RBNZ engineering our next recession

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

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#3004238 1-Dec-2022 16:49

tdgeek:

Bold 1

Successive Governments chose not to

Bold 2

Older Kiwi's? Well, I guess they could have voted in another Government, but, see Bold 1. BTW no need to vote out a Govt spoiling the party as both parties had no interest in spoiling the party.

Helen and John were both concerned circa 2000 about rising house prices, nothing was done. Here we are

while i don't really blame people for doing what is perfectly legal, certainly do blame the successive govts for allowing it to happen. however the catch22 is people wanted, and more importantly still want, it to happen while they turn a blind eye to the ramifications. morals go out the window fairly quickly when money is involved.

i honestly don't think anyone will ever try and fix it. certainly no one is making it an election issue.

tweake

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#3004287 1-Dec-2022 17:05

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.

tdgeek

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#3004300 1-Dec-2022 18:38

tweake:

while i don't really blame people for doing what is perfectly legal, certainly do blame the successive govts for allowing it to happen. however the catch22 is people wanted, and more importantly still want, it to happen while they turn a blind eye to the ramifications. morals go out the window fairly quickly when money is involved.

i honestly don't think anyone will ever try and fix it. certainly no one is making it an election issue.

Step back a few decades. Did Mum and Dad who can afford a rental think to themselves, Am I evil? In 2022 I will be castigated? No. A rational investment, no more, no less

Had successive governments from basically late 80's till now, decided to match supply with demand (immigration which is good, and new builds which is also good)

No. That is the issue. But like everything else these days its a short term hindsight blame game.

Its a supply and demand issue. Demand is immigration and natural population growth. Where is the supply??? Nowhere. There needed to be an incentive to build, there isnt. Yes, you can get a few more dollars with KiwiSaver, but its easier to sign a Sale and Purchase Agreement than to get into a potential horror with building. So you incentive new builds, no one did. Thats the problem, there is no driver of new builds.

They say today in the "news" we will have positive immigration of 30,000 next year. Great, we need that. Where will they live? Rent demand , buy demand. Cannot have that, so lets slash immigration so housing supply and demand equalise, great. Then we are still lacking workers in an environment where employment is super high, businesses (Rodney Wayne hair salons today) cannot get workers.

What slightly aggravates me is that its easy to be a keyboard cowboy, (not referring to you) its not an easy issue to fix. It "could" be if successive Governments chipped away with a long term end goal. Well, its now long term and nix was done

tdgeek

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#3004302 1-Dec-2022 18:41

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.

I read that today.

Rather than blame a whole generation, previous governments that “knew the cost of everything but the value of nothing” were to blame for the current situation, Renney said.

Thats the issue. To make the correct decision, you "make the correct decision" But that will affect votes. Therein lies the problem. Easiest means is a dictatorship, to make things happen, not affected by votes, but that NEVER works out.

tweake

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#3004308 1-Dec-2022 19:18

tdgeek:

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.

Thats the issue. To make the correct decision, you "make the correct decision" But that will affect votes. Therein lies the problem. Easiest means is a dictatorship, to make things happen, not affected by votes, but that NEVER works out.

so the question is, how do you fix it?

how do you fix it when you have so many people who still want $$$ with no care of the consequences and govt parties who won't do anything due to votes. then theres the technical side of how do you actually fix the situation so it doesn't happen again. i'm sure if you ask 10 economists you will get 50 answers, and they might all be wrong.

tdgeek

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#3004310 1-Dec-2022 19:24

tweake:

so the question is, how do you fix it?

how do you fix it when you have so many people who still want $$$ with no care of the consequences and govt parties who won't do anything due to votes. then theres the technical side of how do you actually fix the situation so it doesn't happen again. i'm sure if you ask 10 economists you will get 50 answers, and they might all be wrong.

Probably.

Build more houses, more supply

Immigrants. Somehow, make them build. You can rent here for 5 years then you must build (not buy and add to the problem) Easier said than done, but at the end of the day if house stocks are stagnant and 30,000 immigrants arrive every year, that will not work. 30,000 arrive, you must build your own accommodation.

Locals, vastly incentivise new builds.

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tweake

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#3004350 1-Dec-2022 21:06

tdgeek:

tweake:

so the question is, how do you fix it?

how do you fix it when you have so many people who still want $$$ with no care of the consequences and govt parties who won't do anything due to votes. then theres the technical side of how do you actually fix the situation so it doesn't happen again. i'm sure if you ask 10 economists you will get 50 answers, and they might all be wrong.

Probably.

Build more houses, more supply

Immigrants. Somehow, make them build. You can rent here for 5 years then you must build (not buy and add to the problem) Easier said than done, but at the end of the day if house stocks are stagnant and 30,000 immigrants arrive every year, that will not work. 30,000 arrive, you must build your own accommodation.

Locals, vastly incentivise new builds.

the catch with that is people use real estate to make the money to build, ie a big part of the build cost gets pushed back down the ladder. add in councils adding costs into subdivisions which gets past onto new build cost. also building to ease demand is very very slow.

immigration simple adds to the demand, well before they can build to decrease that demand.

any incentive to build cannot come at a cost to 2nd hand homes. so you first need someway to stop people making money off 2nd hand homes to pay for the new home.

tdgeek

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#3004354 1-Dec-2022 21:24

tweake:

the catch with that is people use real estate to make the money to build, ie a big part of the build cost gets pushed back down the ladder. add in councils adding costs into subdivisions which gets past onto new build cost. also building to ease demand is very very slow.

immigration simple adds to the demand, well before they can build to decrease that demand.

any incentive to build cannot come at a cost to 2nd hand homes. so you first need someway to stop people making money off 2nd hand homes to pay for the new home.

