Stabilising the housing market

I discussed the question of ringfencing the losses from rental housing on Morning Report yesterday – tax changes for investments (mp3, 2.7mb, Morning Report, RNZ) .

Cullen refused to front up to the discussion but I think it’s important that we discuss it. Housing prices have doubled in six years and it is a big social and economic problem (via impact on interest rates and hence value of dollar). I was debating John Shewan from Price Waterhouse Coopers who argues that it will make no difference to the housing market. Unfortunately for him his argument was severely undermined by the accountants interviewed by RNZ who said there were many thousands of people going into the property market to get the tax writeoffs. Which is of course the case.

It is clear that we need to work both sides of the housing market if we are to stabilise prices – demand and supply.

On the demand side, ringfencing the losses from rental accommodation (or at least the losses from interest costs) would certainly have an impact on demand – probably affecting around 10% of the total housing which is rental accomodation geared to make losses which can be offset against income for tax purposes. A capital gains tax exlcuding the primary family home would be likely to have a similar effect, though smaller size. The Reserve bank is calling for an investigation of this as well (as is Treasury apparently). Restricting the sale of land to NZ residents and citizens would also have an impact on demand – maybe 5% of the market though nobody really knows.

On the supply side we need to allow more medium density housing along transport corridors. And we need a big growth in the supply of state rental accommodation with affordable rents to make sure that rentals don’t follow housing prices in the next 12 months.

I think if we are going to have tax write-offs on losses from rental investments they should probably only cover maintenance (not interest) but also investments in energy efficiency like insulation. If we are serious about climate change and making houses warmer drier and healthier then we need to create incentives for landlords to improve the energy efficiency of their houses.

Shewan said we shouldn’t do this because it would distort the tax system – we would rather cook the planet and let families shiver in cold damp houses than “distort” the tax system?? Not me. And anyway the really big distortion in the tax system is the failure to tax income from capital gains – that is the number one distortion in the tax system and the other political parties are too scared to make the case of why it should be fixed.

75 Comments Posted

  1. with that CAP GAINS thing dudes,
    them family NAT people wouldn’t have to pay CAP GAINS
    above their present value for second house as at introduction of legislation almost immediately after next election.
    but after the date of next election we have CAP GAINS TAX on second house, guarantee dudes, I see to it myself,
    also younger rental people would from then on be in an equitable market,
    now I teld yous 5% Green easy with proper environmental objectives

  2. I wonder if we could have a system of compulsory notification of house sales, prior to listing by a real estate agent… we can do it easily with the internet.. This would limit the situation where agents find sucker> low price> quick sale.

  3. i was just being a smart arse, i do agree with you though. we must shop around, or atleast make it look like we are shoping around, if labour finds itself in danger of loosing whatever percentage we get they are more likley to try to accomodate us, if it comes to a bidding war between Nats and Labour on who get the greens vote then we are more likley to get closer to what we want. if we can pass the threshold that is, and get enough to be needed.


  4. pivotal,
    a point around which anything turns, changes,
    as soon as Rod Donald declared Green as being an absolute political ally of helengrand,
    you lost any leverage,
    it is true you can pivot fom anywhere,
    but as Peters proves every electioon, and john key is learning,
    its best to be at the balance point,
    as soon as you align with helengrand,
    you can not weild any power or leverage,
    and your pivotal pint becomes the extreme left,
    and for that you need about 30% votes,

    require jeanette and russell to enter discussions with NAT, now
    it would be a buzz talk thing for ages,
    what were they talking about and why,
    this way you can not be dismissed as irrelevant,
    helengrand will give you Ministerials if she win,
    and NAT have to give you policy [ say CAP GAINS ]
    as arranged or you withdraw support,
    pivot around issues with which ordinary kiwis can identify,
    not social issues it won’t work,
    also dudes remember that Peter’s Done,
    only other pivot is Winston,

  5. depends on who pq was referring to as pivotal and in what context. I though he was talking to bj in relation to immigration (forced by climate change?)

  6. a pivot does not require a central position, it can be at any position, the pivot is mearly the point around which the object rotates, although the closer the piviot is to one point the more force must be exerted upon that point to move the other point Touque= Force *Distance.
    simple physics realy 😛

    it would be interesting to see you go up against winston, hes smarter than he seems.


  7. if yous want me to i can move into taraunga get green things done,
    peters winston must gain electorate or die,
    change things fast

  8. to all discerning readers,
    one can not be the pivot of the left,
    pivot power requires central position,

  9. to get 5% votes properly represented,
    you fwwog mn things need to be able to talk to both john key and winston peters,
    this means one or the other [ not both] co leader must front up now,
    this is the time to get things done, make decisions,

  10. bj, there is no such thing as a foreigner any more,
    this invasion will be peacefull, and you will not have to fight and die,
    but it will be overwhelming,

  11. with that house price thing dudes,
    also don’t forget that dont forget that,

    Apparently it turned out when Bill English say “ it is too late to introduce Cap Gains? it was a caucus joke. He meant that it is too late for Helengrad to introduce, and it’s true, that’s why they looking at rabbit proof ring around the rosie fence hahaha
    A Government could only do this thing by stealth as did Roger Douglas introduce GST and sell assets.
    How do you like the idea of a revolutionary change from NAT

    there is a massive swell of interest in temperate climate Countries .
    Sea level rise will take out part of New Orleans shortly and many other places in Asia and Europe. The corporate giants are on our doorstep dudes and they will not go away.
    This dollar will go through 80 cents shortly, our Parliament is unlikely to agree on Reserve Bank changes, unless Peter’s Done die of his own boredom.
    With say mebe a billion people looking around the globe where to live in the next decade or so, four in a thousand of them could double NZ population. Our National crisis is being watched and money pours in.
    It was this bad in 1984, and then bob jones and the guys who knew got rich, i let yous know more later,

  12. Right.

    I’m all for better trains. A high speed rail network would be great for Wellington. And Transmission Gully cannot come soon enough – I do wish they’d stop dithering.

  13. Dead right it is a walled city.

    Wellington also has a substantial population of tech professionals servicing a variety of Software developments. That population is growing as well.

    The answers for Wellington include improvement and increases in the train services through the Hutt and up to Waikanae, development along the route of the soon (well, sometime in my lifetime I hope) to be built “Transmission Gully” and inclusion of some form of Mass Transit on that route… and ringfencing to get the pretenders out of the property investment = tax-sheltering biz.


  14. Wellington is essentially a walled city. There are geographical constraints on the centre and 1st tier satellite suburbs, so supply is limited. The city attracts professionals, who are mostly young.

