New Zealand’s central bank appreciates the bigger the bubble, the bigger the bust. Today, it has taken action to curb potential damage from a bigger housing bust by restricting lending in the hope of cooling New Zealand’s overheated housing market.
Reserve Bank Governor Graeme Wheeler said “In the current situation, where escalating house prices are presenting a threat to financial stability but not yet to general inflation, macro-prudential policy offers the most appropriate response.”
From the 1st October 2013, mortgages with a LVR (loan-value-ratio) over 80 per cent must not account for any more than 10 per cent of new bank lending by dollar value. Currently lending to this segment is 30 per cent.
In explaining the reasoning for the new macro-prudential policy, the Mr Wheeler said:
Housing plays a critical role in our economy. It represents almost three quarters of household assets, and mortgage credit accounts for over half of banking system lending. Housing is a major source of value and of risk to the household sector and the banking system.
The Reserve Bank is concerned about the rate at which house prices are increasing and the potential risks this poses to the financial system and the broader economy. Rapidly increasing house prices increase the likelihood and the potential impact of a significant fall in house prices at some point in the future. This is particularly the case in a market that is already widely considered to be over-valued.
House prices are high by international standards when compared to household disposable income and rents. Household debt, at 145 percent of household income, is also high and, despite dipping during the recession, the percentage is rising again. Furthermore, the growth in house prices is occurring after only a small correction following the house price boom of 2003-2007 that saw New Zealand house prices increase more rapidly than in any other OECD country.
The Reserve Bank is not alone in expressing these concerns. Over the past several months the IMF, OECD, and the three major international rating agencies have pointed to the economic and financial stability risks associated with New Zealand’s inflated housing market.
The LVR restrictions are designed to help slow the rate of housing-related credit growth and house price inflation, thereby reducing the risk of a substantial downward correction in house prices that would damage the financial sector and the broader economy.
According to the RBA, Australian household debt to household disposable income sat at 148.3 per cent in the March 2013 quarter.
» Limits for high-LVR mortgage lending – Reserve Bank of New Zealand, 20th August 2013.
In other words the NZ gov. wants to maintain the ridiculous high house and land prices along with rents at tax payers expense, while ignoring the need for affordability of these essential requirements for the majority of NZ’ers? If so, then it will soon follow Australia’s economic woes of high budget deficits and reduced public spending cuts in essential services. I guess economic incompetence and corruption is endemic in every government-Maybe NZ’ers should follow many of us here in Australia and begin their own buyers strike of ‘DONT BUY NOW’!!
Crooked economies around the world.
One important decision made by governments around the world, starting US, was to save the housing bubble with all means and at any cost of any other sector.
All governments are still gambling desperately on keeping housing prices high.
Interesting to pay attention to the derivatives balance today (derived from housing debt in the form of subprimes and so on). Still counted in hundreds of trillions of US, accumulating to 30-40 years’ GDP in the world.This means the governments have to gamble as above, either die of thirsty or be drowned.
The banks are happy because they have kidnapped the world for the coming decades. Most discussants here are not happy because we try to be rational.
Hope this posting sets the ball rolling…
Somehow the banks have gotten themselves into this awesome position where they are making $1000+ per Australian (man, woman or child) profit without producing anything of value, and it’s going to continue for decades, and it’s probably going to be protected by the taxpayer. If the USA’s example is anything to go by not a single banker will go to gaol either.
And we’ll all just let it happen.
Finally someone takes action. (I believe Canada has done the same thing eariler this year, and so far it has been successful.)
It featured on The Business Tonight:
There is talk Australia should adopt the same measures to cool our bubble.
But Australia doesn’t want to cool our bubble. The powers that be want it to keep growing. That’s why interest rates were cut, so it would stimulate housing more. And no politician will ever talk about negative gearing. In fact, the Australian government will do anything and everything to maintain the bubble.
So who have the Libs chosen to be our next Housing Bubble Minister?
Guys you should take a look at this latest report from my side of the world. Shows what happens when a big BOOM, catastrophically POPS!
Interesting though that our radio waves are now full of RE’s saying that we have recovered and property selling like hot cakes.
Hot cakes at 2005 prices.
