Speaker: Identification strategy: Now it’s personal
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i usually come to this site to obseve the usually intelligent conversations quite enjoyable for me who cant spell and can only type with one finger and who doesnt work in an office .in relation tho to keiths article it seems a bit wierd in this room i dont understand why most responders to keiths article think its racist to sugest that their might be lots of wealthy chinese investing in our property market why is that racist if they are ??its no supprise since the chinese are the biggest players surely has anyone else noticed practicly everything we buy is made in china ?arround the world they have with help from the yanks and walmart warehouse etc prob bankrupted more small businesses than anyone else in history .
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WH,
To put it another way, it’s more useful to talk about whether actions and words are racist in effect, than whether people are racist (and implicitly damned) in their hearts.
I think you're confusing ideas around disparate impact discrimination and racism, which differ in important ways. If you're going to abandon the claim that Labour is deliberately engaging in racist conduct in order to start framing your argument in terms of the unintentional unequal impact of Labour's policies, you really do owe Phil Twyford an apology.
I take your position to be that otherwise innocent policies and discussions pertaining to blanket restrictions on foreign investment in housing are racist because such policies will have a disparate impact on New Zealand's residents and citizens. I think the basic incoherence of this idea has its origins in your nebulous use of language. Despite what you appear to believe, it's no small thing to publicly call the shadow Minister for Housing a racist. Obviously, I'd be disappointed if the impetus behind Labour's housing proposals were blunted in this way.
Finally, I'm dealing with a potential shadow issue of my own (it's not you Stephen). I'll take this up with Russell privately and will, unfortunately, really have to leave it there this time.
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WH,
By way of postscript, I'm sorry if that came off a little harsh. I should emphasise that I've always enjoyed reading Stephen's many careful and considered comments on PA and have a lot of time for what he has to say.
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Stephen Judd, in reply to
No worries. On the one hand I'll cop to nebulousness, on the other, no, that's not what I mean. I can't take the time today to compose what will have to be a page long comment (or condense a lot of background into a shorter one). A rigorous explanation has to wait. Good luck with whatever it is.
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TracyMac, in reply to
There are many local speculators who are just as guilty if not more so
Exactly. Something that could be researched by Labour, if they bothered.
All this purported concern about kiwis having access to housing stock while ignoring the root issue - property speculators and rentierism - really doesn't sound convincing to me.
Sure, people are obviously concerned at the housing issue, but these cynical tactics are simply wrong. Present the real data - who buys up all the housing - and if people want to draw their own racist conclusions, that's their problem. At least the real problem will be out there for discussion.
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property speculators and rentierism - really doesn't sound convincing to me.
Sure, people are obviously concerned at the housing issue, but these cynical tactics are simply wrong. Present the real data - who buys up all the housing - and if people want to draw their own racist conclusions, that's their problem. At least the real problem will be out there for discussion.
Except I dont actually think this is the real problem. It's hard to get angry at people investing in property when for decades, successive governments have built/allowed the inherent bias towards property as an investment class to build up. Investment capital is (usually) a rational thing, and flows towards best risk/return opportunity. If I had the capital to invest, I would probably have done the same over the last few decades.
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– we Chinese-sounding named people are in way more trouble in New Zealand than we ever thought we would be again.
Yeah, nah, it's not personal. Beyond some newsy articles and the wrath of usual suspect commentators, things look to be about exactly the same as they’ve always been. Which has never been a good thing. But Labour’s stock has been down a while and 1/4 of the country no longer cares about politics either way, for obvious reasons. traction with a certain demographic, their confirmation bias etc.
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Katharine Moody, in reply to
If I had the capital to invest, I would probably have done the same over the last few decades.
You might well be lucky you didn't.
When most people say they have "the capital to invest" - they normally mean they have "the capital to borrow". Our borrowing here in NZ - no matter what ethnicity or age or intention is pure madness;
The scale of our housing market was revealed today in the March 2015 data out from the RBNZ. The value of all houses is 'now' $791.2 bln, and that value grew by $66.5 bln in twelve months. That is value growth going up at the rate of $182 mln per day - I kid you not. (And almost all that gain is not taxed. If it was at 30%, the public coffers would have benefited by $20 bln, representing 80% of GST.)
Auckland is a bubble that will soon pop dramatically. It will be bad for all of NZ, but far, far worse for those piling in with borrowing of late.
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BenWilson, in reply to
Auckland is a bubble that will soon pop dramatically.