    The government departments provide a backbone of stability in this market. True, if the numbers are cut significantly, and people choose to move away, this will lead to lower demand, in certain sectors and areas. This risk can be mitigated by careful selection in terms of property type and location.

    I think you are right about the high value rural economies, however I don’t see the drift patterns in Wellington changing in such a significant way as to affect the center. There are also internal drift factors in Wellington (i.e. older people selling up homes in the suburbs and moving into central city apartments) and young professionals, also wanting to live in apartments. That market is also segmented in terms of apartment quality. The councils and RMA provide further constraints to supply.

    Agree with you about Auckland, and also the reason I dislike many aspects of that market, although certain areas and demographics will always be strong.

  15. PEL,

    Wellington’s urban migration may be nothing more than growth in government department’s head office staffing. Something that could easily be reversed by a right wing government. Not good news for Wellington landlords.

    Auckland is in an even more precarious position. It’s economy and employment are concentrated on retail import distribution services and providing corporate head office services. The latter seems safe but the former is heavily dependent on the dollar remaining strong. Auckland already has only 29% of the nations superannuitants which suggests that a significant proportion of Auckland’s population only live their because they have to and they are cashing in their property assets when they retire. There is potential for this domestic emigration to exceed foreign migration which few property investors will have considered. I found this popultaion info in this nzier study.

    Where you may be most wrong is in the assumption that population is still drifting from country to city. This was definitely the case when farmers were subsidised to produce sheep and beef which have low labour inputs and when it was felt that labour would be better utilised in factories. It seems that one (unintended) consequence of rogernomics is that rural economies have diversified into high value high labour produce (wine, forests, cropping) and tourism. It is this reversal of the population drift amongst the semi-skilled that has been driving the housing markets in rural regions. You will have to look at the quintile price movements over the last 10 or 20 years rather than median prices to see that these housing price increases have been driven from the bottom up rather than than the trickle down situation evident in Christchurch, Queenstown, Auckland and Wellington.

    Agree with you on the muppets.

  16. peterquixote

    Well, not exactly never, ever 😉

    Thing is, if anyone buys properties returning 2% or less rental return, they should see the big f**k**g warning sign flashing ultra-bright. There’s going to be tears in that market.

    Better hope they time their exit right. They won’t, of course. My vulture capital is circling….waiting….

    Long term 8% plus capital gains is fine by me. Rental market is fine if you know where, and what, to buy. And that ‘aint suburban sprawl Auckland.


    Good riddance.

  17. pq – I think Maori should demand we not sell anything to foreigners. They aren’t Tangati Anyone and heckfire not even Pakeha. Betcha this gummint caves in quick. 🙂


  18. you sound like bob jones PEL pal if you don’t ever sell, best exit right, I personally use BJ’s taxes for gain, and sell for income it cruel and inequitable dudes but it the NZ pavlova paradise, is Seedney dudes some houses returning 1%, in Auckland many returning 2%, BJ mebe you find good area with school, and draw up contract rent to buy, greedy landlord will refuse of course, but they listening to offers, BJ japan bank give 1% return, and NZ property rental falling faster than a brick,
    remember also politically Maori property not getting returns,
    forget about the ring fence tax, the rabbit get through easy,
    require john key to implement capital gains tax on second house,

  19. PEL – The gangsta business annoys me too, and deadbeats taking advantage of the various inefficiencies of trying to deliver essential services to people who really need them… but the services to people who really need them? I want those to continue as those people are in worse positions than I hope to ever be, so I feel a moral obligation to put up with such rorts and inefficiencies as I can’t find a way to eliminate.

    I don’t feel that way about the guy who has 3 houses and is buying a fourth one because that’s what the seminar said he needed to do. He doesn’t need a helping hand from me or from the society. Neither does the gangsta (but getting them to work for a living without hurting people who are really hurting is not as easy done as said).

    There’s property investment (real) and there is property investment (tax advantage), and as I said above, I hope to limit the effects of things we do to the tax advantaged side of the market. Which clearly doesn’t mean you or Gerrit or any number of other people. This isn’t about punishment or revenge, it is about getting it right.

    The answer is on both sides. Limiting it to a supply side argument cuts off some of the possible ways of addressing it. The ringfencing idea for example. I don’t disagree with using both hands to clean up the mess, and I am all for providing increased supply, but both sides can provide some of the answer and should be examined.


  20. BJ,

    It really p!sses me off that my tax money goes to gangs, long-term unemployed, unnecessary government “services” and other deadbeats. I’d rather invest it in something useful.

    We all have our crosses to bear.

    Personally, CGT won’t affect me. It wouldn’t stop me buying houses because I never sell them anyway, and it might get rid of some of the property seminar-fueled idiots – at least for a while, until they’d attended a new round of seminars entitled “Property Wealth: The Name Of The Game Is Long Term”. It certainly won’t solve the supply side issues, of which there are many, and I wouldn’t count on any real discounts.

    I don’t know the solution, but it appears to me to rest firmly on the supply side. By that I mean that we don’t have enough houses, of the right type, in the right place.

    We need better urban planning and development problem, really. And get some of those unemployed layabouts into compulsory work – the building trade, for example.

  21. Have to agree with bjchip and I disagree with Gerrit”s assurance that we can expect wages to increase to catch up with the rise in house prices. Cullen’s put paid to that idea with his “Big Idea” of this Kiwi Saver scheme.

    I honestly hope that if Key gets wins the election he scraps it and also the Super Fund, because both lure people into a false sense of security that they don’t have to live within their means, because at the end of the day the government’s gonna look after them and it also damages our abiliy to take responsiblity for ourselves in the form of taking the ability out of our hands in the form of unjustified taxes. Also the world economy is WAY too volatile to make any such assumptions. Read

    If all our District Council’s have such attitudes and incompetent managment as the Makukau District Council its no wonder that we’re in such a mess. Read

    Just another example of the legacy bestowed upon us by “reforms” of the 1980s and 1990s. Thanks a bunch Rodger Douglas and Ruth Richardson and other assorted fools.

  22. I have to agree with Gerrit that a CGT will not be an effective tool in making housing more affordable for New Zealander’s, but I disagree with his assurance that New Zealand wages will rise to catch up with the house prices. The world economy is EXTREMELY volatile at the moment. Read this.
    Not only will longterm investors merely factor the extra tax into prices as all other businesses do, but it may cause “Mum and Pop” to withdrawl their house from the market thus suppressing supply in a market already with surplus demand, which will have the consequence of a further increase in prices. Perhaps extra houses must be built, but the planning must be done much more sustainably and with better foresight than has previously been the case.

