Dipping our toes into the podcasting world, interest.co.nz probes whether it would be possible and desirable for the government and Reserve Bank to deliberately reduce house prices

Stupid house prices well documented and discussed as the greatest driver of inequality. It socialises the damage as tax payers pickup the tab, while privatising the profit in the form of tax free gains and massive bank profits. So why not "right size" house prices...?

Orr begged for DTi and now seems afraid to apply it. There is a term for this.

End of the day if China pops, and/or the world finally wakes up that the US is bankrupt it will happen anyway. The global banking empire has simply bloated the everything bubble in the sole cause of protecting it's own debt based enslavement model. A bubble that is totally unsupported by fundamentals like income.

The question is should Orr get in front of this to manage the fall out on our terms, or continue to follow global "pump it up" instructions...

The government and RBNZ should stop trying to correct something that they created and have already allow to happen , its their own fault. If they stop sticking their noses in the state of the housing market then it will sort itself out.

The problem with your compensation scheme is identifying who are investor buyers. Maybe you are referring to recent first home buyers who bought a lower quartile property, planning to sell up in the near future, upgrade to a better home. That makes them an investor. Whether they only own one home or own several, they still engaged in speculative behavior, so I'm curious as to why they deserve sympathy for financial hardship.

Jump or be pushed into one.

"Catastrophic" Property Sales Mean China's Worst Case Scenario Is Now In Play ... Zerohedge

https://www.zerohedge.com/markets/catastrophic-property-sales-mean-chinas-worst-case-scenario-now-play

No matter how the Evergrande drama plays out - whether it culminates with an uncontrolled, chaotic default and/or distressed asset sale liquidation, a controlled restructuring where bondholders get some compensation, or with Beijing blinking and bailing out the core pillar of China's housing market - remember that Evergrande is just a symptom of the trends that have whipsawed China's property market in the past year, which has seen significant contraction as a result of Beijing policies seeking to tighten financial conditions as part of Xi's new "common prosperity" drive which among other things, seeks to make housing much more affordable to everyone, not just the richest. …

… With that preamble in mind, we bring readers' attention to a little noticed report in Shanghai Securities News, citing China Real Estate Information Corp. research (link), which revealed that more than 90% of China’s top 100 property developers’ sales declined in September by an average of 36% from the same period last year. According to the report:

• Sept. sales totaled 759.6b yuan ($118BN), down 36.2% from September 2020 and 17.7% lower from the same period in 2019, deepening a downward spiral that started in July
• Among companies, 60% of developers saw sales decrease by more than 30% y/y in Sept.
• Beijing, Shenzhen and Guangzhou saw transaction volume of residential properties decline 30% y/y, while Shanghai fell 45% …

So while some observers have compared Evergrande’s woes to the epic collapse of Lehman, the truth is that the coming default is just the trigger event whose downstream effects would pull down the entire Chinese bubble house of apartments cards, something the latest housing data show is already in play. Because at the end of the day, no Ponzi scheme can continue if the participants lose faith in a favorable outcome, and at $62 trillion China's housing sector is the world's biggest Ponzi scheme. Which is why other experts have said this isn’t a Lehman Brothers moment— it could be far worse, if one views China’s gargantuan real estate sector as rotten to the core.

Nice podcast. 

What seems to be the premise of this podcast is that the government and RBNZ can engineer asset price growth and decline if they have the will to do so.  I wonder whether that premise is partially a mirage?   A house price collapse might occur without government directive and government might not be able to arrest one either.

As Grimes states, there is no doubt that successive governments have underwritten and boosted house prices through all sorts of policies including aggressive net immigration.  This has created moral hazard on a grand scale, (which Michael R's idea about taxpayers compensating FHBs would only add to).  But historically, low real interest rates driven by global economic conditions have been the main driver house and other asset price inflation in my view. 

Real house prices have fallen before.  This period was masked by high inflation and that perhaps is what we should be thinking about.

"Dipping our toes into the podcasting world, interest.co.nz probes whether it would be possible and desirable for the government and Reserve Bank to deliberately reduce house prices"

Gareth Vaughan, why is it that this question / doubt was never raised and discussed : whether it was desirable for the government and reserve bank to deliberately boost the house prices at time in double digit in a month". This they did at drop of hat following policy of LEAST REGRET - Action first.

They said that they  wanted to stabilize the housing market but in reality used pandemic to go all out to support and promote the ponzi....even now knowing what is happening ....what are they doing ...still using pandemic to not act...how is lockdown stopping their discussion on DTI.

An artificial correction? Sure, restrict lending. Just apologize in advance to anyone who has bought recently. 

A long term correction? Take one of those myriads of reports that compare housing cost differences between NZ and AU and actually implement something.

The market will correct itself eventually. Either you let markets function and small regular corrections occur, or you have state controlled markets that correct infrequently but massively. Guess which one this is.

