RBNZ engineering our next recession

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Forums › Finance and wealth management › RBNZ engineering our next recession

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#3004421 2-Dec-2022 07:51

mudguard:

I wonder if could simply done more elegantly in regards to the security over a home. We all know that generally the hardest part of the home purchase is deposit. Why not simply extend that principle and remove the ability to use equity in an existing home to finance the subsequent house?

We all know that typical Mum and Dad investors aren't stumping up another 20% deposit in cash for their first rental. Maybe legislation could tie lending to only one property. A subsequent purchase would be from scratch, IE another cash deposit.

Or first home 20% deposit, second house, 40% and so on. But remove that ability to use existing equity.

I reckon if we increased builds, house price increase would slow, the desire to get a rental will slow. We need rentals and I see no issue with Mum and Dad landlords. Anecdotally they charge less rent than corporate landlords

mudguard

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#3004424 2-Dec-2022 07:57

tdgeek:

I reckon if we increased builds, house price increase would slow, the desire to get a rental will slow. We need rentals and I see no issue with Mum and Dad landlords. Anecdotally they charge less rent than corporate landlords

That still doesn't get around the big cost, land.

GV27

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#3004427 2-Dec-2022 08:06

mudguard:

Or first home 20% deposit, second house, 40% and so on. But remove that ability to use existing equity.

This is coming up more and more now as a discussion point. If you already have equity, then you can leverage to get more equity, which you can leverage to get more equity.

So your ability to borrow as an investor is (or was, at least) huge compared to FHBs, who faced scratching together a 20% deposit out of salary and wages which took years and years.

GV27

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#3004431 2-Dec-2022 08:11

tdgeek:

30 + year mortgages, which allow less finical people to buy, and instead of paid off in 20 years, it would form part of an inheritance, the key issue is "its MY home" not when its paid off. Obviously for new builds only

Need to be creative, its a math game vs human emotion.

30 year mortgages simply allowed prices to take off as spreading the payments over a longer period of time made them look more affordable and meant more people could borrow. Until land, supply and other issues are addressed, increasing mortgage terms and making mortgages longer is just going to allow people to frontload more debt and push prices up higher.

In reality, we should be capping the length of mortgages, ideally no further than 25 years, and use that price signal to the market to drive down what vendors can expect people to pay. That will work if we can keep a stable population and increase our supply of new houses to the market - but they have to be supplied at an affordable level (i.e. not $800K for a two bedroom townhouse).

Spending your whole working life paying down the mortgage on a starter home is not something we should accept as normal or acceptable in NZ - at least if we want young people to actually stay here and raise families.

sen8or

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#3004452 2-Dec-2022 09:02

Do people stay in one place and repay a 30 year mortgage though, especially on a "starter home"?

First homes are just that, a step on the ladder. It would be fairly normal these days for a multitude of things to change after buying your first house - e.g.

- It could be a do er upper, with some capital gain on work put into the house (this was probably more common a few years ago before the multitude of townhouse rows)

- People change jobs (either through promotion or an alternative employer) and thereby change income (usually for the better), increasing disposable income and therefore ability to trade up to something bigger or in a better area etc

- Start a family and either outgrow the first home or have to downsize due to high mortgage costs no longer being affordable.

- Interest rates fluctuate and if you are smart and repay more capital when rates are low, you can be slightly insulated by higher rates as you will have left capital owing.

I have no doubt that its difficult to afford a first home, especially in markets where prices are $800k+ to even get a foot in the door.

tdgeek

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#3004461 2-Dec-2022 09:11

GV27:

30 year mortgages simply allowed prices to take off as spreading the payments over a longer period of time made them look more affordable and meant more people could borrow. Until land, supply and other issues are addressed, increasing mortgage terms and making mortgages longer is just going to allow people to frontload more debt and push prices up higher.

In reality, we should be capping the length of mortgages, ideally no further than 25 years, and use that price signal to the market to drive down what vendors can expect people to pay. That will work if we can keep a stable population and increase our supply of new houses to the market - but they have to be supplied at an affordable level (i.e. not $800K for a two bedroom townhouse).

Spending your whole working life paying down the mortgage on a starter home is not something we should accept as normal or acceptable in NZ - at least if we want young people to actually stay here and raise families.

My view is that the core issue is supply, sort that and everything else falls into place. A longer mortgage would allow lower socio economic people to get a home. But yes, do that first and you add to demand. Although you could cap that for just the needy.

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tweake

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#3004817 2-Dec-2022 17:12

tweake:

https://www.stuff.co.nz/business/130622340/we-made-our-children-poorer-how-a-previous-generation-became-rich-and-left-their-kids-to-foot-the-bill

interesting read and some very interesting comments.

also interesting that the article got buried really fast. that kinda highlights who really in charge and also why no one will bother fixing it.

tweake

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#3004822 2-Dec-2022 17:26

tdgeek:

you still have 2nd hand homes paying for new homes

My idea is to temper demand for existing homes and spur demand for builds. So what if one subsidises the other as the lack of builds has caused the issue we have today, not enough homes to go round, so prices are up, been like that forever. Ever since the ongoing Govt building program ceased (in the 70's I think I read).