    If every District Council has the same attitude and inept mangement as the Manukau District its no wonder we’re in such a bad way. Read

    Oh the glories of the “free” market and leissaz faire capitalism. Nice one Rodger Douglas, Ruth Richardson and assorted wankers.

  23. PEL – I don’t care about fashionable, but I do care about my kid’s schools and the commute to work. I would happily pick up any old dump as long as it was big enough, close to a rail line and had a decent school for them. I am quite capable of either fixing or building a house. Not that the council recognizes that, but in the case of fixing the place, they don’t get quite as much say in the process.

    Those of us complaining about house prices are not doing so without justification. The house prices themselves are unjustifiably high based on fundamentals. That constitutes a tangible risk to the NZ economy and damages the social structure. Whining doesn’t figure into this when someone is using MY money to pay for THEIR mortgage on a house when I am bidding against them for that same house.



  24. CGT gets factored into the sale price but it is the buyer who doesn’t have to pay it because he’s going to LIVE in the house who gets a long term advantage from that change. PEL… the one thing I’ve seen for dead certain in this debate is that the Property Investment community simply DOES NOT see things from the perspective of an individual trying to buy a house to live in. I’d be willing to push into the market someplace if it were just a bit cheaper, not a whole hell of a lot, but I am not comfortable going for a mortgage that’s a third of my disposable income.

    I have no idea what Westpac was exactly referring to, the quote is two layers removed from context and I can only guess… but there’s sections for sale today at prices which, if I added a 120K structure to it, I could afford. I can’t buy those sections cause the builders are putting 300K structures on them and then marketing them at a half million each, and the builders aren’t talking to anyone who isn’t in that market. I know people who bought the land and are still stuck renting because the builders are backed up with a years worth of projects, all in the half-million range. It ain’t just the RMA. The councils won’t (in general) issue consents for anything because they’ve been burned by the leaky-homes debacle.

    So and so and so… but… if I am not competing with people who are using my own tax money to pay their mortgage interest, I have a better shot at getting into a house. Period. It may not be a LOT less competition, as you and Gerrit seem to think, but I know the advice of the accountant, the people I ran into and the comments from the Realtors when I last went out house-hunting. None of the other people were planning to live in those places and the realtor’s thought I’d just landed from Mars.

    Maybe that too is a “local” phenomena. All I can tell you is that it REALLY p!sses me off… because half the money that funded their bids is coming out of my pockets… and if it is local and it stops, then the local market (which is the one I am ultimately most interested in), WILL drop.


  25. Exactly. Again.

    There are plenty of cheap properties, complete with established community spirit, in Eketahuna. However, those whining about house prices don’t appear to be in a hurry to move there, and to other places like it. And before someone starts banging on about jobs – just substitute “Eketahuna” with “unfashionable place within commuting distance to work”.

    Guess what people really mean is they want a subsidised house in Ponsonby.

  26. Eketahuna Fights Back [note spelling]

    Small town fights back after being abandoned by the big city banks

    The tiny Tararua town of Eketahuna is setting up its own money exchange after the big banks refused to set up shop there or even provide an automatic teller machine.

    The initiative owes a lot to the town’s do-it-yourself attitude – the community already runs the local supermarket and the local petrol station – and to the knowledge and experience of senior lecturer in Banking Studies Claire Matthews, who lives in nearby Pahiatua.

    Mrs Matthews, a Tararua District Councillor, proposed the idea of a money exchange for the town, which has had no banking facilities since the Bank of New Zealand closed its branch 11 years ago.

    The nearest banks and ATMs are either 35km south in Masterton or 25km north in Pahiatua.

    Mrs Matthews has more than 20 years’ experience working in and researching the banking industry. Her research report for her Masters in Business Studies, completed in 2000, looked at the experience of two towns in Northland, after the closure of their last bank branch.

    “In the 1990s a lot of small rural towns lost all banking facilities, as the banks closed many branches around the country,? she says. “The number of branches in New Zealand reduced by 42 per cent between 1993 and 1999. The towns of Maungaturoto and Waipu were of particular interest because they had established money exchanges. I visited both communities and talked to people and one of the things that struck me was how similar Maungaturoto was to Eketahuna.?

    Last year, after the district council’s final bid to get a bank to establish an operation in the town was again turned down, Mrs Matthews decided Eketahuna could do better on its own.

    “A bank branch is only of use if you are with that bank, and an ATM really only allows withdrawals, which may attract higher fees for customers of other banks. I suggested that a money exchange, as I had seen in Northland, would be more appropriate.?

    Since then she has worked with the council and the Eketahuna Community Board to develop the proposal, using her research report as a basis.

    The exchange will be run by staff in the council’s service centre, which is also the town’s library. It will aim to break even rather than make a profit, Mrs Matthews says, with the council subsidising the operation for the first six months on a trial basis.

    It will provide access to cash through an eftpos machine, change for businesses, cash or cheque deposits, and cheque cashing for approved customers. Deposits will be taken by courier to banks in Masterton. It is expected to be up and running by August, with a few issues, including security, still to be worked through.

    “Fees will be charged by the exchange, in addition to fees charged by the customer’s own bank. This is what makes it suitable for a community to run for itself, but not something that the banks would be interested in.?

    The return of banking facilities is expected to boost the local economy and possibly help attract small businesses to the town, which has a population of only about 500 but serves a relatively large rural area. Existing retailers who were considering moving out have also indicated that the new exchange will persuade them to stay.

    Mrs Matthews is confident that it will be a success. “The disadvantage for Eketahuna is that it is 11 years since their last bank closed, whereas in Maungaturoto the money exchange opened on the next working day, and in Waipu there was a gap of only a few weeks. In Eketahuna, the delay means that people’s banking behaviour has changed to take account of the lack of a local bank branch.

    “However, in a recent survey, people said they would use the new facility. Eketahuna is a community that believes in supporting itself and I believe locals will get behind the exchange to make it successful.?

    Eketahuna has always had to work hard to get the facilities it wants but others won’t provide. When the last grocery store in town closed its doors in 1987, the Community Board formed a charitable trust, offered debentures to local people and purchased a building for a new supermarket. It opened in 1988 and is still operating successfully. When the local petrol station burnt down in 2001 and there was no prospect of any of the major companies reinstating it, debentures were issued again.

    The $250000 raised was used to restore the station and forecourt. The business was leased to a local operator and re-opened in 2003. Community Board chairman John Harman says all debentures for both projects have since been paid back to community supporters.”

