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There's a lot of focus on property investors, but there's a lot of government policy that really just allows landlords to collect more rent. Minimum wage and benefit increases are terrible for house ownership affordability as they make rent increases more affordable. So rents increase. Because rents are higher, house buyers are willing to pay more as the alternative would cost them more as well.
The accommodation supplement is probably one of the most obvious ones. If you say ,"we'll give you $x towards rent" how can you expect rents not to increase by the same amount?
The people getting more money aren't any worse off (maybe very slightly better off) but the ones who don't get as much (or nothing) from these and don't own their own house are pushed further from home ownership as now they're spending more on rent, and therefore able to save less, and the house prices increase as well.
The housing shortage is what enables this all to happen, but these do exacerbate the issue of housing affordability.
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@reprobate said in Housing hornets' nest:
@snowy said in Housing hornets' nest:
Out of interest why do you keep bringing up interest only loans? They are available to anybody who has the income, or assets to borrow. The banks financial lending criteria are the same for everybody, not just people who own investment property or want to buy investment property. Owning your own home is a good start but most people could get an interest only loan. I don't know why you would though, other than bridging finance.
Investors use them, leveraging existing property equity on the back of housing inflation, the interest only repayments are much smaller, and write it off as a business expense - because they're after the capital gains. None of which first home buyers have access to, meaning the investors can afford to pay more, and so the kids get no house. I think it was 40% of new lending to investors was interest only loans recently (?), highest ever anyway. Not a good idea from a financial stability point of view.
Investors only account for 30-odd % of interest only lending. The majority is to owner occupiers.
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I personally believe that the interest only loans were one of the worst things allowed. I also think that people shouldn’t be able to borrow against land without meeting stronger minimum income to loan ratios. The horse has probably bolted for that in NZ, but both of those haven't helped.
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@jc said in Housing hornets' nest:
@reprobate said in Housing hornets' nest:
@snowy said in Housing hornets' nest:
Out of interest why do you keep bringing up interest only loans? They are available to anybody who has the income, or assets to borrow. The banks financial lending criteria are the same for everybody, not just people who own investment property or want to buy investment property. Owning your own home is a good start but most people could get an interest only loan. I don't know why you would though, other than bridging finance.
Investors use them, leveraging existing property equity on the back of housing inflation, the interest only repayments are much smaller, and write it off as a business expense - because they're after the capital gains. None of which first home buyers have access to, meaning the investors can afford to pay more, and so the kids get no house. I think it was 40% of new lending to investors was interest only loans recently (?), highest ever anyway. Not a good idea from a financial stability point of view.
Investors only account for 30-odd % of interest only lending. The majority is to owner occupiers.
Not according to this: https://www.interest.co.nz/news/109356/nearly-40-bank-lending-residential-property-investors-are-interest-only-arrangements
"As at December, 39% of bank lending to residential property investors, worth $32 billion, was interest-only."
"13% of owner-occupier lending, worth $28 billion, is interest-only. Yet the value of interest-only mortgages held by owner-occupiers is about 12% higher than it was a year ago."
So, if accurate, that's more than half to investors - despite a big recent spike to owner occupiers.I read somewhere recently that new loans to investors were over 50% interest-only. @snowy this is why it's a relevant topic, and while i agree with you to an extent on 'why would anyone do that', they clearly are doing it.
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@reprobate said in Housing hornets' nest:
@snowy this is why it's a relevant topic, and while i agree with you to an extent on 'why would anyone do that', they clearly are doing it.
I would add an "at the moment" or "recently" to that. From that article - interesting that most of it is a Covid spike when looking at the graphs (and understandable). Things had been pretty stable for both investors and owner occupiers before that. Assume that is why RBNZ aren't doing anything, or making any knee jerk reactions as it is seen a blip not the norm.
Over leveraged investors (albeit their own fault) have tenants, so reducing the availability of interest only loans to them when they are still available to everybody else might not be a great idea, in Covid times anyway. Just more government buy in of stock that is currently held privately and nothing extra for new home buyers again.
