Albert Edwards: NZ property crash the world’s canary

Via the always fun to read Albert Edwards at Societe General:

With some calm returning to the markets, it’s probably a good moment to step back and consider one of the most important developments in monetary policy in recent years. Who knows, it might even reverse the collapse in young men’s sex lives?

A few weeks back a small but significant glitch was spotted in the central bank monetary matrix. New Zealand’s PM, Jacinda Ardern had finally decided she’d had enough with runaway house prices being fuelled by easy central bank money (in February up more than 20% YoY). She instructed the central bank to target house price inflation in their decision-making process in addition to the normal considerations of consumer prices and unemployment.

Just like 1989, when NZ was the first country to adopt explicit targets for inflation, this innovation could be the first deep rumblings of what could become an earthquake in the way central banks conduct monetary policy worldwide.

Morgan Stanley’s Ruchir Sharma wrote an excellent op-ed in the FT on this topic. He identifies the major flaw of the current system of inflation targeting: namely that secular global deflationary forces have pushed CPI inflation well below their c.2% targets, resulting in super-stimulative monetary policy. And although that can do little to drive CPI inflation up, it creates housing and financial market bubbles that the central bankers choose to ignore and which typically now precede recessions. For everyone loves an asset price bubble – until it bursts!

The NZ central bank isn’t happy. The WSJ notes that, in an attempt to head off this move,“the bank spelled out several concerns in a letter to the finance minister late last year. One consequence could be lower employment if rates rise, which the bank saw affecting groups already disadvantaged in the labour market most, including Maori and young people”.

This approach is the direct opposite of the Powell Fed, which is emphasising that they will keep policy super-loose to maximise minority employment. Partly as a result, US existing home prices have rocketed some 16% yoy – a rate only briefly exceeded in 2005 at the height of the bubble. But US house price inflation is a mere pimple compared to the credit-filled boils visible elsewhere (see chart below). What the US can boast of though is a world-beating stock-market bubble. Ultimately, as NZ has found, having too much of a good thing can be a bad thing. I expect central banks around the world to follow NZ after the next ruinous, but inevitable crash.

And there you have it. I do wonder if the forthcoming new Australian Labor government will follow Jacinda Ardern’s example earlier than most, especially since it is going to wipe the Liberal Party off the face of the earth thanks to the bottomless pit of smut that is the Morrison Government.

But probably not. Albo is clearly a pretty gutless pollie with his eye on power and little else policy gumption.

David Llewellyn-Smith
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  1. im not as confident that Labor have it in the bag. My fear is that the Libs believe (know?) that they can literally do what they please and retain power until there is a viable opposition, which sadly Labor is not. Until Labor gets its act together we have a failed democracy

    • The only reason the LNP keeps getting in is Rupert Murdoch’s News Corp papers and Clive Palmers support last election.

      Like the big lie that got huge press – Labor is going to bring in Death Taxes!

      No they weren’t, they never were. The message got published and it was one factor in Morrisons “miracle election”

      • That’s not correct. Australians have a mind of their own and aren’t subservient zombies hostage to Murdoch.
        ALP lost fair and square.
        ALP lost for many reasons. But most of all because of Shorten — people just didn’t like him.

        • No way. People have been conditioned by the Murdoch press and other media. Shorten is a far superior and more honest person than Morrison who lets face it is a sociopath if not an outright psychopath who we had to subsidise for ’empathy’ training. Morrison and his vile cronies are running Australia as if it was their own personal fifedom with little regard to the quality of life for all but the well off, or more likely very well off inclduing the mega tax dodgers and those rorting the job-keeper handouts. Murdoch had low paid workers believing that somehow or another they would be better off under LNP but as we can now see LNP has targeted the low paid in their new ‘work choices’ rehash and mass immigration policies which has displaced a lot of lower paid Aussie workers. Never mind the robodebt, the misogyny fest, the abandonment of bush fire victims, the couldn’t give a f**k attitude to the flood victims. Get real, LNP is a massive scam for ordinary human beings, only fit for the pigs at the trough.

        • “Australians have a mind of their own and aren’t subservient zombies hostage to Murdoch.”


    • Ailart SuaMEMBER

      “Until Labor gets its act together we have a failed democracy”

      If and when Labor gets its act together, I’m afraid we’ll still have a failed democracy – unless you believe a choice of two political parties; led by a few elite donors is what constitutes a successful democracy. The Constitution and the electoral system are our issue. The mechanisms used to install leadership so that it works for all Australians is broken and requires fixing. That’s where the focus should be – on the cause, not on the symptoms.

    • 1 month wonder then chicken out.MEMBER

      NZ crash? After 25% a year up 5 % is a crash? Not even a correction. But
      Give it another month, and when NZ house prices drop 5% after 25 % up last few months, the govt cancels this.