Only problem is: How soon? We've been hearing that for over a decade now. Longer from quite a few economic commentators.
Especially since this continued right through the sub-prime bubble elsewhere, through the GFC. It makes me think that our understanding of the drivers is very weak indeed, and that could be largely because we don't keep good information about one of the biggest ones. This flood of capital isn't something we can easily see popping - not if it's actually a flow-on from massive growth in China. There are factors well outside of our control there. It's just a tiny rivulet of what Chinese capital is in the bigger picture, and who is to say that such a flow couldn't go on for years and years, if the Chinese government just keeps the taps turned the right ways. Or any other foreign government with a ton of money - there's not really a shortage of them.
What we can do is throttle the flow ourselves. Not rapidly, which would be disastrous for many, whatever Swan says. The losers would mostly be the poorest investors. We can slow the flood into this country, if we have a public will to do it. Or we can divert it more productively. I'd personally favour the latter.
If it's a bubble and it pops, that was going to happen anyway and there's bugger all we can do about it. But if it isn't it can still do massive damage, just by making home ownership unattainable to residents. That we can do something about. Perhaps slowing the land grab down might also make any popping bubble less catastrophic, if/when it happens.
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Katharine Moody, in reply to
Especially since this continued right through the sub-prime bubble elsewhere, through the GFC.
No it didn’t. Auckland’s market (median house price) peaked in Dec 2007 – reduced thereafter – only regaining that peak number in October 2009. Lehman Bros went down in September 2008. That median in Auckland remained quite flat right through to the end of 2011 – and then grew steadily for the next year or so .. following the Christchurch EQ.
A lot of cash out insurance payments left CHCH and headed to Auckland – but these purchasers weren’t the type to pay way over market value. Hence we recovered from the GFC fallout largely because of the CHCH disaster (well that’s my theory anyway) and Auckland remained more expensive (but not in the stratosphere)..
The Auckland market went ballistic (in comparison with the rest-of-the-country) toward the end of 2013.
Chart data is here (click on Auckland tab and then use the slider to get the span on the period above);
http://www.interest.co.nz/charts/real-estate/median-price-reinz
It is a credit squeeze/default event (again) that will deflate the bubble – a local bank problem/crisis. We are a way over-indebted nation (private debt in particular) and we haven’t got the shadow banking sector here with the type of bets made on free money – so we are at the whim of foreign masters. The speed and momentum of our reckoning will depend on whether unemployment grows rapidly, or not, with the recession we are presently facing. When locals can’t meet mortgage payments, no matter what foreign country-of-origin is buying – they won’t be paying the premium they are now – that is for sure.
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BenWilson, in reply to
Using median of actual sales does give quite a different picture to the usual stats pumped out as news by real estate agents. But looking even at that, all I see is a one year flat period, not some massive downwards correction. If you cherry pick the most extreme data points in that period you can find a 9% down drop from late 2007-early 2009, followed immediately by an even bigger rise, which continues until now.
I'm not going to dispute that there was a tiny correction when the GFC hit, if you base such judgments only on median of sales data. But I wouldn't count that as a bubble popping. It wasn't an indication that a massive overvaluation had happened here. It may have indicated that the riskiest of the loans the banks had given out were probably not wise, or at least a widespread perception that that was the case happened during that period - justifiable in light of an actual sub-prime bubble popping elsewhere.
I've become less and less convinced that this is a bubble. If the driver is massive foreign capital, particularly from China, then that is not necessarily bubbly. It could be an ongoing reflection of the changing nature of where the money in the world actually is being made.
Sure, China itself could be in a bubble. But I'm buggered if I could understand the drivers of their economy, much less predict the way it will go, considering their government's extreme power to make sudden unilateral changes. I guess what I'm saying is that I don't really see the Auckland housing market as being particularly bubblesome. It's having unusually high growth, for sure, and that is quite dangerous, sure. But it could be because the fundamental drivers pushing it are real, rather than because we're all deluded about the true value.
The one driver we can really tinker with is demand. Supply is something we have far, far less power to alter, because it really does mean a massive building drive. You can slow demand just by changing policy settings. It costs a bunch of politicians making a political decision and then acting on it. NZ can do this extremely fast for a democracy. But building hundreds of thousands of houses means finding tens of billions of dollars, finding the labour, getting the labour to build, getting all the planning streamlined. It's a project of colossal magnitude. Only a sustained and massive effort could make a small dent. But foreign demand could be crushed by an Act of Parliament in a few short weeks. I don't think they should do that, but it has to be on the table that this side of the equation is at least allowed to be tinkered with in the interests of the people in the country.
