Dann on LVRs

September 30th, 2013 at 1:00 pm by David Farrar

Lian Dann writes in support of in the Herald:

There are at least four good reasons for introducing LVRs.

The first is that they protect first-home buyers from being trapped into high levels of debt that they might not be able to service if interest rates rise dramatically in the next few years – which they are expected to do.

Given the projected interest rate rises of two full percentage points over the next two years, we are likely to see bank rates rise above 8 per cent and it seems entirely reasonable to imagine retail mortgage rates going above 10 per cent within the next five years. That’s where they were in 2007 and in the 1980s they went much further.

Interest rates are currently at historically unprecedented lows and that is a dangerous place to be taking on a low equity mortgage.

Worse still, if were to see the kind of house price crash that happened in the US five years ago, then it is these people with the highest debt levels who will be most likely to hit negative equity.

In other words, they could be left owing more to the bank than the house is worth. In these conditions those with high debt levels lost their homes along with their deposits and all the rest of the money they had put into their homes.

So yes, it is a bummer if you’ve missed the chance to buy a house this year because of the LVRs.

But, if you can’t afford a 20 per cent deposit on a house, then perhaps you can’t really afford the house. And if that’s not fair then it is not fair because of the fact that house prices are too high.

Which is a second good reason for LVRs. If they dampen demand they could potentially lower house prices. In Auckland and Christchurch they almost certainly won’t, but they could help slow growth and that could buy some time for house hunters to keep saving for a deposit.

A third upside to LVRs is that if they work they will reduce the need for the Reserve Bank to raise interest rates as fast as it might have. That’s good for all mortgage holders, especially new home owners with high debt levels.

Finally there is the official reason the Reserve Bank is introducing these restrictions. The bank has a statutory duty to ensure the stability of the New Zealand financial system for the good of the country. That means it has some control over how banks are allowed to behave.

The Reserve Bank is simply not comfortable with the banks holding a high level of low equity loans in the wake of the worst financial crisis the world has seen since the Great Depression. Debt was to blame for the crisis in 2008.

So to those who say the bank is being overly cautious, one can only ask: “Dude, what planet have you been on for the past five years?”

 A good summary of the case for the LVRs. However they are no silver bullet he reminds us:

If the gap between supply and demand is wide enough, no amount of regulatory policy can hold back the market – just look at China where far heavier bank lending restrictions are doing little to cool the urban housing boom.

One has to increase the supply, and that will not work unless you increase the land supply.

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38 Responses to “Dann on LVRs”

  1. swan (665 comments) says:

    The idea of protecting first home buyers from themselves is fairly nanny state. It should have nothing to do with the RBNZ decisions. To ‘slow down the housing market’ is also not a valid reason for the RBNZ to intervene. The only legitimate reason is to do with avoiding banks failing.

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  2. Paulus (2,661 comments) says:

    Blimey an intelligent article in the Herald – won’t last.

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  3. Redbaiter (9,561 comments) says:

    Here we go again- sending the same old socialist message that government patronage trumps personal responsibility.

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  4. RRM (10,011 comments) says:

    So LVRs are good because they hold back the market, however they won’t hold back the market. I’m confused :-|

    When we were shopping for a mortgage last year, IIRC I’m pretty sure most of the bank managers we met plugged 8% interest into their proprietary “how much can these people afford to borrow?” calculators…

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  5. Odakyu-sen (737 comments) says:

    As I am sure most of you realize, when interest rates are historically low, a small rise in interest rates can have a dramatic effect on repayments. For example, a percentage-point increase on 4% (taking it to 5%) is equivalent to a 25% increase.

    Proof: 4 x 1.25 = 5

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  6. Alan Wilkinson (1,887 comments) says:

    So LVR’s will only affect the market in the places where the market is currently not a problem – but there it wlll cause a new problem.

    Typical political solution.

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  7. Reid (16,632 comments) says:

    In Auckland and Christchurch they almost certainly won’t, but they could help slow growth and that could buy some time for house hunters to keep saving for a deposit.

    ChCh is driven by completely different dynamics and the growth in prices there are related to the insurance payouts which won’t affect those with low deposits so nothing will happen there, but it’s not a worry for the economy because it work itself out in a few years.

