Solving the house price problem should be easy!

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#3103672 13-Jul-2023 15:12

sir1963:

Name 3 top NZ sports people

Name 3 top NZ business people

Name 3 top NZ musicians/bands

Name 3 top NZ scientists

Name 3 top NZ engineers

Name 3 top NZ historians

See how many you have to google.
Now think how the "average" person would go with those questions.

Celebrating these people doesn't really mean anything. Historians, engineers and scientists aren't memorable because chances are what they are doing isn't entertaining. It might extremely important, but not very often entertaining.

I applaud academia's efforts to make papers more accessible by the average person. I read economic books, and being blunt, they are often painfully dry and I grind my way through some of them due to stubbornness. It is really hard to make boring content interesting,

Whereas we have sports folk on the front pages of paper/news/websites, musicians constantly because it's more entertaining than reading someone's thesis. Most people might scan a headline of a scientific breakthrough, but they're not going to read the published paper and remember it in years to come.

Eitsop

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#3199467 24-Feb-2024 12:58

Eitsop:

Some ideas for solving house problems are

capital gains tax, like Labour had proposed
land tax, like TOP party
rent controls, like greens saying 3% rent increase cap
national I don't think has any ideas, other than blocking the above ideas
We need to step back and ask what we are NZers want for our population

affordable houses
that everyone in NZ should be able to buy a house
that people should be able to pay off their mortgage by the time they are retired
house price inflation should be inline with normal inflation
If the above is correct, then the answer is as simple as

changing the mandate of RBNZ to also control house price infaltion to the same target as normal inflation
giving RBNZ more tools to control inflation, eg

interest rates are great to control house prices,
Other tools to control normal goods and services inflation
While the above is simple, no government or political party will do what's right.. they only do what suits the people that get them into power. So we flip-flop between left and right politics, which most of the western world is suffering from. When will we get leadership that can combine both left and right sides of government to get meaningful long-lasting change.

Why do political parties believe they have all the right policies? its like waring factions believing god is on their side.

True Leadership would consist of having referendums on what the public wanted NZ to be like.. and executing that. This was clearly done with the right to die referendum.. and while the cannabis referendum showed a divided public for a decisive change.. it did indicate something could have been done.

We should be voting in people that execute a framework of results from referendums

So I open the floor to your views.. will they be left or right.. or middle of the road

After 9 months I have circled back on my thinking.. with additional info

birth rate has dropped to lowest rate, after a continuous drop for generations
the ratio of people per house continues to drop (even with new house builds), as people get older, and we import more adults via immigration
The cost of living crisis.. is not something that has occurred in last 2 years, it has been building for 30-40 years
we see places like California with massive homeless with massive house prices
increased crime and gangs
increased mental health issues
young people not seeing a viable future.. and not engaging

I would like to see government agree on a long term population approach

see more people owning own homes by retirement
if homes & life are more affordable, the ability of have more children is aim
ability for people to have a work life balance that doesn't require them working for more thanks 40 hours to live and bring up a family

and I am re-enforced in thinking the government should get RBNZ to maintain

house prices to max of 3% per annum (or tied to wage growth)
rent controls to max of 3% as well

I would also like to see a Universal basic Income of $300pw for Children from 0 to 18.. that is paid to parents, to assist in living costs

We need to teach kids that working hard is the way to getting forward in life, not how you invest in property and we want life to be enjoyable, not a fight to put food on table and roof over head.
If people see that working hard is achievable, resorting to crime or succumbing to mental health issues should resolve

Handle9

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#3200363 27-Feb-2024 01:36

There is no monetary mechanism the Reserve Bank can use to control house prices. It does not exist. Equally the RBNZ can not set rents. It's not a monetary policy.

The most recent time this sort of thing was attempted was 1982-1984. It was an abject failure, massively unpopular and as soon as the controls were released the underlying causes of inflation returned.

Inflation is either demand side, where demand outstrips supply, or supply side where supply is restricted below demand. House prices in NZ are a symptom of supply side. There is a structural shortage of housing relative to population growth.

To reduce house prices relative to incomes supply relative to the population needs to dramatically increase. RBNZ can't do anything about that, it's not a monetary policy issue.

There are some other fiscal levers that can be pulled but it's not a monetary policy issue.

mudguard

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#3200367 27-Feb-2024 06:51

Handle9:

There is no monetary mechanism the Reserve Bank can use to control house prices. It does not exist. Equally the RBNZ can not set rents. It's not a monetary policy.

