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New Reserve Bank figures show that household debt to income ratios are blowing out again after reducing during 2018

New Reserve Bank figures show that household debt to income ratios are blowing out again after reducing during 2018

The recent upswing in the housing market is coinciding with an upsurge in the numbers of people stretching themselves further financially to buy houses.

A crunch of the latest Reserve Bank figures on residential mortgage lending by debt-to-income ratio shows that the amount of money borrowed on high debt-to-income ratios has lifted sharply recently, after declining though 2018.

The figures indicate that both first home buyers and other owner-occupiers are now financially pushing themselves harder to get into houses. This is happening both in Auckland and across the rest of the country.

But, while owner-occupiers are stretching themselves more too, it's the figures for the first home buyers (FHBs) that are the most eye catching.

In December 2019 (the latest month available), the FHBs nationwide borrowed $1.216 billion for house purchases. 

Of this some 39.3% of the amount advanced was on mortgages where the amount borrowed was more than five times the annual income of the borrowers. Bearing in mind that the Bank of England, for example, when it introduced limits on DTIs in 2014 set a 'speed limit' on the amount of mortgages banks could advance that were above 4.5x annual income.

In other words, a ratio of over five is getting up there.

For the same month a year ago the amount of money borrowed by FHBs at DTIs above five was 31.2% - so that's quite a rise.

In Auckland (as you might imagine) the figures and ratios are even more bracing.

In December 2019 Auckland FHBs borrowed $555 million for house purchases.

Of this, some 55.3% was at a DTI of above five.

For the same month in 2018, the percentage was 50.8%.

The DTI data produced (it's monthly figures, but released only quarterly) by the RBNZ is a fairly new series, so covers only back as far as 2017.

What the data shows though is that DTI ratios were high in 2017, declined in 2018 and are now ramping up again.

And it's presumably no coincidence that this ramping up is occurring at a time of resurgent house prices.

It's also worth mentioning at this point that I had good crunch of the November figures too - and they showed exactly the same pattern, IE of a sharp move upward in the amount being borrowed at DTIs of over five.

And no, this is not just a story about the FHBs, though their figures are the most eyebrow raising.

On a nationwide basis, other owner occupiers borrowed $2.769 billion in December 2019 to buy houses.

Of this, 33.8% was at DTIs above five.

A year ago, in December 2018, the percentage borrowed by this grouping on DTIs above five was 30.7%.

In Auckland, owner occupiers borrowed $1.178 billion in December 2019.

Of this, 46.9% (up from 44.1% in December 2018) was at a DTI of above five.

It's all going up

The other point to note is that these percentages are all moving up at a time when much more generally is being borrowed.

The RBNZ's mortgage lending by borrower type figures released recently showed that in December 2019 the amount borrowed was up nearly $1.2 billion compared with the same month a year earlier.

And the first home buyers continued their march, moving to a new record high share of the amount borrowed, at 18.5%.

The total amount advanced in mortgages last month was $6.536 billion, up from just $5.371 billion in December 2018.

What will the RBNZ make of all this? It will be watching closely that's for sure.

The central bank expects house price inflation to peak at 7.7% this year and then start declining. Westpac economists, who were first to pick a significant upswing in prices, are now expecting house price inflation to hit 10% by the middle of the year.

Given all that, the mortgage figures and DTI figures in coming months will be well worth watching.

Remember that in both early 2018 and 2019 the RBNZ officially relaxed its loan to value ratio (LVR) limits. This has made it easier for people to borrow - as of course have the low mortgage interest rates. 

Will the LVR limits be tightened again?

The LVR limits, first introduced in 2013 as part of a then new 'macro-prudential toolkit' for the RBNZ, were aimed at preserving financial stability. At the time they were introduced the RBNZ was concerned about the amount of lending banks were doing at high LVRs and the risk this carried if there was a big drop in house values. The measures have been successful in reducing the proportion of high LVR loans on the banks's books. 

The RBNZ generally reviews the LVR settings in its twice-yearly Financial Stability Reports (FSR), issued in May and November.

The central bank had been widely tipped to relax the LVR settings again in its last FSR in November 2019. However, in weeks leading up to the release of that report, the upswing in the housing market started to become more apparent and in the event the RBNZ held fire on any further relaxation of the limits.

With what's happened subsequently there may now even be some expectation the RBNZ could tighten the LVR limits again at its next FSR release in May.

Maybe time for a DTI measure in the 'toolkit'?

What is missing from the RBNZ's 'macro-prudential toolkit' is some kind of measure to control mortgage debt-to-income ratios. Something like a 'speed limit' on the numbers of high DTI mortgages that can be issued. The RBNZ didn't give serious consideration to having a DTI measure ahead of the toolkit's creation in 2013 and - with the benefit of much hindsight - this is now looking like an increasingly glaring omission. 

Attempts by the RBNZ to get a DTI measure introduced into the 'toolkit' ahead of the 2017 election were snookered by then Finance Minister Steven Joyce, who insisted that the RBNZ consulted on the proposals first, and then the whole thing was swallowed up by the election.

