RBNZ engineering our next recession

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

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2336 posts

Uber Geek

#3003726 30-Nov-2022 16:52

GV27:

tweake:

its not really RBNZ job. to control housing requires some extremely major changes. changes which a lot of people will be very angry about. hence why no govt will ever do anything about it.

Agreed. Talking about houses needing to be 'more affordable' is an easy political slogan, but the 'how do we handle the families and people who would be left in a position of negative equity if the market had to adjust to a DTI cap of 5x?' is a difficult question. By and large, we already know what is required for affordable housing. It just comes at a huge cost and is a hard sell politically.

Especially so given that many who bought in the last three years or so will have been the ones who were constantly getting told not being able to get a big enough deposit was purely down to not working hard enough, when prices were rising faster than they could earn money. To have them cop it again and face negative equity on what were essentially over-priced starter homes while investors and elder NZers who have made huge tax-free gains and then cashed out is going to go down like a cup of cold sick.

thats exactly whats happening at the moment.

at the end of the day someone has to pay for all those tax free gains, so yes there is a generation who are going to be burnt. i'm not sure if thats avoidable. trouble is once it all passes people will forget all about it and will certainly fight against any move to stop them from making those gains themselves. at least at the moment while people are getting burnt they will be more open to the idea that we fix it now so their kids/grand kids don't have to go through it later on.

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tweake

2336 posts

Uber Geek

#3003729 30-Nov-2022 16:58

Geektastic:

I firmly believe that an essential part of fixing housing (in so far as it can be 'fixed') is to offer people an alternative tax free method of saving.

Most other countries do that and I can see no reason why it ought not to be the case here. If you could rent a reasonable house you could afford and still save money somewhere with tax advantages, I am sure that would alleviate some of the issues.

The usual cry is that we should have CGT but the only reason to have that is to raise money (which governments habitually mismanage). It certainly should not be marketed as any kind of method of reducing house prices - the UK has had it since the 1960's and I doubt anyone would consider UK property cheap.

Less tax is usually better.

thats quite a good idea. especially if say they support kiwi business. we could do very well if we took half the money out of housing and used it to grow better businesses.

the problem with CGT is govt's tend to use it to generate income not as a motivation tool. ie if you put a 100% tax on all profit from any housing, no one is going to bother selling their home to make money.

tdgeek

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#3003822 30-Nov-2022 19:36

tweake:

at the end of the day someone has to pay for all those tax free gains, so yes there is a generation who are going to be burnt. i'm not sure if thats avoidable. trouble is once it all passes people will forget all about it and will certainly fight against any move to stop them from making those gains themselves. at least at the moment while people are getting burnt they will be more open to the idea that we fix it now so their kids/grand kids don't have to go through it later on.

You need to look at at overall effect.

Ive made massive tax free gains. Not realised as I haven't sold. If I sold Id be buying to the same market so no gain.

Burnt? Of all the houses owned in NZ right now, a very minimal number are owned by "burnees" And the "burnees" knew the market was in a boom, that interest rates wont be 2.5% forever.

Eitsop

581 posts

Ultimate Geek

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#3003834 30-Nov-2022 20:27

Back to tread topic.. Yes we need the recession, to lower inflation, to increase unemployment, to lower house prices..

Once house prices are reasonable, hopefully the start using a DTI or something to keep it in check

tweake

2336 posts

Uber Geek

#3003838 30-Nov-2022 20:45

tdgeek:

tweake:

at the end of the day someone has to pay for all those tax free gains, so yes there is a generation who are going to be burnt. i'm not sure if thats avoidable. trouble is once it all passes people will forget all about it and will certainly fight against any move to stop them from making those gains themselves. at least at the moment while people are getting burnt they will be more open to the idea that we fix it now so their kids/grand kids don't have to go through it later on.

You need to look at at overall effect.

Ive made massive tax free gains. Not realised as I haven't sold. If I sold Id be buying to the same market so no gain.