From @JC 's data you can also see the covid effect, new interest only loans from both investors and occupiers was significantly down, for obvious reasons during lock down but does seem to be normalising again.
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@jc Question (sorry plural now) for you. How do we end up with 6 to 8ish percent of all existing loans with greater than 80% LVR? Or have I read the last 3 columns incorrectly?
I don't borrow, so I don't quite get how we end up with those loans / debt figures. I get it for the 2015 figures because we were 70% LVR then I think, but how are people getting this extra cash that isn't secured / within the rules?
Massively increasing prices should mean that LVRs are falling, or are people just continuing to borrow based on the perceived value of their property and banks are over doing it? Total existing lending is going up so maybe that is it?
Interest only loans falling again, so has to be people getting back to normal after Covid scare and going back to P + I which is back up.
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All my loans were IO until recently. Not because I was super leveraged, just because there was no point committing to higher repayment obligations. I preferred to keep the excess cash in my offset account.
Made sense until the recent divergence in interest rates that penalised IO, so now I'm all P+I
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@snowy Just off out, but the short answer is likely to be non-banks such as building societies and credit unions, who aren’t bound by the LVR rules. They are probably the lifeline for a lot of lending the banks won’t support, like first time borrowers, gig economy workers etc. RBNZ and government actions seem determined to marginalise that sector though, so who knows how long that will last. That’s another story though
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@voodoo Makes sense. Cheap money is cheap money. IO certainly isn't all investor driven. Which begs the question on how the RBNZ gather their data. Nobody wants to declare as an investor due to tax implications. I don't recall anything on S and P agreements, so it must come from the banks, but if I don't borrow to buy, how does anybody know that it was an investment statistically? Probably a small margin but it is there.
Debt data is easy from the banks. Corelogic do it all with properties and that is pretty simple from sales, but where do the "investor" numbers come from to be accurate...I must be missing something obvious there.
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@jc said in Housing hornets' nest:
@snowy Just off out, but the short answer is likely to be non-banks such as building societies and credit unions, who aren’t bound by the LVR rules. They are probably the lifeline for a lot of lending the banks won’t support, like first time borrowers, gig economy workers etc. RBNZ and government actions seem determined to marginalise that sector though, so who knows how long that will last. That’s another story though
Thanks. Makes sense. Didn't even know that those sorts of lenders existed anymore and, yes I think that they must be getting pushed out. I remember Countrywide Building Society but think that they became a bank.
Makes me wonder about some of the peer to peer stuff that I have been lending to. How long will that last. Harmoney already sold out to banks for small loan stuff.
The others are large loans, seriously low LVR though, shorter term loans, secured against first mortgages with good returns, so quite a bit different. Usually builders who are doing spec stuff and need a bit more cash to finish a project, or investors doing renovations, bridging, that sort of thing.Very interesting times economically with some of these new options and some more traditional ones very unattractive.
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Regarding the effect of tax laws and how they influence peoples decisions (see cars 1,2,4 & 10 for example) I have wondered how much of an impact the individual income tax rates during the 2000's influenced the housing situation we're seeing now.
I worked in an accounting firm during the 2000's and it was interesting watching the change in clientele during this time. The accounting firm wasn't one of the big 4 so we did a lot of work with SMEs and Joe public. During this time we had a large increase of people asking about Loss Attributing Qualifying Company's (LAQCs). The main reason why most of Joe public were asking about LAQCs was that they allowed the losses from the company to flow through to the shareholders. The shareholders would then offset these losses against their income and receive decent tax refunds each year.