If we did suddenly pass such laws then I'm pretty sure Auckland would look like a bubble had burst. But only because we had, in fact, deliberately changed the fundamental drivers. Which is not what a bubble bursting actually is. A bubble people driving prices up beyond the fundamentals.
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David Hood, in reply to
But I wouldn’t count that as a bubble popping.
The way I look at it, pretty much every country in the world went into a bubble in the early 2000s, Australia and New Zealand didn't really come down like other countries did. One could argue at length about reasons (I think that Australasia is pretty unique in the way it handles negative gearing contributes) but to me the nett result is (if it is being governed by things internal to the economy) a regional bubble on top of a national bubble. If it is not being governed by internals, then no-one really knows to call it a bubble or not, because there is no real information about what is going on.
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I've seen it suggested elsewhere that the Chinese will be zeroing their interest rates in response to their stock market crash. If they do that, then sure, it'll get the stock market moving upwards, along with every other "market" that could benefit from a flood of very cheap money. Essentially the Chinese government will be printing money (there will be no other way to fund the banks other than through QE) and feeding it to the middle class to buy assets on margin.
Of course, this will have two effects:
- nobody will bother building up their widget factories when they can make way more money in financial speculation
- eventually, the governments cash/credit will run out and it'll all come to a juddering haltIf they do this, I expect we've got 2-5 years before the crash, depending on the level of tolerance international markets have
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Katharine Moody, in reply to
A bubble people driving prices up beyond the fundamentals.
What do you define as the "fundamentals" of a local housing market? Do you mean a measure of median house price to median income - as this seems to be the metric gaining traction in the housing affordability debate both here and elsewhere.
These folks (Demographia) have been producing a survey which includes New Zealand for quite some time. Here it is for 2014;
http://www.demographia.com/dhi.pdf
According to their calculations, Auckland has a Median Multiple of 8.2 - severely unaffordable.
But you may have a different definition or meaning when you refer to 'fundamentals'.
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Joe Wylie, in reply to
These folks (Demographia) have been producing a survey...
As Demographia appears to have a well-funded agenda, should their statistics be taken at face value? While the local franchise holder seems to enjoy a certain cult status in the NBR's online comments, he's mercifully not the player he appears to believe destiny's ordained him to be.
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Kumara Republic, in reply to
I’ve become less and less convinced that this is a bubble. If the driver is massive foreign capital, particularly from China, then that is not necessarily bubbly. It could be an ongoing reflection of the changing nature of where the money in the world actually is being made.
If it's not a bubble, then it's a cartel. The kind that not even the Commerce Commission can fix.
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Wish Danyl, Russel, Keith and Tze Ming Mok would get together and start the equivalent of a newspaper or a TV station with enormous amount of access.
I've been enormously conflicted about this.
Issues:
1) China's ability to be a big fish and increase its influence over New Zealand, the speed at which this happens and our concept of ourselves as a nation thinking ahead 30-50 years, and not being tied to WWII and the 1970s nostalgia. Is it racist to worry about the social effects of increasing political and financial influence with Chinese banks opening and us being (or perhaps having been) so dependent on the Chinese dairy market?
2) Labour's ability to govern for the poor. See the article above. Those guys don't need any extra problems. Same as beneficiaries under the current government.
3) Racism doesn't matter unless it aligns with National Party interests. Who is making a stink about the low rate of Polynesian home purchases or as above the health, overcrowding and other issues? That is seriously racist and I'd like to think that anyone who is principled about being anti-racism would make that an issue.
4) Culture change. What are the essential principles we aren't going to trade away?
See here TPPA, Saudi farms and Casino deals which are government lead and things like attitudes to women, smoking and other forms of social change over the last 30 years which are influenced by immigrants from countries with different values.
I had a conversation with about women in tech and the low uptake of coding jobs by qualified women (IE a big gender disproportion in the tech sector in the US) and I had a chap from overseas who couldn't understand why it was important. Which some people in NZ may think, but attitudes are such now it couldn't be said publicly or assumed to be the 'commonsense' held by all.
5) Racism=power imbalances among groups?
I feel that there is a lot more than racism in this and there are many reasons to be angry in different directions. For a lot of people growing up in New Zealand who are not able to buy their own home to see the Mitt Romney's of China
("Why do you spend $100 on beer while you can save it and spend it on your house one day?" Mr Li asked.