Prices would quickly level out if all house buyers were limited to NZ citizens or permanent residents.
 

And all Trusts or companies worth more than 3 million had to pay a 5% stamp duty and go through a personal vetting process with a nominated named person of interest who must be a citizen or permanent resident before being permitted to buy (another) house.  
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Somehow, currently,  global mega-money is still pouring into NZ property.

But kiwis expect house prices to rise... I was proudly reminded by someone at a picnic yesterday that house prices double every 7 years...

Great podcast - but how about you do one on the government intervening (regulating) in the private rental market?  Quash the subsidies and rent and asset prices will both go into reverse.

Put up interest rates, problem solved. They should be around 7 to 8% right now. It’s just nuts!

Seems to me that the NZ economy is now based on housing. The only way forward is building more houses and opening the floodgates to let in even more people to buy houses and turn into "Good little consumers" to boost what is perceived to be our "Economy". There is no way in hell that any government is going to force any kind of house price drop. If you waiting for a correction it will now only come from some massive global event that is beyond what the government can do to stop a house price correction. To be very clear the government are stopping prices falling and are not interested in prices rising.

To paraphrase Jim Rickards. They’re tinkering with the market as though it was a thermostat.  What they’re really doing is changing the settings on a nuclear reactor which has non-linear dynamics and could easily blow up.   

Ps. More podcast content would be good. Real time interviews etc. 

Twice in my time in the housing market in NZ have we been caught short. After the sharemarket crash in 1987, the following 4 years were bloody tough. We'd just bought our 3rd home & watched our value decline by 25% before finally getting our noses back in front almost 10 years later. The second was 2007-2009 GFC. Values declined 20% where were were before lifting back slowly mid-decade, then.... well, you know what. Boom.

We missed the millennium troughs (Asian crisis, Y2K) as we were starting a business & didn't own property at that time. I remember the early 1970's were also tough but I'd only just left school & didn't really understand the ins & outs at that time. We're overdue for another correction in my mind. A 20% fall over a two-three year period would be ideal. This is a good thing long term for all aspiring home owners in New Zealand, but no good short term for the govt. Anyhow, I don't think she'll have a choice. It's offshore where all the action is, already. But it'll come.

Just to float such a scheme is like a dog walking on its hind legs: it is not done well but one is surprised to see it done at all.

Another dumb idea.  If it was possible to crash the market let's go for 50% NZ would suffer a depression type scenario that would last for years. 

It would completely kill of the construction industry and lead to a substantial depopulation which some people would like. 

Several banks would default,  savers would lose their savings. 

Where would it lead to,  cheap house's for some but massive unemployment would still make house buying impossible. 

The unintended consequences would be so great and lasting I for one would leave the country hopefully before the event. 

"Dipping our toes into the world of podcasting, we look at whether it would be possible and/or desirable to engineer a housing market correction"

A housing market correction IS underway, just like a huge tanker changing course, it takes time to manifest itself.  2022 will show no house value gain and quite possibly some drops

Why would they do that.  They already engineered an upwards housing market correction when they used their superhuman levels of intelligence to drop interest rates to zero, pumping billions into housing lending and virtually nothing into business lending, while removing loan to value restrictions and swearing not to reinstate them for a year.

I clearly remember being censored by "Ed" for uttering the word "morons" in dismay at the obvious stupidity and recklessness of their actions.

In hindsight, far stronger language would have been accurate.

"The spirit of envy can destroy; it can never build." - Margaret Thatcher

Why would anyone want to engineer a situation that put FHB in negative equity?

Just stop cramming more humans into the country every year. Problem solved. 

'For the greater good, a case can be made that a house price crash would be desirable'

I didn't hear anything in this podcast that makes this case. Presumably if the RBNZ were to do this they would abandon LVRs, DTIs etc. as every time they tighten them up they cite the risks of a housing bubble and subsequent crash - they are doing it to protect banks and borrowers from themselves and to stop the market from crashing.

... given the unintended consequences of the governments  & the reverse banks actions to date  ... pushing house prices up 50 % across the nation since 2017 ... why would we allow the same bunch of incompetents to engineer a mini crash ?

Or ... we could just address the multitude of constraints on the construction industry ... and ratchet up the supply side whilst achieving cost savings on section prices , materials , and council permits ...

Completely possible to do and highly desirable for house prices to drop. 

This has become New Zealand greatest social disaster.  With negatives in every sphere, right down to childrens health.

We need to build a high income low cost nation.  And be  a nation of owners not borrowers.

Righto team. I’m 29 years old with roughly 100 in Auckland as a FHB.

Any resources or advice? 

House prices are about right it is land prices where reality is abandoned. 

Imagine all land being nationalised and trading at roughly the price you would pay for it if you were growing strawberries. That would cut the value of my property (1960's bungalow on 1600sm in Auckland) by at least two thirds but leave the new build apartments and town houses just slightly reduced.

