Real estate, post level 4

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#2607523 20-Nov-2020 15:05

mattwnz: IMO houses are basically being used as a vehicle for banks, to lend more and more freshly printed money at the moment.

I know it's pedantic, but most money is created by banks, not printed.

When a bank loans a million dollars that million is instantly created, almost like there's a poof of smoke and a pile of money appears.

The bank doesn't have money in the vault waiting to be spent, to cover every loan made. Hence the need for bank stress tests.

A million dollar loan is a promise more that anything else.

From Selling debt: Interrogating the moral claims of the financial elites in Central Asia

"..Banks are an essential component of modern capitalism, in that they create and control token money, which is intrinsically worthless and is used as a means of final settlement of transactions.

They possess monopoly-like power to generate and honour promises to pay that facilitate market transactions.

Extending credit to firms and households can create productive capacity for the economy, which can later be used to service the debt.

But, as Minsky explains, banks are also responsible for causing excessive debt growth, asset speculation and financial instability..."

Paul1977

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#2607524 20-Nov-2020 15:06

mattwnz:

But would people be prepared to pay so much for a house and get into so much debt, if they weren't also expecting decent capital gains in the future?

But aren't capital gains pretty meaningless when you're buying and selling in the same market?

tdgeek

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#2607542 20-Nov-2020 15:14

Paul1977:

But aren't capital gains pretty meaningless when you're buying and selling in the same market?

Exactly, so for many people its not too relevant, but its nice to be a millionaire

You can off course draw down on it to buy a Porsche, trip, cool toys, emergencies.

But if you want to trade up as GV27 will want to, you need more money.

Conversely if you work in Auckland and are promoted to lead the new office in Southland, you are looking good!

wellygary

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#2607544 20-Nov-2020 15:24

kingdragonfly:
mattwnz: IMO houses are basically being used as a vehicle for banks, to lend more and more freshly printed money at the moment.

I know it's pedantic, but most money is created by banks, not printed.

In regular times you are correct,

But between August 2020 and June 2022 the RBNZ will "print" $100 Billion NZ under its Large Scale Asset Purchases programme

So its a toss up who is "creating" the most money at the moment....

tdgeek

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#2607560 20-Nov-2020 15:29

wellygary:

In regular times you are correct,

But between August 2020 and June 2022 the RBNZ will "print" $100 Billion NZ under its Large Scale Asset Purchases programme

So its a toss up who is "creating" the most money at the moment....

Yes. Increasing tbe Money Supply was supposed to be inflationary.

Creating credit (M3 if I recall correctly) is regulated so that banks dont just offer credit willy nilly.

Needless to say its complex

wellygary

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#2607564 20-Nov-2020 15:50

While there is all this talk about low interest rates driving up property prices.

They also eventually help the Corporate sector......

Case in point,

Chorus just closed a $400 million bond issue, at rates of sub 2%...

It replaces a 5 year $400 million Bond they sold in 2016. that was paying investors 4.1%

Their funding costs have fallen by 1/2 ...

that's a huge boost for businesses.....

wellygary

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#2607565 20-Nov-2020 15:52

tdgeek:

wellygary:

In regular times you are correct,

But between August 2020 and June 2022 the RBNZ will "print" $100 Billion NZ under its Large Scale Asset Purchases programme

So its a toss up who is "creating" the most money at the moment....

Yes. Increasing tbe Money Supply was supposed to be inflationary.

Creating credit (M3 if I recall correctly) is regulated so that banks dont just offer credit willy nilly.

Needless to say its complex

Yeah, Capital ratios control the ability of Banks to lend....

Sharesies

Trade NZ and US shares and funds with Sharesies (affiliate link).

quickymart

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#2607862 20-Nov-2020 22:10

What about someone on a single income who is planning on getting a flatmate to help cover the rest of the mortgage? Or is someone in that scenario totally out of luck at the moment, even if they have a decent (ie, more than 20%) deposit?

mattwnz

20164 posts

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#2607870 20-Nov-2020 22:36

Paul1977:
mattwnz:

But would people be prepared to pay so much for a house and get into so much debt, if they weren't also expecting decent capital gains in the future?

But aren't capital gains pretty meaningless when you're buying and selling in the same market?