    Akld however is driven by immigration, in particular Asian immigration, because Asians get finance from Asian banks at very low rates, 1-2% and most of the immigrants settle in Akld because there is no incentive for them to move elsewhere. There are 20,000 immigrants coming in each and every year most of whom have money from overseas and most of whom settle in Akld. That’s a huge amount of pressure on that particular market, but the govt don’t want to talk about it because they can’t think up a solution so they pretend it’s all about supply and hope the useful idiots buy it and don’t blame them for their inaction. In case someone raises it, the points immigrants do get for moving elsewhere are trivial and have no effect – clearly. So demand will not be reduced by the LVR in Akld, leaving the RBNZ with only one choice, to apply higher interest rates to everyone in the entire country, to manage a regional problem.

    Frustratingly, the answer is staring them in the face, adjust the points so as to make immigrants settle elsewhere than in Akld, on the grounds this is our country and if they want to come here, they’ll do what we say or not come at all. There’s nothing wrong with that approach and it won’t reduce NZ’s overseas marketability because we already have a vast surplus of applicants and if we get less Asians, there are plenty of South Africans, Europeans and North Americans with money, who are standing by to take their places.

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  8. Adolf Fiinkensein (2,917 comments) says:

    What a strange article and heading. Anyone reading it would think LVRs (loan to value ratio) are some revolutionary new innovation being forced upon unwilling trading banks by the Reserve. They are not.

    One way or another I was involved in lending from 1970 until 2010 and LVRs over that time have ALWAYS been an integral feature of lending. In the eighties and nineties one was restricted by a 75% LVR on residential borrowing and a 66.6% LVR on commercial and rural borrowing. Can someone direct me to any period when there have been ‘no LVRs.’?

    What has been happening in recent times is that some banks, in a headlong chase for profits, (If they don’t lend they don’t make a profit.) have permitted housing loans carrying an LVR of 100%. If there were no LVRs at all then a bank might foolishly lend well over the value of the security property, based on the client’s debt servicing ability only. The Reserve Bank would be quite right to put a stop to such irresponsible behaviour.

    The issue for Auckland first home buyers is simple. Buy a modest home you can afford with a 25% deposit in Papakura or Pukekohe Wait five years, by which time your equity will exceed 50% and you earning capacity has increased. and move up to something in a more salubrious suburb. That’s what Adolf and The Cook did. We rented and saved for a few years and bought a modest but comfortable home in the hills behind Perth, just 45 minutes drive time from my CBD office.

    Nothing has changed since then. Nothing, that is, except the expectation of snivelling lefties that they should have a divine right at age 25 to own a five bedroom home three minutes from Queen St.

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  9. Alan Wilkinson (1,887 comments) says:

    “adjust the points so as to make immigrants settle elsewhere than in Akld”

    Rubbish. They want to settle in Auckland because it is economically efficient to do so. Forcing them to go elsewhere will make us all poorer. Fix the housing market by kicking the politicians and bureaucrats out of it. No other business complains that there is too much demand. They celebrate and get on with meeting that demand as efficiently and profitably as possible. Given the chance, so would the building industry.

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  10. anonymouse (721 comments) says:

    Akld however is driven by immigration, in particular Asian immigration, because Asians get finance from Asian banks at very low rates, 1-2%
    Is that you Winston, what a totally incorrect statement,

    Mortgage rates in China are 4.5- 5.0 percent,
    http://www.cib.com.cn/netbank/en/Personal_Banking/Deposit_Loan_Rates/RMB_Loan_Rates.html

    Rates in Japan with huge QE underway are probably about the same as in the US Europe and UK, (All with minimal rates and QE) To say its all Asians with cheap borrowed money is pure racist bunk

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  11. Monique Watson (1,062 comments) says:

    Liam Dann just got out of nappies this morning. He has no idea
    To lower housing prices and decrease the risk of another ‘bubble’, increase supply. That is the only silver bullet. Anything else is just fucking around with Socialism.
    NZ. The only country of the world to take the global warming and GFC on faith without considering the unintended consequences. To embrace these movements and bankrupt it’s citizens doing so

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  12. 3-coil (1,222 comments) says:

    Auckland’s problem is too many people and not enough space. If the attempted solution addresses neither of these 2 issues, it will be as effective as rearranging the deck chairs on the Titanic.

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  13. YesWeDid (1,050 comments) says:

    Yep LVR’s are great, there is no downside, it’s not like first home buyers vote.

    And if they did vote I’m sure they would see the bigger picture and totally not want to punish National for destroying their dream of buying a home.