The RBNZ has consistently said since that it would still be keen to see a DTI measure available - though has stressed it would not be used now. 

The question of the RBNZ getting such a DTI measure is now being considered as part of the second phase of the Reserve Bank Act review

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So the bubble is getting BIGGER.

Interest rates cannot (Editing as error - just noticed - should be cannot go up) go up in future - for a long time for when and IF reserve bank decides to go up will be disastor infact more chances of testing negative interest in near future.


I actually don't think interest rates can go up meaningfully anymore, it would be a disaster worse than the great depression - instead of stock brokers jumping out of windows, we'd have first home owners taking the dive.

I agree the RB's cannot raise them as in the past because it would crash economies and now they are looking at ability to service the debt as one of the factors
so they will let inflation run away a little before they step in

The RBNZ has an quantitative inflation target. It also has a non quantitative employment target.

If inflation increases above the target, then interest rates could increase.

The banks are also required to hold more capital. This may also result in higher interest rates.

Agree was an error (should be - cannot go up)

There has been a call to have rent prices controlled. Due to house prices prices, rental returns that investors need to get, also have to rise, as investors have to pay more for the house, and supposedly the house values are also going up. So I wonder if investors are unable to put up rent prices, I wonder if they would pay as much as they are for the house. Something has to snap eventually. It seems the the decision makers are just pushing the problem into the future by continually reducing rates.Having high house prices is not good for the economy. Some people may feel rich, but if you only own one home, you don't really benefit from high house prices, as you still have to live in a house, and buy and sell in the same market, unless you move to another location. But the ripple effect means house prices in other parts of NZ are now catching up.

That is what happens to a small but open economy with a stagnant or decreasing productivity.

It is supposed to be.


And it's got stagnant productivity in part because governance has incentivised property speculation over productive business.


and lowered wage growth by importing hundreds upon hundreds of low cost workers, why would companies invest in tech or productivety.
take a farmer, milking machines have been around for 20 years, are now very high tech with widespread usage overseas but here its easier to import workers.
I remember seeing them at field days 15 years ago and teasing my brother (who was a farm manager) he would be replaced one day
I was correct but it was not by a machine it was by lower cost worker from offshore

Hundreds upon hundreds of thousands.

By incentivise, you mean tax? You do know that if you start a company and then sell it, capital gain on that is also exempt? so not much of an incentive. Can you name some NZ economic potential that is not being realised? Money has poured into property as there are no other real opportunities for investment. Anything else is invested in to the hilt! from agriculture to education to aged care! anything you can think off. From small retail and hospitality businesses to big ones.
Small market, remote location, expensive labour, etc. Unless NZ comes up with a massive technological invention (something like Nokia for Finland), then the money will continue to pour into properties. Regardless of what are the intentions of the government.

You do know it's easier to sit and watch a property gain in value than to build a business?

There are certainly opportunities to build businesses, as evidenced by plenty of examples. E.g. Xero, Pushpay, Sistema, Navman and various others. Heck, even the likes of Coppins sea anchors, a world leader. With global cloud platforms it's easier than in the past to create and globally deploy new software tech too.

But why do the hard yards to build a company when it's easier just to put your money in property for tax free income without the same effort.

Despite what property investors say, investing in rental housing is not a "true business". It does not add anything to the economy but removes homes from the market that owner occupiers could buy. Most housing investors do so only for the tax advantage over other investments. Simon Bridges wants to open the market up to foreign speculators from China etc. How damaging would that be for first home buyers!!

I have mentioned this before, if they are a business, then they should be charged commercial rates, I cant get better than 9% for business borrowing secured against my business, not to mention the 500 a month for the privelege of having a business overdraft.


Yes the National party have a lot to answer for, lets look at the damage they did over they 9 years of their so called management of pushing up house prices out of the reach of NZ citizens, not surprising that FTB's are in debt up to their eyeballs:-

* National allowed massive mounts of Speculative Property Investment from Foreign Buyers.

* They allowed huge amounts of money laundering to be washed in to NZ's (Mostly Auckland's) property market by Speculative Foreign Buyers from Asia.

* Implemented a Entrepreneur visa scheme to enable Speculative Foreign Buyers to purchase their NZ Residency visa.

* Kicked local resident Landlords out of Auckland in 2015 by getting the banks to impose a 40% deposit limit on them, this left the market clear for the Speculative Foreign Buyers to asset strip and AKL's property prices kept rising until both China and Labour pulled the plug in 2017 causing the over inflated top end of the property market to stagnate.

* Oh and in 2016 National wasted $21.8 million of NZ tax payers money trying to rebrand our New Zealand flag by trying to remove the British insignia from the flag and erase our NZ heritage/history. Essentially to make NZ more palatable for those Foreign Buyers to keep buying our land.

Highly biased view.
National govt implemented policies to rein in the property market. Also dont forget there were a couple of devastating earthquakes.
You talk shut


National paid lip service to reining in the property market.