Burnt? Of all the houses owned in NZ right now, a very minimal number are owned by "burnees" And the "burnees" knew the market was in a boom, that interest rates wont be 2.5% forever.

they are all getting burnt one way or another. some will be interest rates, others will be living costs and most will simply be effectively working 3 jobs to pay for the house instead of one like the previous generation (income to house price ratio). that of course can have side effects of their own later down the track, retirement etc.

hopefully a recession might pull the house prices down as apposed to inflation pulling everything up to house level, but unless something done it will simply start again and be another generation profiting at another generations expense.

GV27

5882 posts

Uber Geek

#3003864 1-Dec-2022 06:43

tdgeek:

Burnt? Of all the houses owned in NZ right now, a very minimal number are owned by "burnees" And the "burnees" knew the market was in a boom, that interest rates wont be 2.5% forever.

We had the RBNZ signaling negative interest rates and the PM/Finance Minister openly stating they were happy with house prices rising, they just wanted it to be slower. Quite a departure from campaigning on house prices being too expensive, or a state building program they abandoned, or all the other stuff they said before they needed the wealth effect and people spending and feeling good about themselves to maintain high polling.

So for all this 'should have known better' stuff, if you'd listened to the actual leadership on this to make an informed decision, you would have been right to assume there was a good chance rates would be lower and easy credit would continue. After all, just because the fact 10x incomes for house prices was insane didn't stop it from happening either.

So as far as conventional wisdom goes in this country, the only thing that holds true is that if you're born after 1980, you're considered fair game for generations above you.

GV27

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Uber Geek

#3003865 1-Dec-2022 06:48

I just find the idea that the generation who had to save more, save for longer and borrow more for the same houses (if they were lucky) as their parents (although most likely with far less land and fewer bedrooms) are always just in the wrong place, wrong time, and either should have 'worked harder' or 'known better' or all the other basic commonsense that says someone older than them should have done something about housing affordability decades ago to begin with, should be expected to just 'tough it out' yet again pretty repulsive.

Like I say, plenty of older Kiwis had the chance to do something about this since the late 1990s and chose not to - they decided to front-load their retirement savings with easy property capital gains and then vote against anything that would stop the party.

Now the burden falls on - guess who - not them. Sorry, that dog won't hunt. Not anymore. NZ is a hard enough place to raise a family without being the generational whipping boy for every previous generation's shortcuts and blank cheques for easy money. We can import as many people as we want to do jobs no one can afford to do and still actually have a life in NZ, but no one gets to act surprised when younger Kiwis leave en masse because they're fed up with being told everything is in some way their problem and they're the ones who have to carry the can.

tdgeek

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#3003869 1-Dec-2022 07:23

GV27:

I just find the idea that the generation who had to save more, save for longer and borrow more for the same houses (if they were lucky) as their parents (although most likely with far less land and fewer bedrooms) are always just in the wrong place, wrong time, and either should have 'worked harder' or 'known better' or all the other basic commonsense that says someone older than them should have done something about housing affordability decades ago to begin with, should be expected to just 'tough it out' yet again pretty repulsive.

Like I say, plenty of older Kiwis had the chance to do something about this since the late 1990s and chose not to - they decided to front-load their retirement savings with easy property capital gains and then vote against anything that would stop the party.

Now the burden falls on - guess who - not them. Sorry, that dog won't hunt. Not anymore. NZ is a hard enough place to raise a family without being the generational whipping boy for every previous generation's shortcuts and blank cheques for easy money. We can import as many people as we want to do jobs no one can afford to do and still actually have a life in NZ, but no one gets to act surprised when younger Kiwis leave en masse because they're fed up with being told everything is in some way their problem and they're the ones who have to carry the can.

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

Senecio

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#3003875 1-Dec-2022 07:34

GV27:

Like I say, plenty of older Kiwis had the chance to do something about this since the late 1990s and chose not to.......

I would say they made a very conscious choice. They made a choice to partake in a system that allowed them to build wealth so they could self fund their retirement and give their children a head start in life. Knowing that if they hadn't they would be a disadvantage as everyone around them was taking the opportunity to do the same.

