Our PM Jacinda Ardern (and the government)

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1787 posts

Uber Geek

#2993336 8-Nov-2022 08:12

Who decides what excess profits are though? Our trusty Labour Government?

Banks (and businesses in general) exist to make money for their shareholders, banks especially have to be financially sound with resources to weather a downturn or else we risk them collapsing and no one wants a shaky banking system.

So a bank make $1bio profit (or ANZ $2bio), what does that figure look like when compared to similar sized banks in similar sized countries with similar operating conditions? I would also assume that if they made that $1bio in profits, there is tax on that of about $ 280mio, are we complaining about that?

GV27

5896 posts

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#2993339 8-Nov-2022 08:26

sen8or:

Who decides what excess profits are though? Our trusty Labour Government?

Banks (and businesses in general) exist to make money for their shareholders, banks especially have to be financially sound with resources to weather a downturn or else we risk them collapsing and no one wants a shaky banking system.

So a bank make $1bio profit (or ANZ $2bio), what does that figure look like when compared to similar sized banks in similar sized countries with similar operating conditions? I would also assume that if they made that $1bio in profits, there is tax on that of about $ 280mio, are we complaining about that?

I think it's a fair question to ask given that many who bought at the end of 2021/start of this year now face not only being wiped out, but actual negative equity.

I don't believe the person who should be asking it is the PM whose Finance Minister presided over one of the biggest private and public blowouts of debt levels in history. She should probably be reflecting on comments like this:

Asked by interest.co.nz (see video below) whether “sustained moderation” of house prices was still the government’s goal, Ardern said: “Yes. We don’t want to see the significant increases; these huge jumps in house price growth.

And perhaps wondering what role her government has played in market conditions that made it so profitable for residential bank lending.

GV27

5896 posts

Uber Geek

#2993345 8-Nov-2022 09:04

In line with the Labour Party's commitment rewarding high performers, they've reappointed Adrian Orr for another five years as RBNZ Governor.

So we can pretty safely say that Robertson is not only perfectly happy with the debacle households are now dealing with, but that it also comes with his expressed approval.

sen8or

1787 posts

Uber Geek

#2993358 8-Nov-2022 10:03

GV27:

In line with the Labour Party's commitment rewarding high performers, they've reappointed Adrian Orr for another five years as RBNZ Governor.

So we can pretty safely say that Robertson is not only perfectly happy with the debacle households are now dealing with, but that it also comes with his expressed approval.

To be fair, their own ministers have performed far worse and still got their jobs, so the precedent has been set on performance expectations within a labour led Government......

Rikkitic

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#2993418 8-Nov-2022 10:53

GV27:

I think it's a fair question to ask given that many who bought at the end of 2021/start of this year now face not only being wiped out, but actual negative equity.

I have mostly withdrawn from this thread. I don't have the economic chops to pontificate on all the things the experts have got wrong and there are other matters commanding my attention. But I have to ask, quite sincerely, if there is not an element of personal responsibility for those now facing negative equity. Did they make informed choices when they jumped on the housing market, or were they just trying to ride a staircase to heaven? It seems to me there were warnings enough that the good times could not last forever. I am not trying to minimise the grief of people in this position, but I wonder if some did not perform due diligence.

Plesse igmore amd axxept applogies in adbance fir anu typos

sen8or

1787 posts

Uber Geek

#2993452 8-Nov-2022 11:39

Rikkitic:

GV27:

I think it's a fair question to ask given that many who bought at the end of 2021/start of this year now face not only being wiped out, but actual negative equity.

I have mostly withdrawn from this thread. I don't have the economic chops to pontificate on all the things the experts have got wrong and there are other matters commanding my attention. But I have to ask, quite sincerely, if there is not an element of personal responsibility for those now facing negative equity. Did they make informed choices when they jumped on the housing market, or were they just trying to ride a staircase to heaven? It seems to me there were warnings enough that the good times could not last forever. I am not trying to minimise the grief of people in this position, but I wonder if some did not perform due diligence.

The negative equity situation is only really a problem if they actually have to sell and realise the loss and there will be some in that situation. I can't help thinking that if you don't have to sell, then don't. Or, if you do sell, make sure you buy in the same market so that at least the damage is limited as the property being purchased will also be transacted with negative pressure on the price also.

Those that jumped on the property bandwagon in the hope of making a quick buck are quite rightly going to have to take the bad with the good and they shouldn't be sooking about it to any "journalist" looking for more click bait headlines but told some home truths about risk / reward.

There are others who through a change in circumstances will be facing some big losses and that is unfortunate. A house near us sold near the peak of the market is now back for sale and prices have dropped about 12% based on "market data", I have no clue about the circumstances or their financial situation, but the result will still most likely be a loss on sale to the tune of about $100k, a bitter pill for anyone to swallow. If they bought expecting a winfall, then see my point above, but if not, then its difficult not to feel sympathy for them.