John Key slithered away with ten or twenty million in tax free property gains.

ANOTHER crap talker... keep it up. Is this why you are known as Broke Landers


Didn't they even come out and say having such high house prices was a sign of success?

yes they said it was a sign of economic success. also something about being the switzerland of the south pacific. i imported a ton of peroxide after that comment thinking he meant we should all be blonde.

Re money laundering, it's not biased. Unfortunately in 2011 Key made NZ an attractive tax haven for foreign money. From a Chapman Tripp website in NZ (historical archive, now removed):

Foreign investors in a New Zealand fund with only foreign investments will now bear no New Zealand tax on their income, whether or not the fund distributes that income. The tax change, which came into force in September 2011, should make New Zealand managed funds an attractive alternative to funds resident in Luxembourg, Ireland or the Caymans...

...Accordingly, the tax change now allows a New Zealand fund to elect to pay tax at 0% on foreign income attributable to foreign investors. The fund will treat the foreign investor as if it were a New Zealand company or trust. However, unlike a New Zealand company or trust, the foreign investor will have no New Zealand tax liability on the income attributable to it, either when earned by the fund, or when distributed.

Then the same government was slow on implementing anti-money-laundering legislation, to the point of drawing international comment, and even comment from (normally pretty happy with National) Fran O'Sullivan asking for action on the second phase of the anti-money laundering legislation, “It’s called prioritisation, Mr Key!”).


I see Houseworks is resorting to abusive behavior again since he can't put together a constructive argument to back up his claims. A true National voter!

It's a pity that you need things explained in one syllable or just conveniently forgetting what actions were taken .. I am a-political CJ I have a balanced view unlike yourself. CJ rewrites history

How about even putting a credible point of view forward rather than just being abusive to everyone. I listed exactly what National did during their nine years in government. How about you disprove those points rather than just being abusive, because I'm more than happy to add the article links for you. So off you go disprove the listed facts. We're waiting...

Geez CJ
1. Depreciation of buildings - 2012
2 Kiwisaver balance able to be withdrawn for purchase of firsthome - 2015
3 introduction of LVR tightenings through RBNZ - 2013 to 2017
4 Special Housing Areas legislation
5 Brightline Test 2016
6 RMA proposals from around - 2009
7 removal of General tree protection - 2009
8 Auckland supercity and thereby the Auckland unitary plan

Whether you agree or disagree with the effectiveness of any of these is irrelevant. The intention was to increase the supply side and limit demand.

Tell me how has the red team been doing? All of their promises have not been achieved and some not attempted, what a joke

LOL it appears you have missed the point of my request, ahh well. :)

No answer whatsoever to my question! The red team talked themselves up and you fell for the rhetoric no doubt. Jacinda and labour have been virtually devoid of action despite being highly over paid

Nahh HW, you don't get away with NOT answering MY question by trying to replace it with YOUR question! You claimed that "CJ rewrites history" as part of your abusive behavior. So go on; Disprove the five points that I listed about National's time in power! Like I said we're waiting... :)

Dont give me that. You started your comments with a statement not question. I took exception and said that you're lying and gave a credible reply to you after you didnt know about nationals achievements. National is the party of action.

So you admit that you've been abusive to me and other commenters and have called me a liar about the credible facts that I listed regarding National, which shows your abusive TROLL behavior. Yet you still can't even disprove my credible points can you. You're even weaker then we thought you were HW and a waste of time. If you can't disprove the points when challenged, then you can't call me or anyone else a liar!

You are raving CJ.

More abuse and petty insults from HW.

To be clear, number 2 only serves to drive up prices, not make housing more affordable.

3 was done by the RBNZ and National didn't seem to be the biggest fans of it.

Talking about RMA reform is practically as useful as a working group if nothing is done.

Peter Dunne is misnamed. Not Dunne would be appropriate, PD was the fly in the ointment of RMA reform
The success or otherwise of item 2 is debatable however thousands of FHB have been putting their kiwisaver funds to good use as a house deposit. To me it was a simple change and a great success.

Put their kiwisavers to good use, or into non-diversified risk in a housing bubble?

Excellent points.

The problem also existed before National came in. Didn't National actually say there was a housing crisis during the election before they got in?

Spot on, all National did was whatever it worked in their own and their friends interest

Happening in the USA too. It’s scary how much debt people are taking on. It’s all very well interest rates being so low but The debt still has to be paid back.

I agree that the high rate of debt people hold is concerning, But I think the NZ problem is more driven by housing debt than the US.
A key difference is that in the US you can still get a true 30 year, 15 year, 10 year FIXED rate mortgage. This provides certainty in terms of payments over time. Here, you risk the interest rate going up and no longer being able to afford your mortgage. Sure, interest rates may drop and with a 30 year fixed rate in the US, you may feel stiffed by being locked into a higher rate, but you are not. You can refinance (and pay a fee to do so) - just need the maths to work. I refinanced multiple times with my mortgage when the interest rate drop was a enough to justify the fees. And, imagine the joy of having locked in your mortgage when the interest rates hit bottom. Here, the banks hold all the advantages related to interest rates.
Another difference, I think, is that people applying for mortgages in the US have to have a good credit score showing a history of repaying debt on time, usually from a 3rd party. I don't recall a credit check of any sort when applying and receiving my NZ mortgage.
I don't know what the DTI ratios are now for the US, but when I held a mortgage in the US, my payment couldn't exceed 33% of my income.

