While Australia spends its time ringing its hands about over-valued house prices, the Kiwis are moving ahead with a number of debates on how to fix things. As the Unconventional Economist has reported, NZ is currently debating supply-side reforms and is also advanced in its discussion of demand management as well. From Banking Day:
The Reserve Bank of New Zealand has signalled it will release a discussion document by late March on new macro-prudential tools that could include increased risk weightings for mortgages or limits on loan-to-valuation ratios.
…RBNZ deputy governor Grant Spencer said in a commentary published in the Dominion Post and the New Zealand Herald that the bank is developing a framework for the use of such macro-prudential tools in consultation with the Treasury and the Finance Minister.
The RBNZ has previously said that it will consider a counter-cyclical capital buffer; higher core funding ratio; higher risk weightings for certain sectors, limits on LVRs.
Weirdly enough, we have almost exactly the same spectrum of issues here, yet no debate at all (except at MB of course).
I wonder how this will affect Australian property investors as by what I understand many have property in NZ.
http://www.brokernews.com.au/article/highrisk-mortgage-fund-admits-72-3-millionworth-of-loans-in-arrears-148200.aspx
A little loan arrears piece to whet everyones appetitie
Yet another debenture style lender in trouble, very conservative lending ratios at 70%, they say. Development finance … Well try to sell a half finished block of units, 70% of zero value is a 100% loss. More naive investor losses in the offering here.
The financiers of property in this country are going to find out their security values assume a liquid market,the buyers are retreating and the sellers are multiplying = no liquidity = bank losses = loss of investor equity= everywhere else in the world.
Thanks for sharing this Gunna.
In the same vein, I don’t think MB covered this little collapse in Queensland of Wickham Securities – also involved in loans predominantly to the property development sector.
$30 million lost for 300 self-funded retirees:
http://www.couriermail.com.au/business/retirees-set-to-lose-30-million-after-collapse-of-wickham-securities/story-fnefl294-1226558429342
“MORE than 300 self-funded retirees look set to lose about $30 million after the collapse of Brisbane-based financial services firm Wickham Securities.
Wickham directors have appointed Grant Sparks and David Leigh of PPB Advisory as administrators.
The firm provided loans predominantly to the property and development sectors.
The administrators have begun investigating Wickham’s collapse, with a report to creditors due later this month.”
..and a Wickham update from this morning
http://www.couriermail.com.au/business/wickham-securities-chief-brad-sherwin-blames-economy-for-27m-failure/story-fnefl294-1226563789651
This story is moving quickly with some very unhappy investors and ASIC on the hunt
These are the dead canaries in the deepest coal mines. It’ll be some time before methane gas hits the Big 4 bank’s canaries.
Nothing is actually going to happen, guys. Don’t get too excited, because the perfect opportunity for action on the NZ property and other macro fronts; the days of the GFC and a ‘new’ Government, have come….and gone….
While that is no doubt true, these discussions are laying foundations for change. It will come if/when crisis presents itself.
NZ has had summits, seminars, meeting, reviews & overviews, discussions, polls, and any other non-binding talk-fest you care to mention. What have we done? Partially constructed a cycle-path….Any future crisis will present the opportunity for more of the same. ” Prime Minister John Key(‘s) “surprise” item of the national Job Summit held by the New Zealand Government in early 2009.”
http://en.wikipedia.org/wiki/New_Zealand_Cycle_Trail
Nicely said Janet.
Politician’s hand book page 2, “keep talking about an issue until people lose interest and move on to the next “big issue”. If the voters don’t move on to the next “big issue”, promise to fix it after the next election and hope that you don’t get re-elected. If you are re-elected, bastardise the policy so that everyone is so disappointed with the outcome, they never raise the same issue again (for fear of yet another failed policy response).”
It’s called modern democratic politics….
Love it.
What’s the point of government then?
The problem is the people still are interested – they don’t have the energy to keep hounding their politicians though. Anywhere else you say your issue once, and they would either deliver or not and be held accountable.
I think the biggest problem is that government isn’t ever really accountable especially in a two party system.