      Perhaps Labor in Australia might keep some courage not cancel their promise to drop Negative gearing/CGT discounts, now that NZ is throwing out their version (the bright line test)

  2. Jumping jack flash

    Hey look at that.. Ireland!

    And no, i cant see many people voting for Albo. Who is he again? But i guess if he hides in the bushes and keeps his mouth shut waiting for the others to slip up, he’s simply using Scotty’s last strategy against him, and thats delicious.

    One thing is becoming certain though and thats the wasted opportunity of COVID stimulus to reboot the debt economy into the banker’s utopia it was designed to create. All that’s left is a resumption of the (slow) crash that was obviously happening prior.

  3. People need to give up this idea that Government is in any way concerned with improving the lives of its citizens. All these articles hand wringing, clutching pearls is a waste of energy. We have the proof. No one ever gets outed in ICAC phone taps trying to improve the lot of widows and orphans. Or increase funding for meals on wheels. No its dodgy property deals and jerking off on some women’s desk in parliament.

    I have said before on this site the anglosphere model is a white Pakistan. Highly militarized state with elites living in gated communities. That is the future.

    • Nick1970MEMBER

      100% Rod – they aren’t (and never were) there for the average bloke. Whitlam maybe.

    • Elites have never cared unless they were threatened. They have comprehensively white anted the union movement and the social fabric that gave birth to and sustained the union movement in the first place. That is why the there is no representation for the people. Labor are Whigs, LNP are Tories. There is no Labour.

  4. Listening to Guy Debelle in senate estimates was very telling. In answering a question in relation to RBA policy making housing unaffordable, Debelle answered with a poker face that RBA “do take house prices into account”.

    It wasn’t until answering a different question from a different senator that you realised the deceit. Debelle response to money being directed to non-productive means was something like “higher house prices encourage building of more houses”.

  5. She instructed the central bank to target house price inflation in their decision-making process in addition to the normal considerations of consumer prices and unemployment.

    I find it ludicrous that you would not at least evaluate house price movements in decisions around credit supply when the majority of that credit can only be spent on housing…. This approach should not be considered innovative, its should have been part of the mix for years…

    • It has been.
      “higher house prices encourage building of more houses” has been part of the justification on an employment basis for lowering rates.
      Unless Jacinda specifically required stabilising or lowering house prices it is meaningless.

  6. The big question to me is why aren’t interest rates for investment properties targeted?

    Keep FHB low but ratchet it up for investors. The the banks make $$, FHB have a chance and the only ones complaining are Investors and they have the coin to complain.

    • Because the banks have no interest in stifling investors and the Reserve bank has no means to do that in an effective way, and probably wouldn’t want to even if it could because it defeats the purpose of the rate reductions anyway, which is MOAR housing.

      • yeah, I know…

        I guess I’m stating the obvious with what should be done verses what is being done.

      • Banks have no interest in anyone except mortgage mugs.
        I’m 7 mins into 4th call since 5pm to anz falcon. Debit visa stopped due to suspicious activity in Belgium..then call cut out, next call 47 minutes & international telecenter person cut call as soon as I stated problem, another call 32 mins waiting then put through to another line wait 26 mins & call dropped out…Friday night country motel, out of cash, no mates ..hungry…might dumpster dive coles, woolies then Aldi bins after dark:) ANZ it’s your money Ralph. I’d feel more secure if I could eat.

    • It does not need to be the interest rates. It needs to be the LVR, based on genuine cash savings and not phoney equity. This is the way to level the playing field. Fhb’s struggling to save from income while some jerk just has his cross-collateralised portfolio valued and bingo he’s had yet more credit extended to him. That’s a core problem. It’s one that can EASILY FIXED!

  7. New Zealand: Lead Bank ANZ reviewing investor lending … noting Greater Christchurch supply driven ‘near normal’ housing market…

    … to be clear, the ‘Greater’ is adjoining Selwyn County …

    ANZ NZ CEO Antonia Watson says the country’s biggest home lender will be reviewing its affordability equations for property investor borrowers after government housing moves … Gareth Vaughan … Interest Co NZ

    ANZ New Zealand CEO Antonia Watson says this week’s government housing announcements mean the bank’s affordability equations for property investor-borrowers need reviewing. …

    … “No government has managed to solve the housing problem because it’s fundamentally a long-term supply and demand issue. The only place in New Zealand where house prices are anywhere near normal is Christchurch, and that’s because of the massive house building programme after the earthquakes.” … read more via hyperlink above …

    New Zealand new housing: What is being learnt from Selwyn County adjoining Christchurch ? …

    New-build housing will help next generation of first homebuyers – not this one … Jonathon Milne … Newsroom

    … extract …

    … Further south again in Selwyn, where the population has nearly tripled since the local government reforms of the 1990s, all eyes were on the Prime Minister’s announcement of the “comprehensive” housing package.