Meanwhile back home in your la la land?

I live in New Zealand, not LaLa land, although sometimes I do wonder.


Wow, who would of thought

Yes getting your first is hard at first, but its well worth it in the long run, In the eighties, it was hard to even get a loan from the banks, harder than NOW.

Back then you had to come up with 10% deposit and have a proven savings history with the bank, before they would consider you. The Government also stopped first home buyers claiming interest of your first house against tax. Also Housing NZ also made there criteria very low, so getting a Government loan for the average family was near impossible

I remember having to go along to the bank manager all dressed up for an interview as he went through all my finances to see if he would loan me anything
now the broker comes to your house and first question is how much do you need

Not true. I purchased last August and had to explain some interesting expenditures at Sky city and other establishments after a couple of Stag do weekends.

Harder than now? So exactly how many years of income did you have to save for a deposit. 10% on a property that cost 3x your income? So about 3 or 4 months of income for a deposit? Compared to 2 or 3 years of income for most FHB now, to get to that same 10% deposit (and you still need a 10% deposit generally).

Yeah, I really feel sorry you, you had it so hard... NOT.

"So exactly how many years of income did you have to save for a deposit. 10% on a property that cost 3x your income? So about 3 or 4 months of income for a deposit? Compared to 2 or 3 years of income for most FHB now, to get to that same 10% deposit (and you still need a 10% deposit generally)."

Exactly. Some maths to illustrate the financial challenges here.

1) median household price $875,000 (at a house price to income of 9.2x)
2) 10% deposit is $87,500
3) the gross median household income of $95,000 for Auckland

i) Starting from zero savings,
ii) Assume a savings rate of 10% in year one - that's $9,500, and this amount is saved every year
iii) Then assume 3% p.a salary increases - and they are able to also save all of that amount every year (net of taxes at 30%) - that means no lifestyle creep. Actually with inflation, it might be a deterioration of quality of lifestyle as costs of living increase whilst the household is spending the same unchanged nominal amount.
iv) Assume that the amount is deposited in a bank earning 2% interest rate (net of tax)

To save the required $87,500 deposit would take almost 6 years.

If you assume 3.0x house price to income, then that implies a house price of $285,000, a 10% deposit would be $28,500. Using the same assumptions above, it would take less than 3 years to save this amount.

Now if the deposit is 20% (as it is in the secondary market),
1) it would take over 9 years to save the 20% deposit at current house prices (using the same assumptions above)
2) at a 3.0x house price to income ratio it would take just under 5 years.

Here's a challenge for all property owners. Imagine you are starting at zero savings, and you own no property or other assets. Take your last regular paycheck (exclude passive income such as rents, interest). On that income, saving 10% of your income, how long would it take you to save 20% deposit to purchase a median house in the secondary market at current price levels? Those high income earners would be ok, but if you earnt less than the median household income, then you would likely struggle.

Exactly. Let's not forget the median house price will likely have increased in those 7 years (and therefore your deposit requirement). Being a FHB is more difficult than it has ever been in this country. Your reward if you manage to save vigorously for years and get the deposit? A mountain of debt that is far in excess of what previous generations had to incur and given the much higher DTI the debt repayments are going to hurt. Hey, there's always the bank of mum and dad right? (assuming they haven't used the 'kids deposit' money to become a "property investor" themselves and therefore raising demand and the median house price).

Outbidding their kid's mates at the housing auction.

"Golly gosh oh well, we can always rent the house out to them if they liked it so much *shrug*"

Then there are people who are starting out with less than zero savings. Where or how you may ask? Student debt ...

David, are you going to do a piece on the Residential Tenancies Amendment Bill? The changes to 90 day notice and essentially doing away with fixed term agreements are huge - unintended consequences are inevitable.

Hi there. Doing something on the bill is on a fairly long 'to do' list! I have said this about the proposed changes previously. Regards.

Ah yes, this was a good read. Back then, before the dust had settled, I thought fixed term agreements were unaffected because Faafoi didn't mention anything about this in his press conference. Since learning that fixed term agreements will essentially be done away with I'm now much more concerned.

Well overdue. Fixed term arrangements are terrible.



If the banks predict 10% it will be just that. They are in control ..penny dropped yet?

Yes it feels as thought the lending taps are on.
The increasing availability of credit is a big factor in house price movement up (and reverse).

Current mood of people is to take what loan funds are on offer.

An interesting question is why have lending taps been turned on now. Now compared to 9/12 months ago.


Because the banks rule the world.
They want 10%, so they will pump enough credit to make it happen. If they wanted house prices to drop, then they could do that to.
We are all being taken for one great big b##dy ride by a bunch of crooks.