    Because it’s not that wonderful Mr Key’s fault or boring but dependable Mr English, it’s that nasty reserve bank governor, Mr What’s-his-Name.

    And why can’t they just save the 20% deposit anyway? I saved a deposit for my first house back in the 1990’s, when things were really tough.

    And labour are just full of lies when they say they will exempt first home buyers and build more low cost houses because who would think building more low cost houses was a good idea? Certainly not first time home buyers. And who would believe that new Labour leader guy anyway? He says he built Fonterra all by himself and was one of the astronauts that walked on the moon, Matthew Hooton called him a liar and that’s all I need to know.

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  14. MikeG (425 comments) says:

    “One has to increase the supply”
    OR reduce the demand…

    Two sides of the same equation, but Farrar will only look at the supply side.

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  15. RightNow (6,995 comments) says:

    “OR reduce the demand…”
    Shoot every second person that goes to an open home?

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  16. 3-coil (1,222 comments) says:

    RightNow: The government are huge employers – why not shift government jobs to the provinces (where jobs are needed) instead of in Auckland, where there is insufficient infrastructure and space to house the workers?

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  17. Adolf Fiinkensein (2,917 comments) says:

    3-coil

    Didn’t they move the gummint from Auckland to Wellington, a few hundred years ago?

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  18. RightNow (6,995 comments) says:

    3-coil, I’d be keen to move somewhere with a better climate and where I could buy a big house with a swimming pool for less than I could sell my 3 bedroom Wellington home for. I’m not against working for gummint either. Count me in.

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  19. hj (7,063 comments) says:

    anonymouse (569) Says:

    what a totally incorrect statement:
    ……………………..
    Your not from Harcourts Shanghai are you?

    Tony Alexander
    3. The government is explicitly aiming to grow Auckland’s population as a means of achieving “agglomeration” benefits for economic growth which accrue from high interaction amongst economic players.
    14. The nature of net inward migration is changing toward greater numbers of people coming from Asia and with Asia’s middle class booming in size potential inflows of wealthier people are large.
    http://www.davidwhitburn.com/blogs/auckland-house-prices-to-rise-over-10-in-2013/

    “We particularly see it with a lot of young Asians that have been over here studying at some point, and have probably got residency and are not necessarily working, getting large deposits out of in particular China. So as far as any surveys are concerned it’s actually New Zealand residents that are buying but the money’s very much coming from overseas,” Bolton said.
    http://www.interest.co.nz/property/64021/nutter-room-one-buying-auckland-houses-says-mortgage-broker-many-sales-going-auction

    And ofcourse the Savings Working Group (the governments own SWG) blamed house prices on National and Labour citing tax breaks for property investors and high immigration.
    http://www.stuff.co.nz/business/money/4622459/Government-policies-blamed-for-house-prices

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  20. hj (7,063 comments) says:

    The agglomeration thing is bs

    Given that agglomeration economies appear to exist in Auckland, the size of the resulting
    benefits is of interest. There is a wide range of size estimates internationally, with most
    suggesting that doubling the size of a city will increase productivity by between 3% and
    8%.
    Any productivity boost would help Auckland firms compete more effectively against those
    in other locations. However, considering the official projection of population growth in
    Auckland (43% over the next 24 years), even elasticities at the top end of the international
    range would result in (agglomeration-sourced) productivity gains of only 3% in total,
    spread over the next two decades.
    Moreover, agglomeration also brings added costs.

    Drivers of Economic
    Growth in Auckland
    A report prepared for the Royal Commission on Auckland Governance

    and so much for quality of life: our PR department will take care of that.

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  21. Meatloaf (239 comments) says:

    Finally, someone is making some sense. Housing is an investment. If people are not required to have 20% of their own money, then as their is more demand for housing, this makes the price go up. Higher prices mean people pay more money for their housing. And yes, we are at low interest times, so in the next couple of years, interest rates should go up, making it harder for those who would buy a house with no deposit.

    So yes, if we just have some people excluded, it will make prices go down. The only real challenge is, will those people who are saving up for that 20% be able to put their money in places that are giving a 4% to 8% return. Will these people be able to work out the level of risk. Because, if they can, they will get closer to that 20% deposit as time goes by.

    And how bought that money go to machinery, equipment and factories. The more modern machinery and equipment we have, the more we can compete with overseas goods and services. We have the best farming equipment, which means we can export heaps of meat and dairy. If that 20% is invested in productive enterprises, than more jobs will be available.