I wonder if the changes to the Reserve Bank controls mean they can keep cranking interest rates, I mean if you don't have to worry about unemployment and inflation is still there, you can just keep increasing rates.

I wonder if there is a graph that shows interest rates vs the rate of housing price increases. If rates sat around 8% most of the time I'm sure that would have a decent effect on the rampant growth of prices.

GV27

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#3200371 27-Feb-2024 07:36

mudguard:

I wonder if the changes to the Reserve Bank controls mean they can keep cranking interest rates, I mean if you don't have to worry about unemployment and inflation is still there, you can just keep increasing rates.

I wonder if there is a graph that shows interest rates vs the rate of housing price increases. If rates sat around 8% most of the time I'm sure that would have a decent effect on the rampant growth of prices.

There's a tidal surge effect. You can have high interest rates but in the absence of controlled or planned population growth, the flow-on effects will get swamped by the additional pressures bought in by a population that grows at a much faster rate than it can supply houses, infrastructure or other goods to support it.

If you held everything else as equal, then yes, interest rates would probably do the job over time. But the population issue tends to get overwhelmed by extreme edge-case arguments and it's pretty clearly going to keep running red hot until we learn how to have a sensible discussion about it, and be prepared to admit that we've got ourselves into a bind when it comes to land supply, density and infrastructure that we may not have the capability to get ourselves out of.

GV27

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#3200373 27-Feb-2024 07:41

Eitsop:

I would like to see government agree on a long term population approach

see more people owning own homes by retirement
if homes & life are more affordable, the ability of have more children is aim

The drop in the numbers of children per household is cited as a reason we should build smaller houses, but there's no real discussion about whether one thing is causing another. The cost of actually raising children (food, daycare etc) aside, there's a big argument that the huge mortgage and price costs of home ownership effectively act as a hard cap on people having children.

Medium density houses usually tap out at four bedrooms, granny-flats are becoming increasingly rare and the price of going up to five bedrooms for many is insanely prohibitive. So I would question whether people are actually making that choice or whether we simply have the illusion of a choice, and are justifying it using other convenient reasons.

JimmyH

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#3200487 27-Feb-2024 12:18

Eitsop:

and I am re-enforced in thinking the government should get RBNZ to maintain

house prices to max of 3% per annum (or tied to wage growth)
rent controls to max of 3% as well

The Governor of the Reserve Bank isn't Gandalf, and he can't do magic. Just waving your hands at the RBNZ and saying "make it so" doesn't mean they can do it.

What mechanism do you think the RBNZ has that would enable it to control house prices. And don't say interest rates - interest rates are used to influence the overall purchasing power of the $NZ (i.e., inflation), they can't simultaneously be set to control house prices - it's either one or the other.

And how the heck do you think the RBNZ can possible control rents? What instrument do you propose it uses, and what's the transmission mechanism?

Hatch

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

Eitsop

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#3200543 27-Feb-2024 15:25

JimmyH:The Governor of the Reserve Bank isn't Gandalf, and he can't do magic. Just waving your hands at the RBNZ and saying "make it so" doesn't mean they can do it.

What mechanism do you think the RBNZ has that would enable it to control house prices. And don't say interest rates - interest rates are used to influence the overall purchasing power of the $NZ (i.e., inflation), they can't simultaneously be set to control house prices - it's either one or the other.

And how the heck do you think the RBNZ can possible control rents? What instrument do you propose it uses, and what's the transmission mechanism?

Supply & Demand.. while RBNZ can't control supply, RBNZ can

increase mortgage rates, which can alter the demand
be more restrictive on income vs debt ratios

Why do you think house prices boomed in last couple of years.. it was cheap debt/interest rates.

While rents, RBNZ can't control this at present.. but the Government can give them powers to control rents.. and many governments and cities around teh world already have rent controls.

I would also like to see RBNZ given the power to use Kiwisaver rates to as a tool for inflation control, eg they could require extra to be saved, reducing immediate purchasing power.. at least savings go back into the persons savings

High Inflation is bad.. and can be visible to people over a short period of time... which is why we have RBNZ..