Banks appear to be more powerful than governments.

It's the central bankers that have unleashed this.

"An interesting question is why have lending taps been turned on now. Now compared to 9/12 months ago."

Hear that the lending side is still quite difficult for property investors with debt servicing calculations. The debt servicing calculations with banks have eased a bit with lowered stress interest rates being applied - previously 7.2% or higher, now I hear as low a 6.5% or thereabouts.

Regarding the effective demand for property, heard in December anecdotally that non resident offshore buyers may somehow be bypassing the foreign ownership rules via some loophole.

The other point to note is that these percentages are all moving up at a time when much more generally is being borrowed.

The RBNZ's mortgage lending by borrower type figures released recently showed that in December 2019 the amount borrowed was up nearly $1.2 billion compared with the same month a year earlier.

Banks tend to cxtend loans with real or financial assets as collateral. Ceteris paribus, if more purchasing power is newly created that is used for real estate transactions (i.e. C, rises) , land prices (a large part of PI') rise. Thus the appearance of asset price bubbles is not an 'anomaly', but a result that is to be expected , if C,. rises significantly.

The process that can trigger such asset price bubbles deserves consideration. Banks engage in asset collateralisation, because each bank assumes it cannot influence the price level of the collateral asset. However, if a large proportion of a country's banks engage in increased real estate-related lending, real estate prices will be pushed up according to (4). Due to the fallacy of composition - individual banks take land prices as given, while in effect all banks together influence land prices - there is an externality in the banks' behaviour. Land prices, although driven up by the collective behaviour of banks, are seen as good reason to extend further land-related loans by individual banks. A land 'bubble' is the result. The process is triggered by changed bank behaviour: When a shock renders banks keen to expand their loan books, they can do so by focusing on collateralised loans. As banks raise the loan/valuation ratios (see Muellbauer, 1992, on the UK ), credit constraints are alleviated, collateral prices pushed up and speculative borrowing demand rises. This represents a kind of 'Say's law of credit'; credit supply creates its demand via appreciating collateral values. Link-page 285-PDF

Not surprising at all that DTI go up when interest rates go down. What needs to be compared is income vs expenses (interest costs) like in any accounting 101 and that ratio would be very similar to 12 months ago

When nominal profits are expected to be robust, holders of money must be compensated for lending it out by higher interest rates. Thus, the same holds for inflationary circumstances, where nominal profits follow the rate of consumer prices. During the Great Inflation, interest rates weren’t low at all, they were through the roof well into double digits and higher by 1980. At the opposite end in the Great Depression, interest rates were low and stayed there because, as Wicksell wrote, the rate of profit was low and was expected to be low well into the future. High quality borrowers were given as much money as they could want while the rest of the economy was deprived of funds; liquidity and safety being the only preferences in what sounds entirely familiar. Link

But this is only half the story. First any home buyer has to have the deposit which is a huge hurdle to entry into the housing market.

BadRobot - totally agree with you that it is the more significant issue for FHB.
For a modest $700,000 Auckland home one is looking at $140,000 in savings for 20% deposit, plus bank fees, plus legal fees, plus insurance, plus rates in advance, plus moving costs, plus some pretty essential basic furnishings, plus current living expenses . . . . plus a constrained celebration of BBQ and a couple of beers.
I don't envy the current generation of FHB.

So, I'm currently going through this and thought I give you some idea - we were just quoted on a $150000 deposit and a joint salary of $135000 a mortgage of $500000. So, that's $650,000 to get a house for two adults and two children. It's not just the deposit that's the problem, you also need a huge salary. So quite frankly, all the above posters talking about how hard it is to get a house 20/30 years ago haven't a clue what it's like now.

Where are you?
Did a posting of yours yesterday say that you were passing through Hong Kong airport? Not sure whether it was going or coming back.

I am trying to give voice to a sound buzzing faintly in the back of my mind, but I can’t quite make out its meaning. Shhh……there it goes again….it sounds like FFFFHHHHBBBBBBPPP. What can it mean? But wait, its coming into focus and now I can distinguish the actual words. Listen! Yes, I get it…’s saying the First Home Buyers Party. That’s it…FFFFHHHHBBBBBBPPP….the First Home Buyers Party!
But why does this voice thus intrude upon my mind?
Listen! It’s talking….I can just make it out: it’s saying that this is election year.
Yes, I reply, but so what.
It’s saying that we live in a democracy which isn’t perfect but anybody can start a political party to advance their cause and if you attain the 5% threshold of the votes cast then you may influence policy direction…….for instance you could make it easier to help First Home Buyers into their first homes.
But, I reply, the FHBs are yelling and screaming at the tops of their voices on this very blog. Surely, people are listening.
The voice replies: they are only listening to each other, but real achievement is only accomplished at the ballot box.
I reply that it takes an enormous amount of energy to organize a political party. It would take rare individuals to start such a party, individuals that had guts, drive, weren’t inherently lazy and didn’t expect others to do the heavy lifting.
The voice replies that the FHBs and their supporters on this very blog are already expending an enormous amount of time and energy commiserating with each other at not being given things on a plate and blaming all and sundry, some of them writing multiple whinging comments in one day.
Do you think they’re serious if this is the case, I reply?
Who knows? But if they are serious, they should act now or an opportunity will vanish he says.
What do you think it would take to start a FHBP, I say?
It’s up to them. I won’t name them…..they know who they are. But maybe they’re just not able to tough it out of their comfort zone and do some hard yards. I think this blog is their comfort blanket. The opportunity is there, available to anyone in this country, and, by forming a political party they would at least gain wider publicity.
Zzzzzzzz…… I awake?.….I think I’m awake ……what? Where?......I think I must have been dreaming ……..zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz

Since you're so keen on "toughing it out" outside of your comfort zone, I can only wish upon you a nice dosage of coronavirus to wake you from your slumber and bring into focus the risks associated with over-leveraging.

TOP have beaten you to it.

TOP have gone the way of all parties that have a lame name. Who can remember what TOP stands for? They have receded into oblivion. The name "The First Home Owners Party" would certainly focus the mind and would be instantly identifiable; I think it would in the first instance give Labour a wake-up call if it was well organized and I'm certain they could could achieve 5% of the vote.

Yawn, I hear you reply, too much trouble, where do you start?

Oh well, it's back to computer games, taking selfies, and thinking up witty ripostes for the blog.

Sure it is possible to start a political party and try to change the system (with a low chance of success) and spend years on lower incomes working in politics and change the likely course of our lives entirely..

Or I could move to London with my partner where we now both work in IT in fintech startups making more money.

You are right, I do expect others to do the heavy lifting in politics. It's not how I want to spend my life.

That is crazy.

I just ran some numbers and can't fathom how a *third* of buyers are levering up that much.

We are 'only' considering 4.0x (loosely considering) and even that makes me feel sick.

So based on a 3.5% interest rate, and a 30 year P&I mortgage, the debt service ratio (debt service payments / household income) is about 22%?

For a debt to income of 5.0x, and the same loan assumptions, the debt service ratio is 27%. That seems fine and manageable even if interest rates rise. But what happens in a recession and one of the main income earners loses their source of income? Some households with main incomes reliant upon the tourism industry might be feeling under pressure, given the impact of China.

I think you raise a crucial point. It is not a rates increase that is the problem. It is the potential loss of income.

Most companies are operating on a razor thin margin. Most are surviving week to week (like their employees) It won't take much of a nudge, then watch the dominoes fall.

"For the year ended March 2019 just over 14 per cent of the work force was directly or indirectly employed in tourism"

Christchurch driver guide Jason Li delivered his last tour group to the airport on Wednesday and is now job hunting to support his wife and two-year-old son.
"I can hang on for a month, but I don't know where I will get the money from.
Li is an independent contractor and said there were many like him. "We have to keep waiting until the tourists come back."

Definitely, the loss of income in a downturn is the biggest worry.
Also, stretching because I want to buy to get into a house/neighbourhood I'd be comfortable living in for 10 years.
A nightmare scenario would be a recession that puts you in an equity trap in a house/suburb you don't want to be in.

And it's not just FHBs leveraging up (despite what other commentators are suggesting).
I know of numerous examples of FHBs in Auckland who leveraged up in 2015-2016 who now need to upsize but haven't really had much in the way of capital appreciation, and even if they have, need to lever up in a big way to get to suburbs with decent schools etc.

This is why we need a change in rental law. So you can rent in the suburb you want to live in without fear of eviction. No ability of a landlord to evict as long as you are paying your rent etc. Then you can invest elsewhere, stocks or a rental in a less desirable area.

Sounds excellent we could have uniform rents set by the govt and based on the number of bedrooms. The same rents regardless of the area at the lowest current rent in the city. Which would mean I would be able to afford to rent somewhere nice in the eastern suburbs or better still with harbour views. We could then use the spare money to feed the kids so the govt doesn't have to give them lunch. Nah Fck it's better to spend the money and let the govt pick up the tab

Loss of income not just from a downturn but from ageism and a preference for cheap migrant labour. It may well not be so easy for currently younger workers to retain a decent salary for the number of years they expect to, compared to in the past.

"I know of numerous examples of FHBs in Auckland who leveraged up in 2015-2016 who now need to upsize but haven't really had much in the way of capital appreciation"

If they choose to upsize / upgrade to another suburb, they're likely to need to sell their existing property to finance the new purchase. If they sell that property at the same price that they purchased it for, they will likely have lost about 19% of their initial deposit, assuming an 80% LVR, due merely to transaction costs.

And how long did it take for them to save that 20% deposit? (only to potentially lose 19% of it, if they choose to upsize and sell at their original purchase price) How long would it take to save the amount that they potentially pay in transaction costs? Could be over 1-2 years of lost savings there ...

Makes you feel sick? Sorry to hear you have such a weak constitution.