    So the problem is that people only have confidence in investing in property, and that’s why the price is too high. And it’s time people invested elsewhere. By the way a fund manager typically gets half of the gross interest you earn. Are you clever enough to work out the level of risk yourself?

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  22. Meatloaf (239 comments) says:

    Oh I nearly forgot. If you want to start up a factory, the bank in the best case scenario will lend half of the value of the property, and with that money you can buy the machinery. So the fact that they would lend 80% of the value of residential property is quite generous.

    So if it sounds unfair that they need a 20% deposit for housing, its really unfair that you need a big deposit for a factory.

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  23. YesWeDid (1,050 comments) says:

    Wow Meatloaf you’re going to be a real asset around here.

    Housing isn’t just an investment, some people actually live in the house they own and call it their home and they do things like have children and send them to the local school and feel like they are part of the local community.

    And if people aren’t paying a mortgage they are generally paying a large amount of rent, which is a fast track to no where.

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  24. hj (7,063 comments) says:

    “I had a young woman this week who was looking to buy a property in Onehunga for around NZ$900,000. She was in a position to put a NZ$350k deposit down.”

    “She wasn’t working so initial thought was ‘well, sorry’ that ain’t going to work. She clearly couldn’t borrow that much money. But the reality is she had another NZ$600,000 on term deposit which we could use as additional security. And so for the bank that became a no-brainer because essentially there was enough cash there to take out the entire mortgage. That’s actually surprisingly common. We see that a lot with our younger Asian buyers. Very large deposits coming from overseas, support from family, and that’s allowing them to buy up property in Auckland.”
    http://www.interest.co.nz/property/64021/nutter-room-one-buying-auckland-houses-says-mortgage-broker-many-sales-going-auction

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  25. Odakyu-sen (737 comments) says:

    I tell you, mortgages are just dandy for harnessing the workers. Looking at the mortgage calculator at https://www.sorted.org.nz/calculators/mortgage-repayment

    A 20-year mortgage to repay $250,000 at 10% comes to $556 a week. You end up paying a total of $578,432, of which $328,432 is interest for the bank. This will take up $43,000 of earnings a year (for 20 years) to service, as you’ll have to pay (say) 33% income tax to get your $556 in the hand to then fork over to the bank.

    So, a $250,000 loan for 20 years at 10%. At the end of the day, from your labor of $43,000 per year for 20 years, the bank gets $328,432, the government gets $284,804 in income tax, and you get your $250,000 up front for your house. In other words, that $250,000 here and now will cost you $43,000 x 20 = $860,000 in wages to service over the 20 years.

    Of course, I am ignoring a lot of other factors and am making a lot of assumptions, but I recon as a rule of thumb you end up paying $3 to borrow $1.

    Better pray for a capital gain. At least they don’t tax that. Yet.

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  26. RightNow (6,995 comments) says:

    The Labour Party has continued its attack on the new mortgage lending restrictions coming into force tomorrow by inviting media to meet an aspiring first home buyer it says will be affected.

    Labour leader David Cunliffe met would-be first-time buyer Kanik Mongia, 23, in central Auckland today.

    Mr Mongia works as an IT consultant and lives with his parents in Pakuranga. He was looking at properties in the $400,000 to $500,000 range in South Auckland or Mt Wellington.

    “If it’s good enough I could live in it, otherwise it could be an investment property.”

    Mr Mongia said he has been looking for four or five months and has enough saved for a 10 per cent deposit.

    Borrowing the extra 10 per cent for a deposit from his parents was an option, however it was not one he was prepared to take.

    http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11132378

    Go for it Labour, highlight a guy who is looking in the $400-$500k range, that probably wants it as an investment property, and who already has 10% saved with the option to borrow more from his parents if he needs to.

    Winning.

    On the other hand, I think he’s a bad risk for banks:

    “I travelled to India in 2012 to pursue a singing career in Bollywood. While I didn’t quite strike the gold, it made me realise that I wanted to pursue music seriously and that is when I began to write my own songs and get into production.”
    https://www.pledgeme.co.nz/Profiles/?profileId=596181042

    No reliable future income.

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  27. Ed Snack (1,926 comments) says:

    Odakyu-sen, perhaps that is something known as the “time value of money”, or how much would you pay in the future to have the money now.

    Adolf, they may have had LVR regulations in the “80’s and 90’s” restricting lending to 75% of valuation, but then they were very widely flouted. Bought a house myself in about 1986 for $75K (in Auckland !) on a $5,000 deposit. And boy, did that hurt when the interest rates went north of 20% for a time.