There was a building boom until material supply issues took effect

They say that net immigration is beneficial, but if they just rent and buy, no good

Incentive to build, here are my ideas. Say the standard mortgage rate is 5% (any number will do, its just as a comparison) New builds are 2%. Funded by existing home at say 8% (depends on the mix how you cross subsidise it) FHB exempt re existing homes. The excess interest billed by banks is a balance sheet item as is the subsidy. The rates can change to allow a general neutral effect, so the banks balance sheet asset and liability even out year on year. The purpose is to encourage me to build than buy. I add to the stocks if I have a house now, then build, my house is available (more supply) and I live in a new build. In a perfect world many will build but we dont. Easier to sign an agreement then move in, in 4 weeks.

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.

tweake

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#3004356 1-Dec-2022 21:44

tdgeek:

tweake:

the catch with that is people use real estate to make the money to build, ie a big part of the build cost gets pushed back down the ladder. add in councils adding costs into subdivisions which gets past onto new build cost. also building to ease demand is very very slow.

immigration simple adds to the demand, well before they can build to decrease that demand.

any incentive to build cannot come at a cost to 2nd hand homes. so you first need someway to stop people making money off 2nd hand homes to pay for the new home.

There was a building boom until material supply issues took effect

They say that net immigration is beneficial, but if they just rent and buy, no good

Incentive to build, here are my ideas. Say the standard mortgage rate is 5% (any number will do, its just as a comparison) New builds are 2%. Funded by existing home at say 8% (depends on the mix how you cross subsidise it) FHB exempt re existing homes. The excess interest billed by banks is a balance sheet item as is the subsidy. The rates can change to allow a general neutral effect, so the banks balance sheet asset and liability even out year on year. The purpose is to encourage me to build than buy. I add to the stocks if I have a house now, then build, my house is available (more supply) and I live in a new build. In a perfect world many will build but we dont. Easier to sign an agreement then move in, in 4 weeks.

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.

simple problem of the interest rates is you still have 2nd hand homes paying for new homes, in this case via interest rates and still nothing to stop people making money off homes as per normal.

the problem with 30+ year mortgages is its like low interest rates. more money available so the real estate markets goes up to capture it, which makes it worse. anything that subsides home buying peoples response is to simply put up house prices. which is what we have had with low interest rates.

people will still build new homes, simply because they would like somewhere nice to live. but at the moment many don't because why spend money building when not building makes you money for your retirement etc.

gzt

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#3004374 1-Dec-2022 22:31

The generation blaming is not accurate on so many levels. There's been plenty money made trading housing even just in the last five years. The building and materials sector is inefficient on many levels. There are some genuinely efficient building operations developing. Hopefully those are identified and invested in and continue through disruptive periods.

tdgeek

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#3004406 2-Dec-2022 07:20

tweake:

simple problem of the interest rates is you still have 2nd hand homes paying for new homes, in this case via interest rates and still nothing to stop people making money off homes as per normal.

the problem with 30+ year mortgages is its like low interest rates. more money available so the real estate markets goes up to capture it, which makes it worse. anything that subsides home buying peoples response is to simply put up house prices. which is what we have had with low interest rates.

people will still build new homes, simply because they would like somewhere nice to live. but at the moment many don't because why spend money building when not building makes you money for your retirement etc.

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

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#3004408 2-Dec-2022 07:23

gzt: The generation blaming is not accurate on so many levels. There's been plenty money made trading housing even just in the last five years. The building and materials sector is inefficient on many levels. There are some genuinely efficient building operations developing. Hopefully those are identified and invested in and continue through disruptive periods.

Just because there are other problems at play as well does not wipe away the deck-stacking.

As for 'efficient' building ops - supposedly we can build pre-fab townhouses up to five levels and this has been possible for many years now.

Number of pre-fabbed five-level townhouse developments I'm aware of: zero.

GV27

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#3004411 2-Dec-2022 07:26

tdgeek:

You can build and use the capital gain for retirement

This only works if there is ongoing capital gain e.g. house prices keep rising forever.

I have this argument with relatives who think we should be simply able to 'trade up' a house like they did. The only way for that to keep working out like it did before is for the average house to be worth around $20m in twenty years time.

You can't design a system where there are forever gains to be had from increasing prices without everything going up in price. The reality is family housing needs to be affordable for people to pay for out of regular wages and salaries, not just by rolling over huge capital gains of hundreds of thousands of dollars that they got for doing literally nothing.

mudguard

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#3004414 2-Dec-2022 07:31

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.

tdgeek

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#3004420 2-Dec-2022 07:47

GV27:

This only works if there is ongoing capital gain e.g. house prices keep rising forever.

I have this argument with relatives who think we should be simply able to 'trade up' a house like they did. The only way for that to keep working out like it did before is for the average house to be worth around $20m in twenty years time.

You can't design a system where there are forever gains to be had from increasing prices without everything going up in price. The reality is family housing needs to be affordable for people to pay for out of regular wages and salaries, not just by rolling over huge capital gains of hundreds of thousands of dollars that they got for doing literally nothing.

We have normal inflation which will include houses, the issue that causes houses to rise more is lack of supply, that's what needs to happen. Re your previous post about pre fabs, it beggars belief why this is not standard practice, its not like they will all look like school classrooms. You can have a bespoke looking house that's prefabricated, but we seem to stick with the old ways, hammers, nails and a ruler

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