"There are so many other Kiwis who can afford to buy their houses. Why don't those people work harder to earn more, save more and then they can buy? To me, it's very fair. Excuse my language but only losers think it's not fair. My money didn't fall on me from the sky. I am not ashamed of being richer than those people who don't work hard and blame others for their own failures. This is what I value."
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11480253)along with other investors being shown the welcome mat is very irritating. This is not being angry with China or Chinese, but with the policy of the government which has policy settings directly to the detriment of its citizens which advantages some of the 1% foreigners.
Anyway I don't know how I think about this, but I know that the people who do are setting the agenda. See how quickly Don McKinnon, the New Zealand China Council, Chester Borrows told us that having this debate was damaging.
Labour was praised by the PRC president for the actions of Norm Kirk's government. It also signed the free trade agreement. I hope it knows what it is doing.
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BenWilson, in reply to
What do you define as the “fundamentals” of a local housing market? Do you mean a measure of median house price to median income – as this seems to be the metric gaining traction in the housing affordability debate both here and elsewhere.
I can’t easily define it – this is a big question. So no, I don’t mean the price to income ratio of locals. I’m more in a situation of doubting that we understand the fundamentals than proposing my own ones, which means that it’s very hard to say if we’re in a bubble. 5 years ago I was pretty sure we were, but now…not so much.
What I mean by fundamentals is the idea of “underlying value”. The fundamentals are that which gives the thing long term value. Not the short term sentiments of the market that could just be feeling bullish or bearish at the time, but what “real” value the thing has.
I know it’s vague – the idea of fundamentals is disputable. But it’s also a pretty common analysis, the main alternative to a more “technical” view of it, in which you only look at the price and try to find patterns. To even call something a bubble, or overpriced, you have to pretty much believe in the idea that there is a real price, or a real value, to which, in the long run, the current price will return.
So what does drive the “real” value of property? Well I feel pretty sure it isn’t only the median income of locals, unless they are the only people who can buy property. When pricing things like stocks it’s common to look at the expectation of future earnings, usually based on current earnings, and other patterns you might find like similar houses, or similar cities, etc. But residential property is not solely for making profit out of. It’s at least as common to view the house in terms of what you personally want out of it. If you like it, you’ll pay more. If you can see yourself living in it, or your kids living in it, then you can value it higher than just what it can earn in future rentals. Also, you may have long term plans that totally change the value of it to you, compared to other people.
And that goes for Chinese people every bit as much as locals. It’s at least possible that their capital is not just coming in to make speculative income – it’s also a large part of a genuine desire to own these properties because they like something about them more than what the locals do. Or perhaps they like them the same, but they have more money to spend, and there are more of them.
And what would foreigners like about Auckland property? Well, it has a lot going for it. It’s in NZ. It’s the biggest city. It’s a safe, stable country. It takes immigrants. Immigrants can get an education here. It’s underpopulated. The weather is temperate. There are a lot of lifestyle aspects that are rare in the more populated parts of the world. You are allowed to buy property. Even if you’re not local. That property is mostly untaxed.
What’s not to like about all that? Maybe it’s the opposite of a bubble, the place is underpriced, at least in an international sense. I don’t personally know. I know I’d like to own more property here, personally. I just can’t afford to.
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Katharine Moody, in reply to
Perhaps this will help;
BIG NUMBERS
The scale of our housing market was revealed today in the March 2015 data out from the RBNZ. The value of all houses is 'now' $791.2 bln, and that value grew by $66.5 bln in twelve months. That is value growth going up at the rate of $182 mln per day - I kid you not. (And almost all that gain is not taxed. If it was at 30%, the public coffers would have benefited by $20 bln, representing 80% of GST.)
Or this;
the median selling price in the Auckland region has risen by $155,000 (25.8%) in the last year or nearly $3000 a week.
Or this;
the average asking price in Auckland has increased ten times faster than the rest of the country
It's a bubble.
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BenWilson, in reply to
Maybe it's my turn to ask how you define a bubble, because it may not be the same as I see it. Your points here indicate that you see it as a more technical thing - it's been rising too fast. Which takes no account of underlying value. You can have extremely rapid growth in a market if there is driving force behind it. Like you find gold, or perhaps a massive investment is made that enables the growth.
I don't dispute that it's becoming unaffordable for residents. I'm just questioning the reason for that. Not all rapid growth is bubbles.