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  28. Odakyu-sen (737 comments) says:

    Ed, you are right. But I don’t know if people know just how much it is.

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  29. SW (241 comments) says:

    From the article above:

    “Which is a second good reason for LVRs. If they dampen demand they could potentially lower house prices”.

    From Metiria Turei:

    “Garner: Would you like to see house prices fall in New Zealand, Metiria?

    Turei: Well, yes actually”.

    Can anyone correct me and explain why the article above isn’t saying that lower house prices would be a good thing? It seems to be exactly what the author has written.

    If this is what the author is saying, why has DPF not noted this as a “massive blunder” and instead endorsed the authors views?

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  30. SPC (5,772 comments) says:

    Liam Dann is quite misguided, LTV ratios do not protect home buyers from an unaffordable increase in the servicing cost of the mortgage and or negative equity.

    The only thing that does is the right to walk away from a property – as occurs in the USA, where the bank hold the risk if there is negative equity. In New Zealand mortgage holders still have the negative equity debt if the home is sold for less than their mortgage. This is one reason why we do not have the property price falls faced in the USA, no matter how onerous the debt repayments we continue with them.

    The intention is not to protect first home buyers but to

    1. constrain risky lending by banks – banking stability being the prime motive.
    2. constrain inflationary demand derived from the wealth impact of rising property values.

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  31. SPC (5,772 comments) says:

    My preference was

    1. 10% deposit for first property buyers (including rentals as a step into the market)
    2. 20% for residential property (where it is the second/third home purchase)
    2. 33% deposit for rental property investment (where one owns one such property and or owns a home).

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  32. RightNow (6,995 comments) says:

    “LTV ratios do not protect home buyers from an unaffordable increase in the servicing cost of the mortgage and or negative equity.”

    Not entirely true. Having higher equity in the property gives the home owner some breathing space in which to exit the property without defaulting. Making the entry harder also protects those with less financial literacy (someone who doesn’t know what they’re getting into in other words) getting into a situation where the servicing costs become unaffordable.

    What benefit is there for someone buying a home and having to walk away from it 5 years later? They’re better off continuing to rent, at least their credit rating doesn’t get ruined.

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  33. SPC (5,772 comments) says:

    Right Now,

    HISTORY

    There has not been a problem with default to solve. Even during the regime of 5% deposit and sometimes 100% loans our rate of default was very low. And many of these loans were to investors, not first home owners.

    The precedent is low cost loans c 2002/3 rising substantially by 2007/8 but even so there were few defaults – one reason being rising property values built up equity.

    FUTURE

    We face rising mortgage costs again, but property prices are rising in the present – thus entry to the market allows participation in this building up of equity. Holding people out of the market is not a kindness to them. By the time they have saved the second half of the 20% deposit the property may be 20% higher in price and the mortgage larger than it would be now.

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  34. KevinH (1,236 comments) says:

    “The Reserve Bank is simply not comfortable with the banks holding a high level of low equity loans in the wake of the worst financial crisis the world has seen since the Great Depression. Debt was to blame for the crisis in 2008.”

    Rising interest rates will be the spike that pops the housing bubble with negative equity being the consequence for many whom purchased at the market peak.

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  35. Meatloaf (239 comments) says:

    I know people actually live in a house, but this doesn’t change the fact, that it is an investment. When you rent, you can still live in the same house. When you own a house, you no longer pay rent. When you pay a mortgage some of it is interest, and some of it is principal. So the amount of principal you pay is investing. Those who do pay rent, will pay a lower amount than those who have a mortgage. If the returns are good enough in other investments, investing elsewhere does make sense. 4,000 years ago a king named Solomon said don’t work harder, just sharpen the axe. According to Gareth Morgan we have the third lowest amount of investment in equipment, machinery, and tools per person in all of the OECD. Only Mexico and Portugal are worse than us in this regards. Australia has 150% as much capital per person as we do. If our machinerey, tools, and equipment were up with Australia, we would be able to produce more things at an internationally competitive level. At the moment our food technology is the only technology we are competitive at. Point being, if we start investing more in machinery, tools and equipment, we’d all have more money for the things we want. So I know people live in houses, I just think that we’re not investing elsewhere enough.