Yes, longer terms increase demand. You would manage that for FHB's only, perhaps. Think of it as switching rental homes to owned homes, which also has a very positive socio effect

You can build and use the capital gain for retirement

its very important that 2nd hand homes don't subsidies new ones, because that is what keeps the price up. home owners don't pay for a new house, its being paid for by whoever buys their old house. of course you can argue that moving to a new home reduces demand which would keep prices in check, but i think all that would happen is they simply won't build new until they can sell at high enough price. especially as the pool of people who can afford to is shrinking due to the amount they have to spend to get a home today.

simply doing the same old is never going to solve the issue. we need a whole new way of thinking about housing.

tweake

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#3004826 2-Dec-2022 17:37

tdgeek:

My view is that the core issue is supply, sort that and everything else falls into place. A longer mortgage would allow lower socio economic people to get a home. But yes, do that first and you add to demand. Although you could cap that for just the needy.

the problem with using supply to control prices is its very slow and expensive. your basically asking that the govt builds most of NZ housing using taxpayers money, just to try to stop people increasing the price. then comes the question of who do you tax more to pay for it.

i think your missing the whole point at what longer mortgages or lower interest rates do, it simply allows real estate to up the price to take all that money.

tdgeek

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#3004840 2-Dec-2022 18:49

tweake:

its very important that 2nd hand homes don't subsidies new ones, because that is what keeps the price up. home owners don't pay for a new house, its being paid for by whoever buys their old house. of course you can argue that moving to a new home reduces demand which would keep prices in check, but i think all that would happen is they simply won't build new until they can sell at high enough price. especially as the pool of people who can afford to is shrinking due to the amount they have to spend to get a home today.

simply doing the same old is never going to solve the issue. we need a whole new way of thinking about housing.

Your over thinking it. If you dont what 2nd hand homes to subsidise new builds thats ok. Fewer new builds will happen. So we will rinse and repeat the same houses, = price rises. Story of the last 50 years since Govt builds ceased. When new builds dominate, thats when prices ease.

NZ is FAR from creative. I recall comment here that we dont want slum apartments. I agree. Land or take off in US cities, you will see subdivtioins where the houses are all the same, I see that watching golf on TV. But they are all lovely homes. GV commented about pre fabs, Kiwis wont do pre fabs as its a slum, same as environment. Untrue.

If you dont want 2nd hand hones to subside new builds, you are wrong. new builds adds to the housing stock.Rinse and repeating existing hipness adds to price rises. As demand exceeds supply

tdgeek

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#3004844 2-Dec-2022 18:59

tweake:

the problem with using supply to control prices is its very slow and expensive. your basically asking that the govt builds most of NZ housing using taxpayers money, just to try to stop people increasing the price. then comes the question of who do you tax more to pay for it.

i think your missing the whole point at what longer mortgages or lower interest rates do, it simply allows real estate to up the price to take all that money.

Sorry but you are missing the point totally.

Who suggested that a Govt builds the houses and the taxpayer pays for it??

What is your solution?

So lower interest rates "take all the money" That was a one off scenario. Longer mortgages? Thats an option for the needy, not the masses.

But Im keen to hear your solution

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#3004850 2-Dec-2022 19:23

Problems with the equity related proposal. You will immediately hit a problem when people want to use equity to finance their grownup kids into a house. Other than that maybe you're right it could reduce the kind of activity that every make a million in property seminar recommends. Assuming you want to exempt the kids scenario, I'd guess reliably knowing the difference could be challenging.

tweake

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#3004919 2-Dec-2022 20:51

tdgeek:

Your over thinking it. If you dont what 2nd hand homes to subsidise new builds thats ok. Fewer new builds will happen. So we will rinse and repeat the same houses, = price rises. Story of the last 50 years since Govt builds ceased. When new builds dominate, thats when prices ease.

.......

If you dont want 2nd hand hones to subside new builds, you are wrong. new builds adds to the housing stock.Rinse and repeating existing hipness adds to price rises. As demand exceeds supply

if people are not investing money into old homes, they can use that money to make money out side of property. there other things to invest in or even make/support businesses. people still want to build houses, not everyone wants to live in a old house. once people stop looking at houses as ROI, people will treat houses as homes and have other reasons for making homes. also you could have the only way to make money in housing is with new homes.

govt building new houses to control prices is what was done in the past and is partly whats happening right now, tho its a very slow catch up. its also done a lot overseas where govts flood the market with new houses at cost, which makes supply exceed demand.

tdgeek

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#3004960 3-Dec-2022 08:05

tweake:

if people are not investing money into old homes, they can use that money to make money out side of property. there other things to invest in or even make/support businesses. people still want to build houses, not everyone wants to live in a old house. once people stop looking at houses as ROI, people will treat houses as homes and have other reasons for making homes. also you could have the only way to make money in housing is with new homes.

govt building new houses to control prices is what was done in the past and is partly whats happening right now, tho its a very slow catch up. its also done a lot overseas where govts flood the market with new houses at cost, which makes supply exceed demand.

Its not like every second person wants to invest in property. But if you want houses to be homes, then you can ban landlords. Or perhaps just ban Mum and Dad landlords? That way rental are only owned by corporates, which are investing in houses for capital gain...

govt building new houses to control prices is what was done in the past and is partly whats happening right now

No it wasnt, and its not happening now. Then, Govt built houses as houses were needed. That stopped. Today Govts build houses for renting to low income people, that hasnt changed. People build houses every year, they still do, but its not enough. You can ban immigration that would help but we need immigration, and if that kicks off again which it is, we wont be building any more houses than we do now.

tweake

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#3004976 3-Dec-2022 09:07

tdgeek:

Its not like every second person wants to invest in property.

totally incorrect.

almost EVERY home owner is a property investor. anyone who has ever sold, or will sell, a house for more than they bought it for is a property investor. Thats the no1 problem.

Getting rid of that will improve NZ's economy massively.

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