Many people will be upgrading or downgrading or moving to another area, so the price difference between houses being purchased and sold maybe significant with price hikes. But FTBs are some of the most affected by price rises, and the market relies on FHBs or overseas or investors to buy, to replenish owners.

mattwnz

20164 posts

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#2607873 20-Nov-2020 22:41

wellygary:
While there is all this talk about low interest rates driving up property prices.

They also eventually help the Corporate sector......

Their funding costs have fallen by 1/2 ...

that's a huge boost for businesses.....

But there it's another side to this sort of thing
It is often mum and dad investors who are buying these due to the rates in banks being so low. So they are taking more risk for what is also a pretty poor interest rate.

This is why so many are also buying houses where they hope will generate a better return.

mattwnz

20164 posts

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#2607874 20-Nov-2020 23:03

This is quite a good article I came across. I think it is a few years old but holds true today. We do have to realise that NZers are paying more for houses compared to our earnings and there is no political will to resolve it. https://devonfunds.co.nz/no-real-political-will-tackle-housing-crisis

gzt

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#2607875 20-Nov-2020 23:05

quickymart:
https://www.newshub.co.nz/home/politics/2020/11/house-prices-to-double-in-seven-years-and-there-s-nothing-jacinda-ardern-can-do-about-it-property-expert.html
Is this Ashley guy right? Should we just keep on letting prices rise to the moon, do nothing about it, and eventually no one will be able to afford a house so...prices will drop? Am I understanding him correctly?

I've read a few of his articles. (a) now is always the best time to buy (b) throw gas on the fire. At least they are consistent.

mattwnz

20164 posts

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#2607877 20-Nov-2020 23:23

The government first home subsidies are also a joke and the figures need a new house in Auckland to be under an amount that is unlikely to be possible now. The don't update the maximum price figures quick enough to remain relevant.

We need a land tax on all houses, and a ghost house tax to stop investors housebanking perfectly livable houses for capital gain. But the governed is hamstrung for 3 more years due to promising no new taxes. All they can do is give money to FHBs for their deposit, which imo will pour fuel on the fire.

NZs homeownership is dropping and it is described as being a housing crisis for a reason.

quickymart

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#2607886 21-Nov-2020 00:16

gzt:
quickymart:

https://www.newshub.co.nz/home/politics/2020/11/house-prices-to-double-in-seven-years-and-there-s-nothing-jacinda-ardern-can-do-about-it-property-expert.html

Is this Ashley guy right? Should we just keep on letting prices rise to the moon, do nothing about it, and eventually no one will be able to afford a house so...prices will drop? Am I understanding him correctly?

I've read a few of his articles. (a) now is always the best time to buy (b) throw gas on the fire. At least they are consistent.

Like I said before, he comes across like he's got 10 investment properties on the go, so it's probably in his best interests for prices to stay as high as possible for as long as possible. He couldn't care less about first home buyers - he's sorted.

mattwnz

20164 posts

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#2607888 21-Nov-2020 01:03

quickymart:

gzt:
I've read a few of his articles. (a) now is always the best time to buy (b) throw gas on the fire. At least they are consistent.

Like I said before, he comes across like he's got 10 investment properties on the go, so it's probably in his best interests for prices to stay as high as possible for as long as possible. He couldn't care less about first home buyers - he's sorted.

I don't blame him. He is often on the radio and I like some of what he says. He was infact saying that the whole reason people invest in property was due to the poor amounts of alternatives in New Zealand, such as our sharemarket being tiny and limited. But IMO there are too many people with vested interests in property, to make subjective decisions, to make the tough calls over taxing it more fairly. It is a political football, larger than the superannuation football. Something no government wants to touch, as it will mean they are unlikely to be voted for. Labour have hamstrung themselves for 3 years. They can't do anything, except get taxpayers to fund FHBs with subsidies of some type, to allow them to get a larger deposit to cover the rising house prices.

There is a reason why so many National voters voted for Labour this time around. To make sure Labour ran with a majority, and so the greens couldn't get any of their wealth taxes in. Very clever of them to say that if you want to make sure wealth taxes wouldn't come in, make sure Labour gets a majority. IMO that is probably the main reason they did so well.

SO much for the 'housing crisis'. It was barely a topic at the debates. They just keep kicking it down the road for another 3 years.

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