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  36. Meatloaf (239 comments) says:

    For example, suppose a 2 bedroom house costs $500,000 and you borrow at 5%, and an agreement to pay $10,000 in principal payments. The interest alone will be $25,000 a year, plus you need to pay $10,000 in principal. $25,000 on just interest is a lot of money. For a lot of people just the interest will be more than half of their earnings. Yet, its quite easy to rent that same 2 bedroom house for well below $25,000 a year, ($500 per week). If you borrow for that house, then the principal you pay is an investment. If you rent on this house, and invest in fixed interest investments at a return of 4.5% to 8% (depending on who you lend to) this is an investment as well.

    The reason I’m saying this is because, someone has ridiculed my previous posts, saying that a house is not an investment as people need a place to stay. When the reality is most homes sell for $500,000 to $1,000,000 in Auckland, and I think they’re overpriced. And if people invest elsewhere, then I expect their to be a market correction somewhere down the path, or at least a slow down in real estate prices. Wages have been growing slower than house prices, and if this continues, your earnings will go entirely to the interest on the mortgage. The reality is wages have a lot of catching up to do.

    Finally as I’ve said on my other posts, people can only get these returns on fixed interest investments if they know how to assess the risks of these. Those who don’t deeply regret it. Also if you miss a payment on your mortgage, you end up losing your house. So it makes sense to only borrow when you can easily repay. According to Gareth Morgan in the 70s, 2 years worth of wages was enough to buy a house. And ever since its taken many more years worth of wages to buy a house. So this is why I think its overpriced. And lastly after you pay your mortgage, you still have to pay for rates. So your never in a situation, where your free, cause if you don’t pay up your rates, the Auckland City Council and their stormtroopers will sell your house at a fire sale price.

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  37. SPC (5,772 comments) says:

    Meatloaf

    1. Few investors exceed what they achieve by owning their own home.

    2. Rates are not comparable to rent cost being about 1/10th. And anyone who owns property can load up on the mortgage to cover any unpaid rates.

    3. The fact is lack of ownership of a home by the time of retirement is problematic. Paying rent out of super is a recipe for poverty in old age. Whereas the capacity to reverse mortgage home ownership in retirement covers rates cost and guarantees finance to cover lifestyle or dependency in old age.

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  38. Meatloaf (239 comments) says:

    You’ve obviously done your homework. If you look at my previous entries, what I’ve talked about has to do with investing to get that 20% deposit. If people put their money into investments getting 4.5% to 8%, this will get them that 20% quicker. After this point, continuing with fixed interest or buying a house, is a timing issue. Sometimes house prices won’t rise very quickly, sometimes they’ll drop and sometimes it’ll go up. A smart investor knows when to go where. And my point has been that property is saturated.

    In the OECD, our capital per person (machinery, equipment, tools) is only ahead of Portugal and Mexico. Australia has 1.5 times what we have per person, and many go to Australia for a higher standard of living. So my point has been its time to put some money into machinery, equipment and tools, get our economy up and running, and then once that’s all sorted use all the wealth created and put it into housing. So to make myself clear I’m not saying that we should be renters for life, just that a smart investor, knows when to put what where, they know when housing is overpriced and they know when it is a steal, and Warren Buffett uses this same approach on shares.

    Also in previous entries, this is my fifth entry I’ve pointed out that according to Gareth Morgan, a fund manager takes out half of the gross interest, so the rest of the investment is completely absorbed by tax and inflation, giving them a negative return. And that a smart investor would do their own research, and not have to pay ridiculous fees. So if we can get people to be more financially literate, they would hold off investing in houses for a while, until the housing market corrects itself, because the gross interest they earn will go to them and not their fund manager.

    So maybe the fees investors pay is the reason your comments or true. Or maybe its because some investors take big risks, and lose everything. Or maybe some people get pathetic returns by putting it in the bank. Or maybe those who have a mortgage or forced to put a lot into a mortgage, and those who don’t put only a small amount aside. Or maybe, it has something to do with something else completely.

    I do acknowledge your comments, and again all I’m saying is that a smart investor knows when to put what where, and when the price of housing is good, then they’ll buy that house. In regards to rent being a 10th of the interest rate, that depends on when you look at the loan. At first a $500,000 loan means paying $25,000 in interest. And the rent on that home will be far less. However, as you invest in that house, by paying off the principal, yes the interest on that house goes down. As you own more of the house, you’re paying less interest. Finally, if you don’t keep up with your mortgage you will be forced to sell it, whatever the price is.

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