Most of the house price increase has been because land supply is being squeezed by councils. Just remove their authority and watch house prices plummet.

New Zealand has two choices, we either have a managed decline or a crash.

Engineering a housing correction would have serious unintended consequences i.e for small to medium business owners who have funded their businesses via mortgage borrowings.

These academics and politicians fail to grasp the fact the property market is cyclical not linear. i.e. there are times of rapid strong growth (Boom) and times of less or even negative growth (Slump).

The emotional fiction view consistently being voiced (by people who surely must know it's untrue) that we have not had a correction in property values in decades is false.

In 2008 values fell according to the most reliable house price measure in the country (the QV HPI) by 10%.

That is fact not emotional fiction.

Ironically when property becomes cyclically most affordable during the Slump phase of the property cycle few people are motivated to buy, yet when values are rising everyone wishes they had bought yesterday. Human nature does not appear to follow common sense sometimes.

It does appear the real issue is to ensure FHBers can be able to afford to enter the market and the government DOES have the resources and can easily create the tools to achieve that but they keep tripping up on all the crazy advisory boards full of talking heads with all their theories and hypothesis of dreamlands devoid of any real world practical applications.

For as long as NZ govts continue with our (Lange/Caygil debacle based on Don Brash's report) draconian Superannuation TTE (google it) tax system, people will save for their retirement by using housing. Other forms of retirement saving in NZ are blasted by tax so that the outcome when one turns 65 is a poverty pittance income. Other countries we identify with don't have the same housing issues as us because their Super savings systems are fairer and generate bigger nest eggs (ie EET based systems) and result in a much higher living standard for retirees. I've experienced living in Canada and OZ and have seen their superior retirement savings tax systems. For USA think:

• 401(k).
• Solo 401(k).
• 403(b).
• 457(b).
• IRA.
• Roth IRA.
• Self-directed IRA.
• SIMPLE IRA.

For Canada think:

• RRSP
• CPP
• TFSA

...and the like

 NZ retirees relying on NZ savings vehicles including Kiwisaver are headed for poverty in retirement due to crushing tax burdens unless they invest in property (mainly houses for most Ma and Pa savers). In addition small business and bigger business rely on housing as security for business loans/development/growth/exports/ employee jobs. A New Zealand Govt that tampers with investing in residential property risks endangering the entire economy. The USA doesn't have the same issue because it doesn't allow personal guarantees for mortgages (hence jingle mail - keys in the mail back to lenders when defaulting) during the GFC 11 years ago. Its a complicated area which NZ govts have exploited for revenue raising at great cost to NZ citizens. Note that parliamentarians' 'old style' defined benefit super schemes means MPs are immune to the retirement deprivation problems that will faced by their constituents.

A compensation scheme should be relatively simple, but I would not go there until the banks go bankrupt and we can regain ownership and stem the $6 billion annual loss to the country. 

As for compensation :

1 Property investors - none.  Investment caries risk and the government has never compensated share investors and their investments are far more benefit to society.

2 Corporate farmers - none.  similar reasoning and I would rather remove farm price pressures so that family farmers and share milkers have a better chance

3 Commercial lending - none

4 Owner occupiers - Write off a proportion of the mortgage equal to how much the value of the property has fallen below what you paid for it when you bought it.  E.g.  say you paid $750 K for the house, 3 years ago, borrowed $500 k and the house value drops to $500 k, then the mortgage would be dropped 1/3 to $333 k.  I.e the owner and lender still own the same proportion of the property.

5 Farming families actively working the farm - the same scheme as 4 above. 

But why are we even considering any of this.  Jacinda has vowed that she will never let house prices drop, and if the past 20 years have taught you anything, it is that no government will ever let this happen.

If you are holding out in the hope that you will be able to afford a house in future when prices fall, - forget it.  It is never going to happen and you need to accept that and move on to an alternative plan.  - leaving the country is your only hope.

"Would it be possible and/or desirable to engineer a housing market correction?"

Gareth, The Very thought is frightening and anyone even thinking should be silent.......why do you want to give heart attack to Uncle Orr and  Aunty Jacinda.................ponzi........characteristic of ponzi is that it has to continue or will crash..........so please do not even think of disturbing  the only economy in NZ.

You are a brave person to even suggest and good that are in democracy otherwise would have vanished from the earth..........

Once the absolutely shoddy standards of recent builds begin to manifest themselves, in the not too distant future, they are going to collapse anyway.

But yeah, the price of housing needs to be affordable, end of story.

Disappointing to hear about 160,000 immigrants in the pipeline. Haven't we done enough of this already?

Why is this old article displayed?

Of course! Neoliberal shifts over the last several decades have manufactured high property prices. It's as simple as reducing tax burden on GST and income tax and bringing back land tax which was abolished in 1990. Job done.