The reality is the a DTI ratio is really only going to affect FHB. Introduce a DTI if you wish, but you will just be shutting out a lot more FHB and increasing the number of long-term renters.
A DTI will impact very little on professional investors - and those Mum and Dad investors - who borrow against both existing and investment property as this is intended to be profitable and generate additional income offsetting any adverse effect on their DTI.
As for current home owners looking to trade up; well they are generally more financially secure and the increase in debt is usually not going to stretch them.
Will DTI have a signifcant effect on cooling the housing market? Well we have introduced LVRs nearly seven years ago, and a FBB a couple of years ago, and the market still continues to be hot and is likely to continue to do so while interest rates remain low.
I see more and more of my retired boomer mates reluctantly looking at investment property as their term deposit returns are laughable. I note that the Feb REINZ report notes increasing investor interest in Auckland adding to the contention of more long term young renters.
Will there be a market crash - well even RBNZ see house price inflation at 2% to 3% annual growth as both acceptable and likely - and will act on LVRs (more likely) and OCR to ensure stability in the housing market for wider economic stability reasons.
The failed KiiwBuild was intended to help FHB and was budgeted to cost $2.1 billion over ten years. Can we look at how that $200 million per year could better be used to directly target and assist FHBs financially????

From a boomer really concerned about young FHB.

Except if there is a credit crunch of course?

I would have thought DTIs would impact investors more? Sure they have some rental income, but that's probably not enough to cover the amount of leverage they have?

Rental income on the average house is less than the average family salary. So, a house owned by an investor and rented for income has a higher DTI associated than an owner occupier house with with 1 or 2 salaries for income, when assuming the same sized mortgage.

Land tax to replace income tax. X3 for offshore owners and x10 empty houses.

Agreed, We need to reverse that damage done by Foreign Buyers, Speculative Investors and Money Launders. Make them pay tax! Even if we just targeted Empty Homes in a city like Auckland our current government could generate huge amounts of revenue that could be used to build new homes for FTB's at affordable prices. Potentially an empty homes tax in Auckland city could generate revenue of $405,747,900.

This tax on empty homes has worked very successful in other major cities that were also had they property prices massively increased by Foreign Buyers, Speculative Investors and Money Launders. Take Vancouver for example they managed to rake in $30 million from empty homes tax in first year and their number of empty homes has reduced by 14.6% since 2018, making them available for rent/sale. Auckland 39,393 unoccupied dwellings, that's fifteen times more vacant homes then Vancouver had before they introduced their Empty Homes Tax.

So knowing that most of these empty homes are in the multi million bracket even if you taxed them at 1% year based on their 2017 CV (Council Value), they could generate an average yearly revenue of $405,747,900

This calculation based on Auckland City December 2019 median house price of $1,030,000. Evidence here:
Auckland median house price $1,030,000 - 1% yearly tax = $10,300 per empty home. x 39,393 Auckland officially unoccupied dwellings (Based off recent census results) = $405,747,900‬ potential in revenue fist year of Auckland's empty homes tax!! A Win! Win! for NZ residents since this can help to build new homes.

Sure there will be some money grubbing Aucklander's out there who will object to this tax, But that's probably because they're living overseas and leaving their property empty for over six months a year. What I say is, if they can afford to leave a property empty in a major city for long periods of time then they can afford to pay tax on it!

Why not blame everyones favorate PM - JA who fought election on CGT but backed out under pressure from powerfull lobby.

Real shame that NZ is and will always be run by politicans with vested interest (Most countries are).

Not all time, look at the Anti Money Laundering and Foreign Buyers Ban that Labour enforced. I wouldn't be surprised if the EHT (Empty Homes Tax) was brought forward for Auckland city soon, since it mainly targets Overseas Investors/Money Launders. And the best bit is the majority of them since they live offshore can't vote! It's potentially a huge amount of revenue $405,747,900 that could be used for FTB builds. No matter how you look at it other cities have already proved that most Overseas Investors are happy to pay that bit extra for their bolt hole. :)

Anti-Money Laundering and Countering Financing of Terrorism (AML/CFT) Amendment Act 2017 - passed before the 2017 election.

Living offshore does not mean you cannot vote. Plenty of ex-pat Kiwis own property and vote in our elections despite not being tax residents in this country.

GV27: Firstly the second phase of the Anti-Money Laundering and Countering Financing of Terrorism for Businesses came in to force under Labour, prior to that Phase 1 had been completely noneffective, hence why there was a Phase 2. This was vital since it targeted the "facilitators" NZ Conveyancing Lawyers, Accountants and more importantly Real Estate Agents. It was the Real Estate Agents that had pressured National in to doing nothing to stop them from facilitating the Money Launders property purchases and they really dragged their feet over it until, Labour saw the Phase 2 AML law fully implemented in January 2019. Here's a link:

Secondly: Yes you can vote if you're an NZ citizen or have an NZ Permanent Resident visa but most of these offshore city property owners are unlikely to have either and or not likely to be register to vote. It's really tricky being able to vote offshore when you're thousands of miles away, I know because I have duel nationality and you have to keep re-registering.