  27. “Westpac says it’s 20% over valued right now. If it freezes and doesn’t go up a penny wages will creep upward and 5 years from now it’ll be sane…”

    What, exactly, is over-valued? Suburban Palmerston North? I have no doubt, and who cares.

    My take is that many areas in the regions are in a bubble. They will crash and burn because they have never had strong fundamentals.

    People get trapped into talking about “the” property market. There’s no such thing as far as this investor is concerned. There are many property markets as they do not share the same underlying fundamentals.

  28. BJ,

    The Moscow suburbs were built by a government who could do anything they liked on public land. Wellington land is already owned. The only supply coming on stream is from big developers, and only because they can arbitrage and aggregate effectively.

    CGT will not fix it. At best, it will take only the short term speculators out of the market. CGT simply gets factored in to the sale price, and may reduce supply, as has happened elsewhere, because the market is less liquid.

    People have been priced out of some urban areas. Government can’t change that – established suburbs and urban areas are just that – established. Cost of further development in those areas is, therefore, huge.

    This problem is the RMA and the councils. We have tons of land. We have few people.

    Free it up, already…

  29. Westpac says it’s 20% over valued right now. If it freezes and doesn’t go up a penny wages will creep upward and 5 years from now it’ll be sane…

    “The market can remain irrational longer than you can remain solvent”


  30. PEL – The Moscow suburbs are an interesting mix of high density apartments and parkland serviced by the metro. Not enough housing for all of Russia and all Russians seem to want to move to Moscow, but effective for the price they paid.

    The point about house prices in Wellington or Auckland is well taken and I don’t expect prices to drop a lot in the urban centers because the demand there is driven by a the concentration of high-tier professionals in those areas which drives the concentration of jobs in those areas which fuels the concentration of professionals in those areas and… you already get the picture so I’m not arguing with you.

    The urban centers need more urban solutions and those are a different set of issues than fixing THIS problem, but far be it from me to say that this is the only problem. As I said before… “This mess is so big and this mess is so tall we can not pick it up there is no way at all” – as Dr Seuss finds a new use.

    Still, there will be an effect of fixing this. There would be an effect of a Capital Gains tax. There would be effects felt if the government managed to work in some housing development policies that actually developed housing instead of simply pumping money into a problem that can in some ways be characterized by the phrase “too much money”.

    The situation in the US should be a warning to the cheerleaders though… there’s a risk and it isn’t a small one.


  31. BTW: I see you can get a house in Ekatahuna for 100K. Cheap enough?

    Problem is, of course, no one wants to live there. Therein lies the problem with communist-style government new housing initiatives – where, exactly, are they going to build them?

  32. The Katies will be waiting a very long time in urban areas.

    House prices, particularly in urban areas like Wellington, are underpinned by strong fundamentals i.e. short supply and urban drift. Our demographics are changing – people want different types of housing, and more people live alone – but supply is slow to catch up. Development hurdles like the RMA and councils slow this process further, and add to the final cost.

    For example, I went to a body corporate a month ago for one of my properties – an apartment in a big, central city development. Only 20% of the apartments are rented. 80% are owner occupied, and that figure was steadily increasing as the apartments changed hands. Real estate agents have a waiting list of eager buyers.

    When talking “the property market”, it really depends which property market we’re talking about.

  33. I dont think property prices will fall to any marked degree.

    They will level off for a few years while the buyers income catches up with housing affordability.

    The Katies of this world will be disappointed as I dont think a major collapse of the property market is about to occur.

    Have explained to her in the past that smart people would have transferred their liability from their primary residence onto one or more of the rental properties.

    At worse the worst affected may sell one house to raise cashflow to enable morgage repayments shortfalls till the market picks up again when buyers income matches property purchasing requirements.

    You may see more housing on the markets as investors switch from residential to industrial/commercial property. While lower returns the leases are longer running.

  34. also dudes, get accross to that farrar site, redistribution of wealth thing wher all them right wing people go and sorts them out, we can explain easily what equity means to them,

  35. also fwwog, i heard another thing,
    some thems people saying like if you gren usually always get 5% votes,
    yous should have 5% power,
    like in any government,
    and therefore place now good agendas’s down to yous next prime minister
    john key fwwog,
    make arrangements with yous people,
    and say clearly what you wish with yous 5% vote of expenditure,

  36. dudes, keep cool, yous dont have to sell anything i already told yous get capital gains tax, like lets get real why would john key want to ruin NZ,
    watch dudes bollard is like them dead fwwog thing in a oil swamp, bill english dropping fast dudes, don’t to offshore things do local things, gather power,

  37. According to the website they’re planning to bring it in next year if they can ever figure out HOW to bring it in. I would probably turn into one of the bottom-feeding sharks but as much as I dislike the current situation I don’t to tazer the market. Orderly divestitures would be good but I would still expect a fair bit of work for the removal companies. Some of those benefits would have to be granfathered in, but as long as there’s no new entries into the market it will act to reduce prices anyhow.


  38. dudes watch the NZ dollar swing, and ask youselves why,
    goldstein is that you goldstein,
    did they introduce capital gains?
    ok goldstein we gotta free run on their currency goldstein
    buy everythin goldstein,
    we fix the tax later,

  39. Katie,

    it is not in the rentors interest to see the property owner go for a skid. The bank will foreclose the morgage and guess what happens to the renter? Evicted.

    Unless the new purchaser agrees to keep the tennant on, who will then invariably face a new rental agreement and more then likely a rent increase.

    Not a good call around for either the owner, the rentor or the bank. The only winner is the cash ready bottom feeding shark.

    One of my tennants is keen to purchase the property they are renting. We are curretly investigating the possiblity of them taking shares in my property company on a dripfeed basis so that long term they will own the property outright.

    Still working out the details but basically a portion of the rent buys shares in company. At the end of the day they will own the company outright while I get the tax credits till they do.

    We need to have further discussions on maintenance costs, but if for instance they wanted to install a major item such as a $20,000 new kitchen they could purcrchase it and the total cost would buy further shares in the company.

    Its an idea we are exploring.

    Biggest down side we can see is that it ties both parties into a long term contract, but as a long term property investor it is not a biggy for me. It also ties the rentor into a long term contract, although one party could always buy out the other.

    Did anything ever come from the government taking shares in people buying houses?

  40. BJ,
    I like your daughter already, and I suspect she’d like mine, who complains about our current choice of housing because we have no backyard (a vertiginous slope seals our exit uphill) and she has to push her scooter uphill, and daren’t ride her bike anymore.