There was some discussion of this by a few people at the AEA conference earlier this month. It is also my guess it goes nowhere. The funny thing is I do remember reading an article about bank regulators here in the U.S. harassing bank for not making loans in the lead up to the financial crisis. Prudence be damned.
As a lot of us know, and many won’t admit, only a collapse will fix all this.
Two things that will unsettle voters are falling house prices and rising unemployment, particularly if resulting from high profile mass layoffs from established ongoing firms rather than project completion.
I predict little nominal change in NZ house prices as a result of government policy and if they do start to fall the government policy will be rapidly withdrawn/amended.
Even parents of young adults who want home aquisition easier for their children don’t want it at the cost of their own house falling in value.
Exactly. Hence, required uncontrollable collapse and reset enforced on everyone.
In light of the eminently sensible and well-reasoned comments we get consistently from the likes of:
- Explorer
- PhilBest
- RustyPenny
- AJ
- Phf007
- Opinion8 (sp?)
- Bullion Baron
- etc
I wonder whether Macrobusiness would consider giving some of these guys the occasional guest post?
Further, I’m sure that other readers would genuinely like to see those commentators right across the spectrum put forward these cases in a well-reasoned essay?
I’d love to see (in no particular order):
- PhilBest on land 101, 102 … 302
- Flawse on sectoral balances: yes, detailed stuff on CAD would be interesting – take us through economic history etc
- Op8 on ‘debt as usury’ in MUCH better detail ala Ellen Brown I suspect would be good. I think he/she probably couldn’t resist public banking
- DC on a Georgist special
- Bullion Baron on long term gold trends. Perhaps he could delve into silver, platinum and other so called precious or semi-precious metals. Also, he could make sense of pricing stuff in ounces of gold for the plebs amongst us
- 3d1k on mining – let’s see him legitimately try to defend the status quo with stats instead of deflection and obfuscation (I personally don’t think he’s up to it)
- Peter Fraser on his short, medium and long term outlooks on property in the capitals. Let’s see it from PF with cold hard data whether he can pull together something that is believable (I don’t believe he’s up to it). Alternatively, he could give us a ‘US Recovery’ guest post
- Janet on a no-holds barred analysis of NZ housing & where it has come from and where it is going – from the front lines so to speak
- R2M on a caustic climate change post/carbon tax thread or similar
- MattR: can try to prove (and fail miserably) that ‘free markets’ and ‘less regulations and government interference’ will fix all of our problems
- Jason can provide a cryptic crossword
- RP, Explorer and a few select others: let them post about whatever they want, because it will not doubt be entertaining and instructive
Anyhow, why not consider it. Benefits:
1. Those with the loudest mouths and quickest fingers can put up or shut up. Rhetoric will not cut it with the MB crowd and those who don’t put up a reasonable case with data will be cut to shreds
2. Bots, astroturfers and general miscreants will be so far out of their depth, that they will be similarly tarred and feathered by the merciless MB mob. The astrotufer with the ‘weakest link’ article can then be remembered in internet history with ongoing reference to their ‘post of shame’
3. We’ll actually learn something. Each nutter poster here some kind of OCD leaning towards various aspects of the economy. Why not put this OCD to good use?
4. The regular guest entry (say on a Friday afternoon) would be a special thing to look forward to in winding down the week. Plus it gives the MB authors a chance to give back some of the sauce to their vicious and unrelenting critics
Thoughts, suggestions and comments can be written on a card and left anonymously in the box on the table on the way out…
+1
Vgood idea.
Would also help when comments go off the rails – just point to someones “manifesto” i.e their guest post – via hyperlink.
You forgot:
- Bobby Fischer on exposing corruption & vested interests in the Australian real estate industry!
“Each nutter poster here some kind of OCD leaning”
What? That doesn’t sound like commenters at MB… ok maybe just a little
+100
Sounds like a great idea. I would love to read some of the proposed essays above. Could even make for a great short book of essays!
Send them in and if they are good, we’ll publish them.
Some guidance on a standard format to follow might be useful?
Janet-I sympathise with your cynicism but you are being too negative.The RBNZ is deadly serious about the tools mentioned.The problem is that they don’t address the supply side issues and they are much more intractable.Not the least problem is that NZ cannot afford to “crash” land prices any more than Australia can-or we end up in deeper trouble. Somehow, prices have to glide down.A freeze in nominal prices with inflation doing the work is the way to go-but how to bring this about is not obvious is it? Anyone?