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Wiki is as good as anything for my definition;
https://en.wikipedia.org/wiki/Economic_bubble
And I've always liked this graphic representation;
https://people.hofstra.edu/geotrans/eng/ch7en/conc7en/stages_in_a_bubble.html
And I'd go with the theory that "intrinsic value" of our housing stock relates to affordability - the median house price: median household income works for me.
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Let’s reframe the problem:
<b>“Greedy kiwi homeowners shutting out their fellow countrymen from home ownership by selling out to foreign interests”</b>
The source of the money, or the race of the person with the money should be irrelevant.
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Kalka River, in reply to
While we are to welcome truckloads of migrants and enjoy minority status in China 91% are of one ethnicity. Also “More than 94 per cent of Chinese permanent residents and more than half of those with NZ citizenship told University of Auckland researchers that they felt a greater sense of belonging and identified more with their country of origin than New Zealand.”
The fact that you highlight the Chinese in this regard shows your deep seated racism.
Firstly remember the world cup ---yeah, the oval ball one four years ago. Who do you think local born Samoans and Tongans supported----they came out in droves and flew their flags all over the place, welcomed their respective teams, and some would even support Samoa over the All Blacks.
Same with South Africans. Same with English migrants ---who are extremely attached to the UK. I have Italian NZ friends who identify with Italy more than NZ. True.
And how many generations did it take before Pakeha New Zealanders stop calling England 'home'
So again.....it is singling out the Chinese for something everyone else does anyway.
That is racism.
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"While we are to welcome truckloads of migrants and enjoy minority status in China 91% are of one ethnicity."
Hey JH ---Pakeha New Zealandres are about 70%? of NZ ----is that minority status.
There have been more white immigrants from UK + South Africa etc than Chinese over the past 10 years ----what is your view of them.
And about 90% of the UK is also white ----does that mean we ban white migrants to NZ
So you are real confused dude.
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BenWilson, in reply to
Wiki is as good as anything for my definition;
Suits me, that’s basically what I said mine was. Let’s put it here for completeness:
An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania or a balloon) is trade in an asset at a price or price range that strongly deviates from the corresponding asset’s intrinsic value. It could also be described as a situation in which asset prices appear to be based on implausible or inconsistent views about the future.
If we agree on this definition, then the problem is just to identify what makes “intrinsic value”. You could theorize that when it comes to houses, there’s some kind of ratio of median earnings to media price. That looks to me like what you’re saying?
I have 2 main questions here:
1. Where does it say that intrinsic value is based on affordability? A Ferrari has intrinsic value, but is highly unaffordable to most people. A Van Gogh painting has a huge intrinsic value, so high that only a tiny percentage of people could ever afford one. This value is steadily rising (with ups and downs, but the overall trend is up). Does that make it something that is bubbled? Or is it that the Van Gogh is actually intrinsically extremely valuable?2. Following from that, you could counter that the affordability that matters is to the right population. Say a Van Gogh is only affordable to billionaires or government backed museums. Then it can be overpriced at some time, if the billionaires are taking a bit of a haircut, or the countries that want to stock their museums are cutting back on art investment. But if we extend that to housing, the question becomes: Who is the population we are talking about? Affordable to who? Pretty clearly it’s anyone who could feasibly buy the thing. If we have the doors wide open to foreign investment that means that median incomes in NZ aren’t really the driver you think they are. What matters is the median incomes of people who might be attracted to buying a house in NZ. That pool could be many times the population of the entire country, and could have a far higher median income too.
So what I’m saying here is that with our extremely open property market, I don’t think we can model whether an asset is overpriced by looking at local incomes alone. Are there foreign incomes that are rising far more rapidly than ours? Of course there are. So if median incomes is the bound, the baseline that sets where bubbles are, we probably have to look at the median income of the more rapidly growing and populous nations.
Then there’s the confounding factor of their very different property market. They might be gagging to buy property, even at earning/price ratios that would make NZers retch, just because they can’t buy it easily elsewhere. And then there’s the question of whether they might have reasons beyond earnings to wish to own such a foreign asset. It could be seen as a bolthole from a very oppressive regime. That has a very different price tag to them than it does to me, because I don’t live in a regime that has, in living memory, purged the population, shot up protestors, rounded up dissidents and shot them, strangled poor neighboring countries, denying them freedom of self-rule. If I lived somewhere like that, was moderately rich, and had an opportunity to get a bolt-hole in a safe little haven at the other end of the world, I’d pay well above market to get it.
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