    The housing problems of renting housholds would make a quite good book, if i could get around to interviewing on tape all the people I know who’d cheerfully kill a property investor if they could find one. I’ve met one or two decent ones, but mostly they’re of the “Yippee! Free Money” type, so blinded by their own greed that they can’t see the coming fall.

    I’m looking forward to the housing market collapsing.
    All those nice people with a portfolio of a dozen or so properties, which their property management seminars told them was the optimum size (to give the agent enough commission this month..), will be choking on their mortgages as the floor falls out of the market, and the banks foreclose on their loans, their cars, and their grandchildren.

    I challenge all other property renters to wait, bide your time, don’t be tempted into the housing market at the beginning of the fall, but wait ’til it seriously crashes (this may take up to 5 years from the beginning of the drop in market pressure…)
    For s/he who laughs last will surely laugh the longest in this zero-sum game.

  41. No landlord (except the state) should have any reason to keep an underperforming property…

    What I meant by this Gerrit was that the state shouldn’t be working out ways for it to be profitable for you to lose money. Nor should you ,in a perfectly ordered investment environment, want to tolerate a long term losing proposition. If it is profitable (by way of some tax incentives) for you to lose money the system HAS to become distorted over time.

    Don’t disagree that losses here and gains there should be able to offset each other, just trying to say that it should be MORE profitable to make gains here and bigger gains there and that losses should not ever be more desireable than profits. Maybe that says it better.

    The LAQC makes for a situation where losses ARE more desireable than profits for some investors. The distortion it creates is real. Fixing it looks to be difficult because a lot of people HAVE taken advantage of it, and so a lot of people are having a bit of a scare. I don’t think Cullen is fool enough to whack it off at the knees. He doesn’t want anyone feeling a lot of pain going into the election, and despite my feelings of outrage at the situation (and the length of time it took to get him to admit it) I don’t want anyone hurt badly because of this. I want the market brought to heel without the use of cattle prods and whips… but the process needs to start and have some sort of finite schedule associated.


  42. Bliss, You overlooked the distortions created by the 4 tier accomadation supplement. The top 3 tiers are only available in selected parts of Auckland. Some parts of Auckland and the entire rest of the country only get the lowest rate of supplement. Be interesting to see if there is any correlation between the parts of Auckland with the higher rates of AS have a higher rental/owner occupier ratio than areas with the lower rates.

  43. The distortion is pretty huge, especially with the OECD’s highest interest rates as a result. The export sector is being hit particularly hard due to this- if the dollar was still at 2000 levels farmers would be getting a payout over $10!

    Funny how the Right goes on about the evils of protectionism, and the “creative destruction” of the capitalist system; yet when it’s your subsidy paying for their rental investment, suddenly it’s all about the status quo.

  44. Bj,

    All businesses have to ability to offset offset loses in one business with tax credits for another business owned by the same shareholders.

    It is a mechanism used by companies to buy an ailing one and return it to profit (and keep employing people) by injecting cash normally set aside to pay taxes into the the ailing company’s cash flow.

    Technically it is social welfare for companies. But it keeps people in employment.


    Would you be able to paint a picture of how the “sensible” economist will be able to correct the situation? Cullen and Bollard cant so their answer would be most enlightening.

  45. they won’t do a capital gains tax..

    they will just remove the current tax breaks..

    those breaks that skew/weigh the property market so much..


  46. And here’s another one:
    What do we want … income tax cuts … when do we want it … NOW

    Feeling oh so clever 😉

  47. What do we want … CGT … when do we want it … [insert timing of your choice]

    For example:
    What do we want … CGT … when do we want it … NOW

  48. I agree PQ. Anecdotally, I can say that support for a capital gains tax is definitely building amongst my professional (and relatively conservative) middle aged colleagues.

    These are educated people who understand investment and are fully aware of the inherent capital gains associated with property investment.

    It’ll just be interesting to see which political party has the gumption to announce the policy first …

  49. It always amuses me that right wingers these days have such a limited understanding of economics. As a communist (of a particular flavour. Don’t ask, I won’t tell!) I have made an effort to be educated about economics and finance. And the situation is nothing like the neo-liberal right would like us to believe.

    Tax and market distortions….

    All things being equal it is good not to distort the tax system. Simpler is better. Taxes should be affordable, simple, fair, transparent, all that. But only to the extent that makes sense.

    Housing is not a pure market commodity, like recreational drugs, movies, sugar, oil, gold… It is a core human need. Thus if an economy is not supplying that need in sufficient quantities that economy is failing.

    I live near the top of the country (Dunedin) where without housing, at this time of year, you will die, quickly.

    I left the arsehole of the country (Auckland) when it became undeniable that a vicious class system is being established. Professional people were desperately trying to get into very very expensive houses and the working people, who make the city function by doing all the work, were being driven out of the city or into (what will become) slum housing.

    Even renting (as I was doing) on the isthmus was becoming impossible for people earning less than $60,000, and that was four years ago. Since then prices have almost doubled. There.

    So the economy is failing. Why? Our friends over the right wing horizon tell us that markets are the answer. We have a free market in housing (oh shut up! I know about zoning, but houses sell and rent for the highest price that the market will bear.) Why then has the economy failed the working people of Auckland so badly?

    It is because markets are *efficient* not *fair* or even *adequate*. In a technical sense it is entirely possible for a famine to not be a market failure. Markets are wonderful things (I have to admit) if there is a) choice (people can leave the market) b) good information about prices and quality c) flexible supply (the suppliers can come and go) and a bunch of other stuff I cannot be bothered remembering. Housing fails the choice test, even if we all know the price and quality of the houses that we cannot afford. And it takes a long time to build a house, and once you have a house they are not easy to get rid of.

    What is the answer?

    Russel is correct to advocate getting rid of the LAQCs. (Though I cannot find that anywhere in Green Party policy, it is still a good idea).

    A capital gains tax will help too.

    We tried price control in the forties and it did not work (created corruption and desperation).

    Building lots of state houses helps. And not cheap ones. Build good ones.

    I would outlaw (in the long term) private landlords entirely, but I am too radical to get wide agreement!

    But none of this is a short term answer. There are no quick fixes. It took years and years for the greedy capitalist fsck heads to create this situation, it will take sensible economists years and years to get us out.

    Just another reason to vote Green, and not National.


  50. but yous dont get away with them 16 year old voting in the parliarment dudes tous got to be joking, do them fumdamental river,air, land things,

  51. capital gains coming bj, look into your trading partners, yous got to invest in business not gold,
    i hope yous family will bj,

  52. True PQ, but Cap-Gains can’t be rammed through Cullen’s opposition. The rental adjustment has finally been accepted by him.