With very prudent use of controls on lending, the RBNZ could orchestrate the glide that you seek. I agree that its the best outcome.
However it’s a bit like constructing a dam and then pretending that the water isn’t there anymore. NZ won’t be able to drain the swamp until they, like Australia, tackle the policy issues to brought us to this point.
Punishing developers as some suggest seems counter productive to me, so what incentives could be put in place for land developers to bring stock to market early, which would reduce their profits.
It’s not realistic to believe that developers will continue to invest in broadacres and spend massive amounts of money developing the land into useable lots – it’s expensive, fraught with risk, and they have to overcome more hurdles than most athletes do in their track and field careers.
That’s your problem Terry, the voters won’t accept incentives to developers, and the reverse of that will be counter productive.
How do you sell the idea of giving maybe tax incentives to developers who bring land to the market in a short term, as opposed to more popular punitive measures, which frankly won’t work.
Increased taxes to take money from the economy and reduce government debt when house prices start to rise at more than inflation.
Or
Maximum LVR based on 80% of average prices for 3 years ending 3 years ago or current price if lower.
Or
Central bank obliged to increase interest rates if stock market increases more than 10% in any 12 months or house prices increase by more than 2% above inflation in any 12 months. Government can then decide how to use fiscal policy or employment policy (eg reduced hours, reduced days for those working) to reduce unemployment or sustain (not increase) GDP per capita of working age population.
To me the clear problem is keeping interest rates low after GDP stops falling and after house prices and the stock market grow in an effort to try to get unemployment down.
The cycle is inflation and asset price booms, high interest rates (instead of increased taxes), recession, increasing unemployment, low rates, stabilisation, cyclical bull stock market, increasing real estate prices, falling unemployment.
Some of these overlap. Australia is more complicated because of resource/terms of trade booms.
The problem is that unemployment doesn’t fall much until after the credit/asset price inflation cycle takes off.
If unemployment was absorbed by a job guarantee at minimum wages during the recession, the high credit growth period which leads to asset price booms could be far less intense and could be shorter.
Price stability under the RBA’s existing mandate ought apply to housing too, including the land component.
With respect explorer, every one of your suggestions is effectively a measure of austerity, which will slow the economy. Given that you intend to take that action, how do you include an MMT idea such as a jobs guarantee, which is in itself a degree of stimulation?
Could you explain how you accomodate that please?
Furthermore, NZ like all countries will have a natural rate of household formation. We are a meet and mate social animal – nothing can change that. So every formed household will need accomodation, be it rented or bought.
Loose credit makes it easier for those households to buy, restricted credit will mean that an growing share of property will be owned by a rentier class. Perhaps that’s a good thing, but it should be debated before NZ or we head down that road.
Legislation creates winners and losers – how do we keep it fair and allow the average man and woman to have realistic hopes and aspirations. How does the government get more out of less legislation, because complex legislation is usually inefficient?
“Gliding down” isn’t going cut it for the young who are putting off one of life’s biggest decisions.
I agree with Janet. This horse has bolted and this “concern” is nothing more political theater. It seems like Occam’s razor is again validated. The unmanageable zero-sum game can’t be managed and it won’t be managed, but it’s big enough of an issue that it can’t be completely ignored.
INteresting piece on foreigners buying in Canada – which would have relevance for NZ and Australia too
http://www.theglobeandmail.com/report-on-business/economy/housing/crucial-bit-of-missing-information-may-be-driving-canadian-home-prices/article7935464/
Me, too negative, Terry F?! When we get these figures today “The number of new dwellings consented in (December in) Canterbury was up 82, or 41 percent” in the region that was earthquake devastated, we get an increase of….wait for it…82 building consents, how can that be construed as anything but. Nothing is going to be done by the RBNZ that will put any sort of cap on property prices. As you yourself post, a crash is the last thing the Government etc al will contemplate. But guess what? As with most of their intentions of the last few years/decades….their aspirations will fail.
Those dwelling consent numbers are a disgrace.