GV27

5896 posts

Uber Geek

#2993457 8-Nov-2022 12:01

Rikkitic:

I have mostly withdrawn from this thread. I don't have the economic chops to pontificate on all the things the experts have got wrong and there are other matters commanding my attention. But I have to ask, quite sincerely, if there is not an element of personal responsibility for those now facing negative equity. Did they make informed choices when they jumped on the housing market, or were they just trying to ride a staircase to heaven?

This is probably a valid question to ask. TBH I think you have to look at the kind of comments certain people were making:

The PM talking about 'moderate price increases' and stability;
The Finance Minister 'comfortable' with further price rises, just slower;
RBNZ openly talking about negative interest rates;

This isn't a Property Investors Facebook page hyping up their own investment, they're the literal leadership of the country.

I think you're asking a lot for FHBs who have spent years sitting on the sidelines and watching house prices get further and further out of reach - who are now hearing the power-brokers openly talk about things that will keep house prices buoyant, and having ruled out a CGT, not seem that interested in seeing prices fall anymore - to suddenly be able to second-guess how genuine any of this talk actually was.

The reality was if you'd done your due diligence and listened to the actual decision-makers, you would have made an informed choice. The problem is you're the one who ends up with a recourse mortgage against a declining asset, not them.

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GV27

5896 posts

Uber Geek

#2993460 8-Nov-2022 12:07

sen8or:

The negative equity situation is only really a problem if they actually have to sell and realise the loss and there will be some in that situation. I can't help thinking that if you don't have to sell, then don't. Or, if you do sell, make sure you buy in the same market so that at least the damage is limited as the property being purchased will also be transacted with negative pressure on the price also.

Unfortunately there are a lot of reasons you might need to sell; change in job/location, pregnancy, health scare, kids schooling etc. These are all fairly common things in life and if you've put off having a family, you may not have a whole more time left on the clock to crack into it.

Perversely, if you've done the sensible thing and bought a small/modest home then you may well need to upgrade in the future if you are planning on having a family, yet you could end up trapped.

As for what the answer is, I'm not sure. Targeted assistance for owner-occupiers, reform around recourse mortgages, perhaps even minimum interest terms (US banks also give out interest rates for decade at a time, here you're lucky if you can fix past five years) to help smooth pricing cycles are all options, I guess.

But it would require far more decisive leadership than we've seen to date and based on how younger Kiwis have fared with housing so far (cannon fodder), my guess we'll be expected to chalk up yet another L for the 'greater good' - which generally means watching investors who caused the problem cash out and enjoy the higher interest rates on their tax-free gains.

sir1963

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#2993467 8-Nov-2022 13:04

GV27:

sen8or:

The negative equity situation is only really a problem if they actually have to sell and realise the loss and there will be some in that situation. I can't help thinking that if you don't have to sell, then don't. Or, if you do sell, make sure you buy in the same market so that at least the damage is limited as the property being purchased will also be transacted with negative pressure on the price also.

Unfortunately there are a lot of reasons you might need to sell; change in job/location, pregnancy, health scare, kids schooling etc. These are all fairly common things in life and if you've put off having a family, you may not have a whole more time left on the clock to crack into it.

Perversely, if you've done the sensible thing and bought a small/modest home then you may well need to upgrade in the future if you are planning on having a family, yet you could end up trapped.

As for what the answer is, I'm not sure. Targeted assistance for owner-occupiers, reform around recourse mortgages, perhaps even minimum interest terms (US banks also give out interest rates for decade at a time, here you're lucky if you can fix past five years) to help smooth pricing cycles are all options, I guess.

But it would require far more decisive leadership than we've seen to date and based on how younger Kiwis have fared with housing so far (cannon fodder), my guess we'll be expected to chalk up yet another L for the 'greater good' - which generally means watching investors who caused the problem cash out and enjoy the higher interest rates on their tax-free gains.

"investors" were not the problem.

Lack of investment into housing by the government was the problem

Lack of investment into apprenticeships for trades was the problem

Lack of investment into polytechs to teach the apprentices was the problem.

Over promising with the inability to deliver because of the above issues was the problem

The the GFC, and Covid became a problem with the global shipping chains disrupted.

Failure to regulate building materials suppliers properly was a problem (Why was GIB able to set the standards ?)

Failure to keep enough timber here in NZ to make it cost effective (rather than "international" rates), same applies to dairy and meat.

Changes that made private investment shrink causing a further shortage and making the situation worse

There were a LOT of bigger and longer term problems well ahead in a the queue before "investors"

But they make a great distraction from where the blame actually lies.....governments, with national and labour.

