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Maybe New Zealand Can Solve Housing Bubbles

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  • Maybe New Zealand Can Solve Housing Bubbles

    Maybe New Zealand Can Solve Housing Bubbles

    By William Pesek - Sep 23, 2013
    As the world’s biggest economies search for ways to let the air out of giant asset bubbles, they might find some answers in tiny New Zealand. (NZOCR)
    Fittingly, the nation that begins the developed world’s day and the central bank that pioneered inflation targeting will probably be the first to raise short-term interest rates. The move could come next year as growth steadily returns to levels seen before the collapse of Lehman Brothers Holdings Inc. in 2008. But something far more interesting is afoot at the Reserve Bank of New Zealand’s headquarters in Wellington.
    Faced with a scary housing bubble not terribly unlike that in the U.S. five years back, Governor Graeme Wheeler should be tapping the brakes now, and hard, or so holds classical monetary theory. Doing so, however, would jeopardize the nation’s 2.5 percent growth amid general global uncertainty. Instead, Wheeler is conducting an experiment: limits on leveraged lending.
    The idea, says economist Stephen Koukoulas, is to “contain the house price bubble without inflicting collateral damage to the rest of the economy.” Koukoulas was an economic adviser to Julia Gillard, Australia’s prime minister until June. And it’s significant that he’s recommending that Australia’s much larger economy emulate New Zealand’s experiment.
    What about the rest of Asia, including China, home to some of the biggest property bubbles in modern history?
    Crisis Lessons

    If the world learned anything from the crises of the last 20 years -- from Latin America to Asia to North America to Europe -- it’s the folly of one-size-fits-all remedies. Nor is there obvious utility to comparing a $160 billion first-world economy like New Zealand’s with an $8.2 trillion developing one managed by Communist Party bureaucrats and a state-run central bank.

    More at
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx

  • #2
    Its not all bad having a slower rate of house price inflation, if thats what the LVR restrictions end up doing.
    Steady price increase in Auckland is fine, no matter which way the cookie crumbles you can still make money in property.

    But its a dangerous tool, as it affects all of NZ, and it forces people keen to buy houses now with limited funds, into higher risk higher rate source of funds.
    It could do more for destabilising the enconomy than stabilsing it.

    If they were seriously keen though, they would have worked with GOVT on restricing oversease residents to building new housing instead of existing.
    Letting them pay for the infrustructure costs the councils fully charge for new housing.

    Wouldnt it be nice, if Auckland Council / RBNZ / Govt - could actually sit down together and actually nail something out.
    A meeting between all three once a month.


    • #3
      A bubble cant be fixed by containing the bubble itself, it is the cause of the bubble which nobody will address. If you have a system which continuously increases money supply, you will have bubbles.
      Hamish Patel | ph: 09 625 4693 | mob: 021 625 693
      My Website
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      • #4
        You Know Not What You Ask

        C'mon Hamish - you aren't serious, are you? Playing with symptoms is
        far more attractive to politicians than fixing causes. Presuming that
        the politicians can even identify the cause[s] - of course!


        • #5
          Maybe I'm a little out of touch but is there anyone out there who is looking for the traditional 'starting line' first family home? You know the type, the type of house our parents started off in. The family of 4 or 5 living in the 2 or 3 bedroom, 1 bathroom suburban home. 2 or 3 siblings sharing a bedroom. Waiting an hour for your turn in the only bathroom. Off street parking for the 1 average sized 8-12 year old family salon. And believe it or not 1 TV in the 1 living-room.

          Nobody wants to start at the starting line anymore. "my family of 3 needs 4 bedrooms, 2 bathrooms, a study, reception area, double internal access garage..."

          The property ladder has more than one rung.
          Last edited by Learning; 29-09-2013, 08:56 PM.


          • #6
            Originally posted by Learning View Post
            . . . the traditional 'starting line' first family home?
            And it was likely a State house; the occupants were glad to have it,
            felt privileged in a small way, and laid the lawns themselves!


            • #7
              Originally posted by mortgage broker View Post
              A bubble cant be fixed by containing the bubble itself, it is the cause of the bubble which nobody will address. If you have a system which continuously increases money supply, you will have bubbles.
              Well put.

              I don't know what would be required to change our
              behaviour - you'd think recent world events would
              be an incentive, but apparently not.