FIRST TIME CALLER; LONG TIME LISTENER…GO AHEAD CALLER
Right, I can stand it no more, it’s election year and time to have my say, like talkback it will either resonate with you or you will think I’m a crackpot. Maybe it’s just got to the end of the working week and I’m grumpy, all I have had is banks making life difficult for my clients and consequently me. The OECD is calling for New Zealand to introduce a Debt to Income Ratio (DTIs) and the RBNZ is in consultation phase, which is short for we are asking for this, but just to make sure we haven’t missed something obvious to stuff the market – let us know.
DTIs; if the OECD got out on the ground here they might see what is happening in the market already, banks’ credit policies are creating the same effect. Rarely do I see anybody buying their own home get higher than four to five times their gross income as a home loan. There are always outliers, a single person with flatmates, no debt and a 20 per cent deposit can afford more than a single income family with three kids and credit card debt. If you apply this to Investors, the amount of housing available to rent will decrease dramatically over time and cause bigger issues than we have today. Whether you like it or not investors have a major role to play in providing homes in NZ. Note- Government post writing this article has pulled these off the table and requested LVR restrictions be relaxed.
Current high house prices; the increases are on the wane and the market is very different to last year. Not to say it won’t kick a little again in spring for Wellington, but Auckland is done due to the policy constraints and Christchurch has an oversupply.
Instead of meddling in the finance market there is a way to get this house price issue sorted, reduce migration numbers from 75,000. Firstly, I have a lot of clients who have emigrated from other countries, once here they add significant value and are good people but they are being affected also, starting a new life and the NZ dream is a very expensive one. My opinion, this is a very clever political strategy by our current government on many fronts.
Why pump immigration up?
• Population pressure pushes up house prices and makes us all feel better about our financial position
• It keeps a lid on wages so reduces inflation and keeps business happy and confident
• Instead of making cuts to spending in government departments they can cap budgets and make those systems handle a greater populace while the tax take increases with more people – no politician likes cutting a budget
• Importing offshore capital to stimulate the economy and keep GDP growth up What are the long-term effects?
• Stretched health, schools and social system. Talking to a wide range of clients in these roles it’s very tough and they are strung out. Would I want to be a Nurse, Doctor, Teacher or Social worker, hell no
• An infrastructure that hasn’t been invested in enough heaving under the strain of more people. Granted more roading and transport is being completed but it’s a lag
• Much of the populace is struggling to afford or even find a home to live in at an affordable level
• With technology changes the jobs won’t be there for the less skilled and potential is there for a higher percentage of the population to head towards the poverty line, it been creeping up since bottoming out through the late 70s early 80s
I am not saying immigration is solely to blame, the whole process of bare land to build stage has issues – land banking, raw material prices for building, Resource Management Act, council consents. This failure of the RBNZ and central government to have an integrated plan is madness. The RBNZ interferes in the market through LVRs restrictions and eventually DTIs and it ultimately creates market distortions. RBNZ is throwing water onto the fi re while the Central Government adds petrol by pumping more people through the gates.
Allowing any part of the market be it population growth, bank lending, wage growth, inflation or over regulation to get excessive is going to cause social and economic unrest for future generations. An example of this were the tough times of the late 80s early 90s as Labour reformed the economy, I was a boy but still remember the significant unrest and hardship in small towns as government branches closed, union strikes, and major employers closed-down.
Ultimately, we get a flashpoint where it will create a change politically, much like what we have seen in the USA.