about things. Yes, I think you are right in that cheaper housing would make landlording more viable.

Keep up. Flat earthers now believe the earth is shaped like a donut.

Open up an oversupply of land to build on around our cities. If we have a competing oversupply any investor that tries to corner the market will lose money.

Even just getting the idiots at Auckland Council to stop under supplying land to Auckland City will make a big difference. (The same idiots at Auckland Council are currently oversupplying land to Wellsford, Warkworth, Helensville, Kumeu, Waimauku, Riverhead, Silverdale, Beachlands, Clevedon, Clarks Beach, Pukekohe, Waiuku, Kaukapakapa... - Auckland Council loves sprawl.)

Keeping flat for a few years so first home buyers can build up some equity is an awesome goal for RBNZ. The only problem is their is a higher proportion of houses being sold now to FHB's which means we need to wait a few more years. . . .

If you really want to build up equity in the homes you have to stop letting high DTI and high LVR's to be lent out by banks. The exact opposite to what RBNZ just did...

Yes, the RBNZ's raising of LVR limits on investors, and tolerance to high DTIs (over 5), is highly prejudicial to the long term interests of FHBs. The RBNZ wants FHBs to be reckless borrowers rather than prudent savers, because they need suckers to buy at existing exorbitant price-to-income ratios. Who better than optimistic young people?

Now I think from a strictly domestic perspective, the biggest thing is whether some meaningful progress can be made in getting the supply/demand equation into something that starts to resemble balance.

That depends on Phil Twyford maybe carrying out his election promise to cut housing construction costs or not. All indications point to not happening, instead the state will act as developer backstop within a high cost environment.

It's interesting to consider what we would really consider a 'Goldilocks' market over say the next three years.
I concur - if we can stabilise house prices with a substantial increase in construction it would be a Goldilocks scenario, but if we stabilise house prices without a substantial increase it would be stagnation.

If it's "not too hot, not too cold" that generally implies that capital gains will be in short supply (relative to recent history).

The question is will "investors" be comfortable to remain in a "not too hot, not too cold" market when the penny drops that they now can only realistically look forward to ~3% gross cash yields and, no, house prices don't follow any absolutely nonsensical "flat-for-3-years-then-double-over-5-years" rubbish 'rule-of-thumb'

A good investor does not count on average house price appreciation to make money. If I cannot buy a house 20% below it's fair value I won't buy and I'll keep looking. The "deal of a lifetime" comes around quite often if you look hard enough

"Fair Value" is you (plural!) paying more than anyone else thinks it's worth? Because there's a whole 'industry' out there looking for exactly what you are looking for, and if they've passed it by, then you have paid the most.

Don't think that anything comes to market that hasn't already bee pawed over by the 'professionals' in the marketplace ( the R/E agents having the first shot) because it hasn't."

When your fair value calculation is based on the assumption that you can keep increasing rents, and the property will never fall significantly like Yvil assumes.. almost anything can be justified as 20% below "Fair Value"

"Don't think that anything comes to market that hasn't already bee pawed over by the 'professionals' in the marketplace ( the R/E agents having the first shot) because it hasn't."

I fully understand where you're coming from but you would be really surprised (clearly, lol). I do know what I'm talking about, I've done it for 23 years, if you get to know an area really well and if you look at enough properties you will find deals but you have to know your stuff. Just like you are much better at your own job that me, I can find deals surprisingly regularly.

PS, it makes sense that RE agents or valuers get 1st pick and that they should know their stuff, you would be surprised though, they are trained to sell or value RE, few are good at buying for themselves

The current falls in the Aussie market will not continue forever and it will rebound, thus creating new jobs in market conditions where they offer low rent. We might not need to worry about the current fall in the Aussie housing market, but any substantive fall and subsequent recovery could shatter Auckland for years.

You have it around the wrong way but are also very correct; the primary recovery channel to economic shocks in Aus is through firm migration, and not labour migration.
The housing market doesn't create new jobs, firm migration does. The recovery will be a function of this, thus housing markets recover as jobs are created.

That raises a mind f**k question of what is going to give...
On the one hand firms are only going to be attracted back in the case that they have favorable wage conditions. However, favorable wage conditions and high land prices aren't really cohesive. So the question is whether there is currently a firm exodus in these cities which will fuel the devaluation of the property stock even further in addition to the current credit shock.