High House inflation is bad.. can't be seen over the short-term... long term it is intergenerationally bad

Handle9

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#3200547 27-Feb-2024 15:36

Why do you keep trying to pin rent control on the reserve bank? It’s so far outside their core competency that they are absolutely incapable of doing this.

mudguard

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#3200565 27-Feb-2024 17:01

Eitsop:

I would also like to see RBNZ given the power to use Kiwisaver rates to as a tool for inflation control, eg they could require extra to be saved, reducing immediate purchasing power.. at least savings go back into the persons savings

How would this work? Mandatory contributions?

JimmyH

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#3200566 27-Feb-2024 17:16

Eitsop:

Supply & Demand.. while RBNZ can't control supply, RBNZ can

increase mortgage rates, which can alter the demand
be more restrictive on income vs debt ratios
Why do you think house prices boomed in last couple of years.. it was cheap debt/interest rates.

While rents, RBNZ can't control this at present.. but the Government can give them powers to control rents.. and many governments and cities around teh world already have rent controls.

I would also like to see RBNZ given the power to use Kiwisaver rates to as a tool for inflation control, eg they could require extra to be saved, reducing immediate purchasing power.. at least savings go back into the persons savings

OK. This is getting a bit nutty:

Yes they can drive up interest rates, and if they drive them high enough they will probably cause house prices to fall. But you are effectively asking for the RBNZ to give up inflation targeting to target the price of one particular asset instead (i.e., housing). Because interest rates are the independent variable that they can control. They can't use this to simultaneously target two dependent variables with one independent variable, it's analytically impossible and the world just doesn't work that way. They can either set rates to targeting inflation, or house prices, not both. So that won't work.

DTI ratios are more about the financial stability of the banking system (i.e., ensuring that bank loan books are supported by sufficient collateral) than control house pricing. Other than in the relatively short term they won't work to control house prices or lending, institutions will evolve to avoid them. Muldoon tried it with restrictions on bank house lending in the 70s and 80 etc. It failed, all that happened was a lot of house lending shifted from the banks to non-bank lenders and solicitors nominee accounts.

Aside from rent controls being daft, and a failure pretty much anywhere they have been put in place, why would you ask the RBNZ to set rent controls. It's utterly unrelated to the RBNZ's function, and it has no competence/expertise to be the nations grand rent regulator.

Price is just what is needed to equilibrate demand. If you want the price to fall then make it easier to build (consents, free up land, land-use regulations etc), and turn the policy levers that reduce demand for housing (immigration settings etc). Address the causes of the increase, rather than trying solutions that won't work to try and mask the symptoms.

And on that note, I'm out of this discussion, which is getting circular.

Handle9

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#3200664 28-Feb-2024 06:32

mudguard:

Handle9:

There is no monetary mechanism the Reserve Bank can use to control house prices. It does not exist. Equally the RBNZ can not set rents. It's not a monetary policy.

I wonder if the changes to the Reserve Bank controls mean they can keep cranking interest rates, I mean if you don't have to worry about unemployment and inflation is still there, you can just keep increasing rates.

That's exactly what they will do. Regardless of whether they changed the dual mandate they would have done the same thing.

GV27

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#3200684 28-Feb-2024 08:32

Eitsop:

I would also like to see RBNZ given the power to use Kiwisaver rates to as a tool for inflation control, eg they could require extra to be saved, reducing immediate purchasing power.. at least savings go back into the persons savings

When you have people living on the bones of their arse and inflation running at above the minimum contribution rate, then taking 3% (or more) out of someone's net pay absolutely makes a difference to whether they can make ends meet.

The solution is to simply act quicker when inflation pops up and to not then try to rewrite history when people ask why you didn't.

quickymart

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#3200737 28-Feb-2024 10:12

Eitsop

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#3200752 28-Feb-2024 10:51

quickymart:

Related: https://www.rnz.co.nz/news/political/510320/housing-minister-chris-bishop-sets-long-term-price-target-of-three-to-five-times-household-incomes

I applaud that target, but making land available is not the only lever

They can give RBNZ enough tools and choices to help maintain inflation and house inflation.

RBNZ Made a mistake in Last 2 years lowering the interest rates, and allowing the house price boom

They could have

set interest rates ultra-low
still required ration of 4:1 debt to income
required banks to ensure borrowers could pay when interest rates returned to normal levels

The first Step is to agree that high Inflation is bad

Second step is to agree high house price inflation is bad

Then to ask RBNZ, what tools they need to achieve stability

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