You say we shouldn't blame the current generation for their plight, which is correct. But don't pass the blame back to the previous generation for doing what you, I, or anyone else would have done given the same circumstances.

tdgeek

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#3003893 1-Dec-2022 09:12

Senecio:

I would say they made a very conscious choice. They made a choice to partake in a system that allowed them to build wealth so they could self fund their retirement and give their children a head start in life. Knowing that if they hadn't they would be a disadvantage as everyone around them was taking the opportunity to do the same.

You say we shouldn't blame the current generation for their plight, which is correct. But don't pass the blame back to the previous generation for doing what you, I, or anyone else would have done given the same circumstances.

Agree

Nothing wrong with Mum amd Dad saying they can now afford to buy a rental, rents pay the mortgage, then they have a nest egg. Better than opening a poor interest Savings Account. Its not evil as is often portrayed. There is a need for rentals, annecdotally, you will get looked after better as a renter than if you were renting from a rental corporate, who will always ensure they get the last drop of market rental blood from the renter

GV27

5882 posts

Uber Geek

#3003900 1-Dec-2022 09:38

Senecio:

You say we shouldn't blame the current generation for their plight, which is correct. But don't pass the blame back to the previous generation for doing what you, I, or anyone else would have done given the same circumstances.

Nope, I probably would not, despite your presumptions.

I have long had an issue with the expectation that taxpayers should prop up financing costs for businesses that own one asset that never returns positive cashflow until it is sold for a gain that was supposedly unexpected and unintentional.

They're also the ones who have strangled land supply and tend to oppose urban planning reform designed to increase supply to actually fix the problems. Again, to their own benefit.

So I'm quite comfortable with blaming the people who have caused the problem for their own gain, if that's all very well with you.

GV27

5882 posts

Uber Geek

#3003902 1-Dec-2022 09:42

tdgeek:

There is a need for rentals

And no where do I question the need for rentals; but houses don't get bulldozed if an investor sells them to someone who isn't an investor despite what they would have you believe, and given we've had investors making up 40% of home buying at some points, the effects on lower-end properties has been extremely predictable, considering how bad we are at supplying density to market at an affordable level.

I guess being on the hook for many hundreds of thousands of dollars of debt more than any previous generation would have needed to be for what is functionally the same house means I'm less inclined to give out 'Get Out of Jail Free' cards to people who got to make huge gains and cash out, when in reality that just meant loading more and more debt onto younger people entering the market.

tdgeek

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#3003966 1-Dec-2022 10:57

GV27:

And no where do I question the need for rentals; but houses don't get bulldozed if an investor sells them to someone who isn't an investor despite what they would have you believe, and given we've had investors making up 40% of home buying at some points, the effects on lower-end properties has been extremely predictable, considering how bad we are at supplying density to market at an affordable level.

I guess being on the hook for many hundreds of thousands of dollars of debt more than any previous generation would have needed to be for what is functionally the same house means I'm less inclined to give out 'Get Out of Jail Free' cards to people who got to make huge gains and cash out, when in reality that just meant loading more and more debt onto younger people entering the market.

I wasnt asserting you are questioning rentals, just stating that Mum and Dad landlords provide them, at probably a better service and cost than corporate landlords.

frankv

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#3003980 1-Dec-2022 11:09

GV27:

I guess being on the hook for many hundreds of thousands of dollars of debt more than any previous generation

Yup... we've become a nation of debtors. NZers are now commonly in debt for most of their lives, starting with Student Loans and then onto enormous mortgages. Those who don't don't get tertiary education because they can't afford it are doomed to paying their enormous mortgage from a lower paying job.

This is all good for the banks, of course. Thanks, Roger Douglas and Richard Prebble.

GV27

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#3004091 1-Dec-2022 13:18

frankv:

Thanks, Roger Douglas and Richard Prebble.

Maybe you should thank the numerous PMs we've had since then who have entrenched user-pays, or the PMs since 2000 when house prices exploded. Or or or.

None of that matters now. What matters now is the expectation that the same people who have delayed home ownership, starting families and all the other stuff that previous generations got to do much sooner in life cop it again because "it should have been obvious that it was unsustainable" or whatever other reason we're using to overlook how the deck was stacked against them to make the party last as long as possible for everyone else.

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