Unfortunately neither govt is going to do a damn thing about the housing market except keep propping it up. No of them wants to be responsible for bringing the housing market in line and causing a recession. Plus they all have vested interest more than we probably know. I have changed my mind a bit more now on NG. People just dont get it in Australia and just keep digging and digging and digging themselves in a debt hole that could one day ruin them for life. The heart of the issue is NG and the thing is how do you fix it. You cant just drop it as that would cause a massive recession which I believe needs to happen anyways. I think I posted on here recently about on FB I asked about renters insurance ( I only have one investment property but live in the US). NG doesnt do s#$t for me. I could not believe how many friends have investment properties. So my point is how do you fix it? You cant just go and rip it out as it would probably cause a depression.
One solution is to quarantine the NG tax deductions to the asset income rather what we have now which where the deductions are based on the indiviual’s income.
But that would be too sensible and fair, so we can’t have that.
But then again, AverageBloke, as LBS says, “Unfortunately neither govt is going to do a damn thing about the housing market except keep propping it up.”
There are plenty of things that could be done, but the government hasn’t even got the housing bubble on the agenda. They are completely oblivious to the bubble, and the ONLY thing they will ever come up with for housing affordability is enlarging the FHOG.
I 100% agree with the RBNZ, finally someone has the balls to take some real action.
The NZ government is publicly opposing the RBNZ decision as the “lack of supply” myth is still heavily circulation in NZ market. I am pretty sure behind closed doors the NZ government backs the move. Many Kiwis don’t understand this move HELPS first time buyers at least within a few years.
There is pretty much only one significant location in NZ or Aus where there is a genuine housing shortage, and that is Christchurch due to 1000’s of homes lost in the quakes, even there it is a bell curve on the up side atm.
Those in Auckland don’t relies cities like Brisbane grow as fast as Auckland for example, and yet house prices are largely flat in QLD (which is a good thing).
This is a very good piece on debt in Australia. Very good and do you think anyone in govt is going to do anything about NG it would kill the Aussie economy….. but it will get to a point where they cant control the bubble bursting.
“Australian Unemployment Big Issue in Elections”
“Housing A Bright Spot In Dull Australian Economy”
“Rate Cuts Fail to Lift Australian Consumers”
“Investment Data to Highlight Australia’s Uncertain Future”
…and the can gets kicked down the road.
These “…rubbish flats that are 50 years old” which Triggy refers to… are those the same flats that will be what he built 10-20 years ago, in 30 years time?
I did my sums a long time ago – pay through your nose during the entire prime of your life and then some, for something that will be rubbish in the end, as claimed by the builder himself!
I’m very curious… what happens to old apartments when they are uninhabitable? I know of a complex where it was already unlivable only after a few years.
What happens when you have a huge number of people who have put their whole life earnings into something that’s just “rubbish” in the end? A house, you can rebuild… but what happens to a block of 500 units? Not being sarcastic or rhetorical, I’m really just curious… what happens?
It knows no limits…
^ I’m not a racist person, just observing the facts. But in that picture there were alot of asian buyers so I suspect that alot of mainland chinese investors are land banking in Australia’s ponzi property capital.
I reading alot of articles today saying that House Prices are rocketing up. Looks like we are in for Boom 2.0
We may consider Chinese buyers the last straw for OZ property market. They buy for various purposes, not that simple as reported by the media. It is doubtful the trend would last. China has slowed down anyway.
Scary. Maybe we will have our own detroits soon as well. 🙂
10/9/13 SBS Dateline: Follow up story on China’s Ghost Cities
Thanks Matty. Found this should anyone like to look up more…http://www.sbs.com.au/dateline/story/about/id/601729/n/China-s-Empty-Cities
One think that has intrigued me of recent times, from a Perth perspective, is that Landgate data says that 282,273 freehold and strata lots have been created in the last 10 years.
According to census stats 2.6 per household equals space for 734k people. Census from 2001 to 2011 also indicates Perth has grown by 346k.
Perth’s vacancy rate is now trending up significantly and as we go over the CapEx cliff people are going to leave in droves which is what happens to mining towns.
Obviously not all land gets developed and people sit on land but when you are paying 500k for 250 sqm block with a 3 bedroom house on the fringes of a mining town something is going to give eventually.
Not a good time to be sitting on land as Perth will be a basket case in 2 years if not earlier.