  53. absolutely guarantee fwwog, capital gains tax on second house from NAT, fwwog, even Bwash was going to do it,

  54. Gerrit

    What you say may be true in some sense, but my understanding was that LAQC was brought in simply to encourage small business in general (its provisions are not specific to housing) and that its inclusion of housing had more to do with the difficulty of “ringfencing” any particular endeavour.

    I have not noticed that the government has actually gotten out of the housing business in any effective way but then I’ve only been here three and a half years. I learned about the LAQC the first 3 months and quite immediately understood the distortion it causes.

    Cullen’s office was polite but firm. “There is no problem”. I however, am at the coal face. Bid on a house and an investor outbids me. I won’t bid over what I can afford as a mortgage, but he can bid more than he’ll get back in rent. Negative gearing it’s called, and it’s become a big feature in the market.

    I don’t disagree with your assessment that there are other problems, and I have also been addressing the issues of tax fairness and the idiotic hump in effective tax rates etc. However, this problem turns on the use of housing as an investment vehicle to avoid taxes, and if the government wants to unload its responsibilities to the private sector, it has to shoulder the burden of making the properties acceptable to the private sector directly, not muck about with tax law with the inevitable unintended consequences.

    If the government closes the loophole, some will sell up as you say, but no new ones will come in and some of those sales will not be up but out. Prices will fall because housing prices are set at the margin and removing a component of the demand will pull some of the fire out from under it. The component is significant, as seen in the numbers Cullen finally released. The property losses being attributed are massive.

    I think you’ll find that we’d in general be quite happy to go through the rest of the exercise of overhauling the system. We might not choose the same mechanisms. If I am to subsidize low-income housing through my taxes (and I AM willing to do that in some forms), that is what I expect the government to do with my tax money. I do NOT expect it to give it away to an Australian Bank through the mortgage subsidy to a person who has as much or more than I do already, who is bidding against me for a house.

    The means of doing these things however, are negotiable. My point of view is that the state can’t get out of the “Landlord” business if it is providing accomodation at the lowest level, and that if it wants to sell off some “State Housing” assets it should organize it so that the owners are the people occupying the house. If you own it you will keep the house up instead of running it down. The physical depreciation is forestalled and corrected bit-by-bit.

    That however, would have required more intelligent dispersal of the state housing into the communities in the first place, rather than building all the housing in one place and then expecting somehow that it would not become a ghetto.

    As for building more houses, the half-million dollar houses are being built as far as the eye can see but quarter-million dollar houses are not being built at all and there are no builders to hire to build them, as they’re all fully booked for several years. That’s also one of the problems which I alluded to above. The councils won’t let the private construction happen anymore (its possible in theory until 2009, but it’d take a superhuman effort). You just have to be a registered builder. Maybe less so in rural sectors, but around here the idea of building something affordable is simply laughed at. The deregulation gave them leaky homes… so they’ve over regulated as a result. We’re on your side here, but it isn’t enough.

    The first issue here is social justice and while housing over all is not SIMPLY a matter of closing this hole, closing this hole is clearly a social justice issue. See, I don’t give a rat’s behind about the fact that its 200 thousand people. They’re picking my pocket and being from New York I am acutely sensitive to that. They’re not the only ones in there but they are the worst. So while I am p!ssed off at Cullen for other tax problems he’s maintaining, that does not dilute my anger about this one, it simply gives it depth.

    I should be clear. I am not really angry at the people who took advantage of the hole. I am REALLY angry at the people who defend its continued existence. As long as it is there, the market will be distorted, and it will not be able to correct in any reasonable way. As long as all the solutions the government comes up with involve throwing more taxpayer money into the market, the market will be distorted and it will not correct, as the problem can be stated in terms of “too much money chasing too few houses”.

    When those 200000 people start divesting themselves of money losing rentals several things will happen and one of them is that the values placed on property will fall somewhat. Most estimates by people who should know (I don’t have direct references here but it was either the Real Estate industry itself or some of the banks), put it at 10% overinflated. That this alone will bring it down that whole way I rather doubt. The problems you point out are also problems, but ANY easing in this market will give Bollard scope to bring down the cash rate.

    No landlord (except the state) should have any reason to keep an underperforming property… and the fact that the OCR can adjust and suddenly make a property underperform is an indication that maybe the landlord should not have paid that high a price in the first place. It is also an indication that the OCR isn’t the proper instrument for correcting all the MANY ills of the housing market.

    (Channeling the fish in “The Cat in the Hat” – “This mess is so big and this mess is so tall we can not clean it up, there is no way at all” )


    So while I sympathize with your situation too, and hope that people who approach this as a real business do not get hammered too much by the changes, I do not accept that this situation can continue as it is… or that correcting this injustice is merely tinkering at the edges.

    I consider what happens to people who find it necessary to divest themselves of those negatively geared properties. Not only must they sell (there is no pricing power to change the income from the property upwards anymore), they also must pay taxes on actual income. Some are going to be hit rather hard by this if they wait too long to realize their capital gains.

    Too long for my daughter in all likelihood. She needs that dog NOW, as she is already 8 and her childhood is almost over and I am as angry about this as any human can be without blowing something up.


  55. BJ,

    By my understanding, the LAQC situation was created by the government as a way to get out of being a state housing provider. The government at the time quite rightly looked at the decrepit condition of its state housing stock and turned it over to the private sector. To get the mon & pops involved it created a mechanism called LAQC, so that they could suck them into buying the old state housing stock (which proffesional property investors would not touch) and get the government off the hook for huge maintenance and replacement costs.

    LAQC is merely a mechanism to get salary and wage earners the same tax advantags that businesses have when buying an asset.

    If the government were to close what you perceive to be a loop hole of the LAQC, is simply going to see the mom & pops selling up to better structured property investors who will set up a company to own the asset and claim tax credits against other more profitable companies they also own.

    With some 200,000 New Zealanders owning rental housing the political fallout from removing the LAQC status has to be measured up against their votes. Something Labour is thinking twice about I’m sure.

    While I can sympathise with your difficulty to get into a property, it is no use blaming those people who took advantage of the then governments wish to rid themselves of the exposure to ever climbing state housing maintenance and replacement costs (and some pretty dodgy tenants).

    Just to put you in the picture of the increased interest charges, my rental owning property company is having to have monthly capital injections to make up the shortfall between rent and morgage. This capital injection is in the form of loans from my profitable company and which will be returned with interest (and without having to pay taxes on the principal) when I sell my property owning company (whose asset is a rental property).