    Selwyn District Council has 18 district plan changes queued up for approval. (Previously they had a couple every year). “In the past four months we have had applications from private developers to build 11,000 new homes across the district, some in places already identified for growth and some in new areas,” says mayor Sam Broughton. … read more via hyperlink above …

    Large subdivision plan could transform rapidly growing rural Canterbury town … Liz McDonald … the Press / Stuff NZ

    COVID-19: Building industry facing supply shortage due to shipping delay (and Selwyn Council’s remarkable performance) … Holly Henry … Newshub

  8. David WilsonMEMBER

    None of the smut was of Morrison’s making David.
    How about we look at the cause, grubby behaviors on our ABC and paid TV, lack of behavior control in our education institutions, lousy parenting, lack of respect by the sexes, ( we are all the same now according to the lefty luvies) , neglect to teach christian ethics and thought in schools, attacking of the church by the left, cancel culture, yep even attacking our decent PM to make a grubby political comment in this supposed business and investment rag.

      • Nah, the devil is about and causing all the trouble…
        idle hands are the devils plaything and all that.

      • That’s not biting, that is declaring your prejudice. Argue the points presented, with references for actual evidence.

  9. $500m-$1b more tax: How much new rental property rules could bring in … Anne Gibson … New Zealand Herald

    I’m a landlord and I’m tired of people blaming me for the housing crisis … Marcus Cicero OPINION … Stuff NZ

    Renters could be ‘lost generation’ in New Zealand’s housing crisis … Stuff NZ

    • – “Renters could be the lost generation” ??? I fear people with a mortgage are the losers of tomorrow.

  10. I will give Ardern credit if she watches house prices fall and doesn’t reverse course. I suspect she will backflip within 12 months.

    • If she holds the line I will be impressed. If she ends mass immigration, I will move there.

  11. The whole idea behind asset price bubbles in housing is to keep the plebs working their entire lives just for a roof – and feeling lucky/rich because they see the ‘value’ go up.

    It’s the ultimate con job really.

    Tilt the treadmill, and show the calories burned

  12. New Zealand housing debacle: The South American style polls panicked, slapdash and incoherent policy announcements this week …

    … Why is the government failing to focus on the real issues … land supply and infrastructure debt financing … so that serviced lots / sections can be purchased at around $50,000 and new house and land packages at or below 3.0 times annual household income with sensible mortgages ? … see below …

    Housing policy just made NZ a riskier place to do business: thinktank … Catherine Harris … Stuff NZ

    Changes in tax policy such as this week’s housing changes need to be better signalled, according to a business-centric thinktank.

    The New Zealand Initiative’s chief economic Eric Crampton said the legislation, which included changing the tax treatment of interest payments on residential investment properties, took many people by surprise – a risky thing to do in business. … read more via hyperlink above …
    Million-dollar price tag to get on property ladder is symptom of a toxic market, says new homeowner … Matthew Tso … Stuff New Zealand

    … When can we expect normal pricing for serviced lots / sections … like North America …

    Lot Values Hit Record Highs (U.S 50,000 median price per serviced Lot) . Natalia Sineavskaia . U.S National Association of Home Builders

    … so young people can buy their first homes at normal prices ? …

    How a 25-year-old teacher making $58,000 in Dallas spends her money (buying her first home for $US 155,000 … 2.66 times SINGLE EARNER annual household income) … VIDEO . CNBC

    • Update … New Zealand’s housing debacle: How could the government have got it so wrong ? …

      … Dr Bryce Edwards perspective is essential reading …

      Political Roundup: Housing announcement a blow for those at the bottom … OPINION Dr Bryce Edwards … NZ Herald

      Renters have been thrown under a bus by the Labour Government this week.

      Now the dust has settled on the Government’s announced housing changes, economists are pointing to a likely rise in the cost of rents, and an increase in homelessness. The flipside, of course, is that homebuyers may be better off, if house price inflation is pushed down. All in all, the housing announcements look set to fuel greater wealth inequality in New Zealand, creating an even bigger divide between home owners and renters. … read more via hyperlink above …
      … How many more families are heading for motel accommodation now ? …

      Housing crisis: Emergency motel stays averaging three months, some tenants stuck there for over a year … Jenna Lynch … Newshub

      … extracts …

      … Figures released exclusively to Newshub show in the three months to December last year, 1002 households had been living in motels for three to six months, a further 672 had been there for six to 12 months, and 120 have been living in emergency accommodation longer than a year.

      … Information obtained by Newshub shows the Government has spent an average of $366 a night housing people at the motel Stanley and her family is living at. Add that up every night over a year and it’s a total of more than $130,000, enough for a deposit on a house. … VIEW & READ MORE via hyperlink above …