Labour are even doing the National dance of "There is no crisis", though this time with health rather than housing.

I DO NOT WANT a tax cut, I want actual meaningful effective fixes.

sir1963

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#2993476 8-Nov-2022 13:19

Another "Jacinda" look at us being tough moment

https://www.newshub.co.nz/home/politics/2022/11/new-zealand-escalates-trade-dispute-with-canada-over-dairy-tariff-rate-quotas.html

The $68 million is 1/3 of 1% of the export value, ie exchange rate fluctuations make a FAR bigger difference.

Rule of thumb for politics

If the percentage is negligible, use Dollars, they sound bigger

When the dollars is not a lot, use percentages a $2 increase on $1 is a 200% increase.

ALL "announcements" by governments and businesses are spin, they are NEVER what they seem.

For example Labours 1800 new police promise, well they have sort of done that, what most people thought that it would be 1800 additional police, where as what we got was 1400 police left the force so we only have 400 additional staff.

networkn

Networkn
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#2993485 8-Nov-2022 13:44

Rikkitic:

I have mostly withdrawn from this thread. I don't have the economic chops to pontificate on all the things the experts have got wrong and there are other matters commanding my attention. But I have to ask, quite sincerely, if there is not an element of personal responsibility for those now facing negative equity. Did they make informed choices when they jumped on the housing market, or were they just trying to ride a staircase to heaven? It seems to me there were warnings enough that the good times could not last forever. I am not trying to minimise the grief of people in this position, but I wonder if some did not perform due diligence.

Fair question, I think there will be an element of that. I don't, however, believe that people could have foreseen Covid, and the negative impact on costs, and from there, the flow-on effect of inflation, quickly rising interest rates, and hugely increasing other costs of living.

Generally, financial institutions are required by law to ensure that there is enough 'fat' in people's incomes to continue with their payments during a reasonable period of increased costs, or decreased incomes, but it seems in many ways a perfect storm, and inevitably, some people will not keep their houses that otherwise may have managed to struggle through.

sen8or

1787 posts

Uber Geek

#2993528 8-Nov-2022 16:13

We know that when banks do a serviceability test, they use an inflated interest rate as part of their stress test on affordability. Unfortunately, we also know that many people change their lifestyle and/or spending habits when they have excess cash (new TVs, phones, holidays, cars, dining out etc etc etc) and when the squeeze comes on in terms of rising mortgage costs, if they aren't able to rein in spending (especially if they have other debts), things go pear shaped quite quickly.

I wasn't out of the car finance industry long back in 07/08 last time we had a housing value crisis and there were numerous stories from former colleagues about vehicle repossessions as people could no longer simply refinance the car on the house as their "wealth" had vanished. What happened to the house thereafter I'm not sure, but I would expect similar things to happen this time around. Casual consumer debt is always the first to start defaulting (GEM, Q Card etc), followed by vehicle financiers and then housing.

I agree that people couldn't have predicted COVID and its financial repercussions, but even before that, it wasn't uncommon for news articles (print or TV) to have various experts warn that interest rates like we had wouldn't last forever. If it wasn't COVID, it would have been something else that started the rise (its cyclical after all) and we would still be broadly where we are now at some point.

GV27

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#2993690 9-Nov-2022 06:21

We're also now seeing retail rates above what the banks would have been stress-testing borrowers at when the OCR was on the floor, so there could reasonably be a question there for the banks to answer as well.

It's one thing to expect home-owners to see it coming, but another thing if the banks (who have milked billions out of the economy as part of the upswing to their own benefit) also got it wrong.

networkn

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#2993720 9-Nov-2022 08:44

GV27:

We're also now seeing retail rates above what the banks would have been stress-testing borrowers at when the OCR was on the floor, so there could reasonably be a question there for the banks to answer as well.

It's one thing to expect home-owners to see it coming, but another thing if the banks (who have milked billions out of the economy as part of the upswing to their own benefit) also got it wrong.

Another fair point. If consumers were expected to predict hikes, one would imagine that the 'professionals' would have been even more knowledgeable and should have been testing incomes at a higher rate.

Having said that, if the only thing they tested was income to interest rate ratios, and on top there has been a massive cost of living increase, (Who really believes that inflation is only 7% when not a single thing I've bought in the past month is ONLY 7% more expensive than it was a year ago), then it's a pretty tough situation all around.

gzt

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#2994154 9-Nov-2022 22:37

Newshub says an easy bank switch law is on the way:

https://www.newshub.co.nz/home/politics/2022/11/revealed-major-shake-up-to-banking-on-its-way.html

Good. It's very sensible to align this with Australia. Aussie banks anyway..

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