    So in a way the the interest rate hikes is actually doing me a favour in the way it is forcing me to invest more money into a losing company, which will be returned when it is sold. Bit like compulsory saving scheme, but having far better returns then Kiwi Saver. Off cource the capital gain will be considerably less on paper as the loans will have to be deducted from the selling price, making a capital gains tax not as worrysome.

    I dont believe it is a social responsibilty we are evading at all. We are not evading taxes, just living by the law which the IRD is happy to enforce.

    And providing the means for the government to get out of owning state housing stock.

    The only answer to the housing crisis (is it really a crisis?) is to build more houses. The moral question remains, is this an area that government should be involved in again? (thinking long term strategically – housing is a depreciating asset which the government has to budget to buy, maintain and replace).

    So get the local councils to stop putting rediculous fees ($70,000 plus a years delay to try and get consents completed – with no guarentee that you will get consent). Stop zoning restriction, put into place regional roading, water, electrical, sewerage, schooling, etc, infastruture so that housing can be built. Be mindfull that this new infastructure will need to be built and its cost added into the price of the new housing.

    No, it is not a simply an exercise of changing the tax regime or adding a capital gains tax. That is simply tinkering at the edge.

    Housing needs a complete structural overhaul (where is that man Foose!)

    Starting with how local government is funded, to carry out their social responsibilities, by rating on property values.

    And through to the Reserve Bank with its interest rate hikes flooding the market with overseas money. This Reserve bank who has in one day lost 3 million dollars through its intervention policy. The NZ$ went up 1 cent against the US$ overnight and with a 300 million investment the reserve lost 3 million of our money, money that could have been spent buying 10 State houses.

    Not to mention a government sitting on a huge tax gathered surplus, a tax surplus it should not have not have gathered from you so your take home pay would be increased considerably.

    With increased take home pay through correct taxation (only collecting as much tax as it needs to funds its policies and commitments) your ability to afford a house purchase, increases dramatically.

  56. Mouldwarp

    You and BB both are inspirational to me when I am arguing this point. Some folks say I’m channelling BB 🙂

    The problem is that you don’t seem to accept the point itself.

    This investment advantage that is handed to the landlord from the taxes I pay, is theft from the not so well off for the benefit of the wealthy. Every accountant in NZ knows this trick well enough that they’ve printed glossy brochures that they hand to every poor sod who walks through their doors trying to find a way out of an effective 60% tax hit that they are seeing on their 60-80K income.

    So I am willing to call it theft, not because it was taken from me, but because it was given to someone who has MORE than I do so that that person can buy a house I wanted to buy using my money. A use that serves no socially desireable purpose.

    If you want to affect the property market you DO have to address all the issues and we already agreed about the others. We need more houses built, denser housing in/near the cities, better access to land and “Tobin Taxes” to keep the hot money out of our markets… etc… but as long as the taxpayer is supporting the price of houses through every reasonable scheme and this one as well, it ain’t going to do squat. There is a heap of economic activity in the property market that has less to do with wanting a property investment than with wanting a tax break.

    The government is subsidizing landlords now. It has to stop.

    As for building cheap accomodation. There’s a development up the road. I wanted to buy in. $150K for a plot and I could just afford to put a decent $120K kit house on it. No builder will touch any project in that block for less than $300K. There is absolutely NOTHING selling there for less than a half-million. The builders don’t even answer calls and there’s no point in trying to do it yourself anymore. The councils won’t touch it if you haven’t got a professional builder. Not after the leaky-homes debacle.

    So who IS building houses at affordable prices? Well… .nobody really. Which is the point. Even if they could they won’t.

    You can call it class envy. My daughter is 8 years old and she understands only that they are keeping us from buying a house and as a result she can’t have a dog. So you take your property-investor class and tell them to get their fncking hands out of my pockets. That isn’t class envy, it is basic justice. They don’t have a moral or social claim, they have a social responsibility which they are evading, and changing this law is a core part of what we should be doing to correct the problem and prevent that evasion from continuing.


  57. Mouldwarp,

    Your anit-bureaucratic fixation seems to have blinded you to the real admission that Russell has mad in the statement “On the supply side we need to allow more medium density housing along transport corridors.?

    Who decided that we aren’t “allowed” medium density housing along transport corridors or anywhere else in the first place? Or high density housing anywhere other than in the middle of the CBD?

    Does Russell’s statement mean the Greens are the first party to admit that the utopian quarter acre sections policy of Seddon and most subsequent governments is the root cause of most of New Zealand’s woes? Especially our car dependence and ridiculous urban land prices. After all, not allowing sensible section sizes during the first three-quarters of the 1900s meant New Zealanders were denied the choice of living in anything other than low density suburbs, a feat that even Los Angeles wasn’t stupid enough to try. So its not really surprising that Auckland has much worse traffic congestion than L.A. and even less likelyhood of ever solving it.

    If New Zealander’s really thought that the cost of this utopian ideal was worth it they wouldn’t squeal like wounded pigs everytime they get their rates bills and power bills. How can a population be so totally ignorant of something so basic as the cost structures of roads and power lines. The only possible explanation is that they are stuck in denial, especially politicians whose predecessors created the quarter acre nightmare. Good grief, the minimum strength needed for power lines and tarseal roads to withstand the forces of nature make them impervious to the loads carried on 99% of the local network. Doubling the population density only increases network costs by 10% – 30% even though the number of people to pay those costs has increased by 100%. Simple economics, too simple for simple minded people who would rather believe they can get something for nothing and find it much easier to exagerate the inefficiencies of councils bureaucracies rathers than admit to any other fundamental causes of rates increases.

    Mouldwarp, the reason the state exercises “its national socialist control of private land” is because the land is vested in the Crown. For fee simple one can obtain a title to occupy a section of land in perpetuity. This is just a specialised form of lessor/lessee contract. The Crown has every right to protect its interest in “private” land, including using local councils as its agents if it so desires.

  58. “I don’t know any other activity where the rewards are so huge. If you want to invest a million dollars in the sharemarket, you need a million dollars. If you want to invest a million in real estate, you only need $100,000.?

    You can buy one property, get it revalued, use the equity to buy another property and then buy another and another. “And you do it all with OPM. Other people’s money. OPM. It’s like being high on drugs!? What’s more, the wonder of depreciation claims on the building and contents means “the government subsidises your investment! It’s delightful!? 🙄

  59. Mouldwarp Says:
    June 23rd, 2007 at 8:28 pm

    The big picture is that in the long term prices are linked to rental income, which is a function of supply and demand. You can forget *everything* else
    I read in Economist that house prices would fall becuse they had risen above average disposible income…. wrong!!!!!!???

