Posts by Swan
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Crampton nails it
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"We get babyish rebuttals like “It isn’t capital influx, it’s a lack of supply”"
Except that one fundamentally affects housing costs (i.e. rent), the other merely affects asset prices.
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Polity: House-buying patterns in Auckland, in reply to BenWilson,
Yeah but the route that asset price bubbles take when they affect the economy is via financial instability and is always preceded by strong credit growth.
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Ben, we are talking about a specific situation where a house price bubble is effectively exogenously imposed on the domestic economy. You ask me to give you an example of a housing bubble bursting not being an issue, but I could equally ask you to find a situation where house price declines have caused issues without strong credit growth beforehand.
Regarding the transport blog link, the cited studies do not actually look at the effects of planning restrictions on house prices. Motu and Grimes don't at all, they are only looking at other secondary requirements e.g. Balcony sizes. They don't look at urban limits. The NZIER study looks at externalities for everyone in the city. The author of the post has equated this to house prices, but it is a totally different measure. The planning restrictions in Auckland are an absolute scandal.
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"ETA: I mean, I’m trying to imagine the nation laughing off a scenario wherein every single homeowner with less than 50% equity is suddenly effectively insolvent. Basically every young family that has a property in NZ is suddenly worth negative hundreds of thousands of dollars. That’s not going to stress the nation one little bit, right?"
For any household who owns only their own home (or a single home they dont live in that approximates their living requirements), they are effectively "neutral" when it comes to the housing market.
A household who does not own a house at all is "short" on housing. They consume one house worth of housing and so are negatively effected when the price of housing rises, and benefits when it falls.
A household that owns multiple house is "long" on housing. They consume one house but have more than one. So they are positively effected when the price of housing rises, and similarly negatively affected when it falls.
For a household with one house, they are not significantly affected. Sure their net worth on paper drops, but their mortgage costs are unchanged and they still own and have a house to live in.
So basically, its a wash and as long as the financial system comes through OK the RBNZ should be able to stabilise employment etc (if they are competent.
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Polity: House-buying patterns in Auckland, in reply to BenWilson,
"However, reflecting strong underlying earnings in the
New Zealand banking system, these factors were only
sufficient to cause negative profitability in a single year
in each scenario"http://www.rbnz.govt.nz/financial_stability/financial_stability_report/fsr_nov14_boxa.pdf
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Polity: House-buying patterns in Auckland, in reply to BenWilson,
So much of our economy relies on what, selling houses to the Chinese?
The RBNZ stress tests last year showed the banks could withstand a 50% fall in house prices and unemployment reaching double digits. We actually havent had high credit growth in NZ recently as others have pointed out, so the conditions for a financial crisis associated with falling asset prices just aren't there. More of our resources are moving back into house construction, but it is hardly an enormous part of the economy and it is still much less than the size of the industry in the 2000's.
There just arent the conditions for a significant recession associated with falling house prices, particularly if the RBNZ is onto it.
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Polity: House-buying patterns in Auckland, in reply to Russell Brown,
True, it may well blow up more before it pops. I think the message here might be caveat emptor to potential purchasers, but of course we heard that before. Any way you look at it, it is hard to make an argument that this is bad for NZ. It is only bad for would be property investors, but is that policy relevant?
Also note that the front page of the herald site is looking pretty ugly at the moment. Certainly any hope that they might have moved on from the data being related to Chinese ethnicity to the wider question about foreign investment looks to have been dashed:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11480028
I'm not in the office today but when I next have to sit down next to my ethnic Chinese colleagues I am going to be feeling pretty sheepish.
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If this is a bubble, as some are suggesting, that is great for nzers. When the foreign investors sell up en masse we will have ended up with a large transfer of wealth from China to NZ. Also house prices dropping is what we want, right?
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On other issue I have is that the potential problem (with foreign investment, and why it differs from NZ domiciled investment) wasn't described. As such the data was allowed, by Labour and the Herald, to just hang there. So people are able to attach their own "problem" to the data.