Agreed.Give credit where its due. In the short period that JA has been PM, we have had a slew of legislation- the Foreign Buyer Ban, ring -fencing of rental income that snuffs out negative-gearing in the main,extension of Bright-Line test, Anti-money Laundering,Healthy Homes. Perhaps a more robust application by IRD of "presumed intention to profit' by property flippers who may naively think that a sanctuary waits outside the the Bright-Line. Give Labour another shot and we may have another raft of well-intentioned & welcome measures.Empty homes tax to cure 'ghost houses" phenomena,perhaps.

You are absolutely right Jaf! :)

Geez that's scary ,Vancouver population 2.4 million ,Auckland 1.5 million thereabouts and fifteen times more unoccupied dwellings.

When i lived in China it wasnt uncommon for the Chinese to buy a lot of property and never live in them ,pure speculation ,some say there are as many as 55 million vacant dwellings in China.

Having ridden through many ghost cities in China and seeing quite a few reports pulled from the media by the CCP that reported 80m apartments not using water, I would suggest the number is a lot higher. Upwards of 100m IMO, a real time bomb.

We lived in a small city, between the 1st and 2nd ring roads in an apartment block for 2 years. When we moved in, it was new and we were expecting lots of people to move in. 2 years later when we left, there were about 25 apartments full. Out of 8 towers 20 stories high, 3 apartments per story. That's an occupancy rate of roughly 5%. Guess what? This was fairly normal for new apartment blocks...

We should import some of those ghost towers into NZ.

Which city in China did you live in?

How are they going to know if a home is empty though? These people are still paying rates. Not unless they start staking out houses to see if the lights go on at night etc, which is creepy. PLus people can put lights on timers, or do it remotely anywhere in the world with home automation,.

Water useage?
Electricity useage?

The council doesn't have access to electrcity usage. Nor possibly water usage if it is being run by a private company. That would also need more infrastructure to data match, and could also be a privacy issue. Plus people maybe using their own PV cells for power, or water tanks. Also electricity and water usage can be run remotely or on timers to give the impression someone is living in the house. There are always ways around these things.

Well then the council should have access to those right? Also, councils may also send you a letter that occupiers must send back before some deadline to prove there's someone checking the mail, this is done is some places too. Of course no way is infallible but not doing something because there is no perfect solution doe not make any sense.

The problem is that for so long, the government denied that overseas buyers were buying a large percentage of houses. Even though everyone , including real estate agents, knew that it was significant. Even now, overseas buyers seem to be getting around the new laws from what I have read.
Personally I think there should be a capital gains tax on all houses. Make it simple. Also bring in some of the other overseas taxes such as stamp duty.

Providing it is a standard m2 charge and applied fairly to all landowners - residential, rural, commercial, and industrial.

So...30% higher to businesses because it would be a deductible cost to them and not to residential owner-occupiers?

Happy times are here again ?

@Audaxes - thanks for posting this ( and other links) - very interesting reading.

The best RBNZ to help economy? is to reduce the rate by 50 more basis points on the next review. This is the most 'responsible' way to stimulate the slow productivity economy, The RE industries soon will be the savior - Most of the easy money on any other part of the world, really wanted to buy this secure gold mine NZ export, which they cannot easily purchase anywhere else.. what we called, unused land. Wake up NZ, let's do zheist. Affordability is always an issue since the very first bank notes being issued on this planet. Stop this silly ideas of working, long study etc, - it won't work! - skip those avos, coffee, vaping, savings.. get a loan instead !

Didn't the reserve bank say last year, that they do want house prices to continue rise? So aren't their decisions setup to continue this trend?

If they introduce a DTI speed limit with a value of 5, that's a lot of people who aren't going to be able to buy their home, not because they can't service the debt, but because the house prices have been inflated by property investors.


Property investors to blame for NZ's high house prices, not lack of supply, researcher says

Researcher - HC foundation. HC is a multi property, multi millionaire, marijuana pushing hypocrite. I wish she would stop popping up every five minutes. Most people realise that house prices escalated during her tenure, she didnt seem too concerned about it. Instead she used her position as leader of opposition to pressure auckland city council to stop a community house project in her area. HC was certainly not the same mould as other genuine labour leaders.

No f*ing way!

"because the house prices have been inflated by property investors."

Also for houses / single dwellings on large land sizes, owner occupiers are being outbid by small developers of infill housing.

It's odd if that RBNZ observation, no DTI tool, LVR static/relax a bit, no CGT and lastly that, OCR down. No need to ponder there, like I've read that statement recently: a bit like putting band of rabbit in charge of lettuce & carrot garden.. then wondering the next day, as why those vegs gone? - Ever wonder? - even for triviality control say just moving the OCR up? then, the result could be the same? I doubt it, because people start aware if the RBNZ can be unpredictable? or predictable like the rest now days, following the herd mentality.. just another OECD band follower.