    Another point I read that for every unearned dollor in the real estate or share market a hole is created that has to be filled….

    I couldn’t prove or dissprove that, but it seems intuitively correct(?).. In which case the people we “envy” are clever free loaders.. at least to a degree?

  60. – “On the demand side, ringfencing the losses from rental accommodation … A capital gains tax excluding the primary family home …”

    The big picture is that in the long term prices are linked to rental income, which is a function of supply and demand. You can forget *everything* else (unless your real objective is envy-driven class-warfare and increasing still further the power of the state by imposing another intrusive tax regime on everyone).

    More houses is the answer. End of story. The state is the problem here with its national socialist control of private land. There’s an army of private investors just waiting to build more houses.

    – “On the supply side we need to allow more medium density housing along transport corridors.”

    “We need to allow”? What do you, as a central planner, know about what is and isn’t required?
    Oh sorry, I forgot. It’s not a matter of what the market wants, it’s what you “allow” us – the people – to have.

    – “And we need a big growth in the supply of state rental accommodation with affordable rents to make sure that rentals don’t follow housing prices in the next 12 months.”

    In other words, subsidised housing. And as we know, when you subsidise something you create more demand.
    Why share when it is cheap to get your own, subsidised place? Why move to a smaller house after your children have left home if you’re getting a cheap deal where you are? So your subsidised housing is just adding to the overall problem.


  61. Yeah… I remember reading that one. Really got up my nose too. I was writing to Cullen within a month of that and started my campaign at the Dom Post as well.

    There is a social justice aspect to this. Channel BB. The problem has been that the tax system IS ALREADY distorted by this measure. Removing it UN-distorts it. Shewan can meet me in that alley along with Billy-boy and the Pooh. I’ll bring my daughter. She’s 8, and SHE says she’ll “kick their butts” because they’re keeping her from having a dog. She’ll have to wait her turn.


  62. This has the smell of your classic political decision?????????

    I wonder if you could extract economists who are not compromised by employment pressure and see if there was a concensus?

  63. Yet another letter printed in the Dom Post. Also wrote to Winnie the Pooh and Wild Bill English.. trying to be polite, but the letter in the Dom Post wasn’t nearly so nice 🙂


  64. I find this discussion of affordable housing quite interesting. Just moved to Wellington after time overseas working as a planner. I can understand an appartment in melbourne asking a price of 600 000 AUD in a premium area. how can the same price be asked in a city of 300 000 or so , where labour and taxes are lower than in Oz?

  65. I think that there is another aspect to the housing demand concerns. That is the sprawl of housing evelopments using what was very fertile food producing land.

    There may well come a time when our ability to produce food is more important than acres of concrete and brick. Joy.

  66. Remember that if someone gets to write off 40 to 60 percent of the increase in rates (the landlord/investor) the people most hurt by the increase will be the first-home-buyer and the homeowner. Similarly decreases don’t do as much as they should. The effects of the preferential treatment are quite invidious.

    I have received negative responses from Cullen’s office for most of the three years I’ve written. That he has finally accepted the problem exists is a big plus.

    Arguments raised include “Tax policy has no effect” which is BS because no other country has a fncked np tax hole like our LAQC and the other countries that have blown bubbles in their markets have done so with their OCR set below the effective rate of inflation.

    That doesn’t mean there aren’t other effective parts to this problem, global liquidity and the carry trade are nasty for us too, but being able to reduce the OCR as we gain control of the housing market would give us a lot more leverage. A Tobin tax would help but that hasn’t showed up on the radar yet.

    There’s another argument that the taxman takes more than he needs now anyhow so shouldn’t get more. That’s not an argument for continuing the stupidity, it is an argument for shifting the brackets and reducing tax so as to make the effect neutral, which kills two birds with the same stone. This isn’t about making people pay more tax overall, it is about making the rules the same for everyone.

    So fixing this problem WILL allow the OCR to drop which will reduce the carry trade and the influx of hot money and will (I think) actually reduce the value of the dollar. The distortion of having 8% here and 0% in Japan is not a small thing.

    Reducing the value of the dollar however, will cause prices on imports to rise. To what extent that consumption is checked by that effective increase vs inflation is caused is better studied by the folks at the Reserve Bank. I have not the tools.

    Finally of course, there are the issues of the commodity push and the US $ weakness. Our position as a primary producer of food and our ability to export food in various forms is going to mean that we have an income, not the same as Australia’s mineral wealth but given our population, a good position for the time being. The US $ is losing its preeminent position in the currency world. The massive amounts of liquidity created by the Fed and exported to China are starting to cause predictable distortions in the finance world. It’s a personal view but I think the US $ is in a race to the bottom with the rest of the world’s currencies… and the US penchant for winning at all costs will remain active in this race as well.

    This guy makes it a fun read….

    pay attention to the hedge funds numbers though….

    “The Bank for International Settlements (BIS) has reported that the total clot of global derivatives in existence is now $415.2 trillion, with comes out to 789% of global GDP.

    In typical Mogambo parlance, grubby financial bets financed by banks and the financial services industry now total almost eight times the value of every freaking good and service produced on the entire freaking planet in an entire freaking year!”

    I don’t think anyone knows how this is going to play out.


  67. albeniz,

    It ssems logical that since constantly raising interest rates hasn’t discouraged borrowing (and relieved inflationary pressures) then lowering interest rates shouldn’t encourage more borrowing and therefore this shouldn’t increase inflationary pressures.

    There is no reason why this would reduce foreign investment in this country, in fact that could increase depending on what effect the lower dollar has on imports, exports and import substitution. It would probably make New Zealand unattractive to speculators but not to productive investors.

    The only problem with your suggestion is that it violates orthodox economic theory, but so does the real world much (or most) of the time.

  68. Tell me. I know it’s not relevant to what you just said but I’m curious and you just spouted lots of gobbledygook which makes it look to me like you know stuff

    this inflation problem and the reserve bank fiddling to try and stop it. It’s not working is it?

    What would happen if the RB lowered the cash rate by 5 percent? wouldn’t that discourage foreign investment and the reduce the exchange rate. I know that banks are less inclined to loan money when rates are low, but I’m not sure if an artificial drop would achieve this.

    it seems that right now what they are doing is having the opposite results to what they are trying to achieve.

    I know i sound facetious but I am serious… what would happen?

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