Wouldn't the Goldilocks scenario imply some rather clever things, balancing the rate of house building with the rate of interest with the rate of immigration with the rate of credit growth? Sounds a bit like trying to control the inflation rate and the currency and interest rates all at the same time. Usually you need to let something vary or them hidden imbalances grow and grow until one day they burst out uncontrollably.

More likely we get a burst of housing inflation due to 60,000 new people coming a year, with capital fleeing authoritarian regimes, followed by a worldwide downturn that no-one saw coming (except of course, all those fleeing authoritarian regimes...).

RE: "I have expected a resumption of the flight of Kiwis across the Tasman, but now you have to begin to wonder."
Unfortunately with the abolishment of departure cards is that trip to Aussie just for 10 days on the Gold Coast with the family, or is a permanent "so long Land of the Long White Cloud" for self and family.
My understanding is it is now up to the Statistics Department to estimate (how?) and the reliability of such information will be highly likely questionable and dated.

This again???

Passports still get scanned at immigration inwards and outwards. Also, ask Australia for the info from it's arrival cards. Pretty sure Australia won't have a problem saying last month we had 234 nz citizens arrive indicating long term intentions.

Oh, so we are relying on Australia to collect our emigration data.

Or we just track passports out and passports in at our borders. For the vast majority of trips (business and travel) they are going to be under a month. Knowing which country they went to isn't that important. Neither is whether its business or pleasure really. The tiny proportion of holiday trips that exceed a couple of months can be counted as permanent departures with very little skewing of the resulting data.

Hi Pragmist
Yes; a lot of assumptions which confirms my concern regarding the reliability and accuracy of such data.

"Get through that period - through the next two or three years - and we've potentially got large numbers of young first home buyers installed in their own homes and building towards financial stability. Great."

Couple of questions on this David. with the short curves having inverted, and the the 2/10 year only .15bp away from inverting, on what basis do you think that FHB's should be entering the market right now? Statistically, recessions begin 6-24 months after the 2/10 curve inverts - which means that in your scenario, we've got young FHB's entering the market at the top, and being right in the thick of a deep recession. As a FHB patiently waiting on the sidelines, I question your logic.

On another note, I'm looking forward to the day when it's no longer called a 'Housing Crisis'. Because it's not. It's a 'Credit Bubble' - one of epic proportions.

The reason you haven’t seen property prices disappear is because the RBNZ put around $8B into the markets to support lending and liquidity. Something missed by Guru-Bears on this forum


Please share more about this wonderful piece of information. Timing, tranches and recipients and any linked data.


You're going to have to explain what you're on about. I can see $2.4B of govt bond repurchases which is about twice that of 2017. And all since September. Are you referring to that? Or reverse repos?

Additional low-LVR lending due to restrictions being loosened?


Where the Goldilocks zone actually is depends on where you sit in this housing market. If you are on the outside looking in then the right place is for housing to head south - way way south. If you are already in then the right place is for housing to stay where it is - an increase even.
However, if we look from a whole of economy point of view then I think everyone can agree that the amount of money in housing is probably hurting our companies from accessing capital and growing the productive side of our economy. We probably need a recession in housing to get NZers investing in other things.

How true

We just need the house prices to stop increasing, not a crash or recession or the flow on effect will be a nightmare for everyone. No point having cheap housing if you no longer have a job, everyone's wallets will close, the whole economy will stall and fly straight into the ground. I lost my job back in 1987 before I even knew what a crash was.

I love the picture you’ve chosen for this article

Looks pretty stable to me. May not be much fun for commentators on here to get all worked up about for 2019.

These experts could have saved everyone a lot of heartache if they had done something about the price of housing as it was going up in leaps and bounds long ago.
Thanks for nothing Key, you will be remembered as the most self serving politician NZ has ever had.

Balancing act indeed. The everything bubble is starting to depressurise. In Sydney, the US, London, Vancouver and importantly for us and Aussie, in China. The only savior for the stupidly leveraged will be a massive redeployment of helicopter money from central banks. Could happen, but GFC2 could as well.

What will be the trigger point to unravel the Bubble of all Bubbles... Brexit (tick), Trump (tick), trade war (tick), Russia invasion of Crimea (tick), China military expansion (tick), USA occupation in Syria (tick), Deutsche Bank downgrade (tick), Right wing rising in Europe (tick), Chinese economic issues (tick), carpet bombing of Europe with refugees (tick). All of these things could get worse before they get better.

But none if these global events could change finance policy in NZ.