This all worked really well. People earning over $60K were paying 39% on each $ over $60K and they didn't think it was fair. Now this wasn't the top 5% getting pissed off at paying too much tax, it was police, teachers, nurses, government workers etc. This was a clientele that hadn't previously been that interested in owning a rental property. Higher interest rates had meant a lot of people had been happy to keep their savings in a bank and not risk it elsewhere. This was also a time where rents were low, mortgage rates were moderately high and these LAQCs passed between $5K-$15K of losses back to the shareholders to claim back their tax they had paid. The cherry on top here was the tax free capital gain at the end but the main reason for these people to get into the rental business was the high tax rate that kicked in at such a low rate.
The current situation was always on the cards and you only have to look at the rest of the western world to see that. But I do wonder how much those individual tax rates kicking in at such low bands helped accelerate the situation we find ourselves in now.
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@toddy LAQCs are a really good point. Being able to write off a loss from a company, against personal income doesn't make much sense to me (and yes I still have LAQCs but they make money). That entity must stand on it's own legs or you go backwards. Having loss making businesses to avoid tax still means that you are losing money, but I know that wasn't what you were getting at.
The change of demographic is interesting. A lot more people trying to find somewhere to put money, in a low interest rate environment, with a low top tax bracket. Foreseeable results.
@toddy said in Housing hornets' nest:
The cherry on top here was the tax free capital gain at the end but the main reason for these people to get into the rental business was the high tax rate that kicked in at such a low rate.
Agreed on the tax rate. Got to be a motivating factor to change investment strategies with a LAQC. This has been one of the bones of contention throughout - the capital gain isn't necessarily tax free and markets have out performed property so not much of a net gain for investors anyway, just that some of it may have gone to the government.
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Warren still sticks to his tried and true, invest in what people need. Housing, food, water.
I didn't realise that building costs had gone up so much in the US as well, but he is mostly talking about steel. When he talks I listen.
Personally, I don't like steel as a house framing. It is becoming really popular though. Heaps of them going up around here.We (NZ) still deal mostly in timber which is a nightmare supply wise too now. No easy answers.
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I get emails from both of the major NZ political parties - I try to keep a balanced view - as well as knowing what they are both up to.
I have been going on about this for a while (and it is from the National party). Some disagree on here but this is what they said:
*"Officials told Labour that renters would suffer. Officials cast serious doubt over the effectiveness of the Government’s housing package in the months before its announcement. The advice showed the package wouldn’t make a difference to the supply of housing, instead they would likely increase rents.First home buyers are predominantly renters, any measures that drive up rents only serve to make it harder for first home buyers to put together a deposit, further locking them out of the market."*
Maybe they read my posts. I also have no idea who "officials" might be? It is pretty obvious that shafting renters, is also shafting some first home buyers, and making property investment more difficult doesn't help with rental supply.
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@snowy said in Housing hornets' nest:
Warren still sticks to his tried and true, invest in what people need. Housing, food, water.
I didn't realise that building costs had gone up so much in the US as well, but he is mostly talking about steel. When he talks I listen.
Personally, I don't like steel as a house framing. It is becoming really popular though. Heaps of them going up around here.We (NZ) still deal mostly in timber which is a nightmare supply wise too now. No easy answers.
Soon we will be living in mud huts. Its like the Greens wet dream
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@canefan said in Housing hornets' nest:
Soon we will be living in mud huts. Its like the Greens wet dream
I'm a "greenie" in ecological and environmental terms, but I don't listen to the Greens. Solar panels, electric cars, I'm all in. A shame that we can't have both (yet anyway).
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@snowy said in Housing hornets' nest:
I get emails from both of the major NZ political parties - I try to keep a balanced view - as well as knowing what they are both up to.
I have been going on about this for a while (and it is from the National party). Some disagree on here but this is what they said:
*"Officials told Labour that renters would suffer. Officials cast serious doubt over the effectiveness of the Government’s housing package in the months before its announcement. The advice showed the package wouldn’t make a difference to the supply of housing, instead they would likely increase rents.First home buyers are predominantly renters, any measures that drive up rents only serve to make it harder for first home buyers to put together a deposit, further locking them out of the market."*
Maybe they read my posts. I also have no idea who "officials" might be? It is pretty obvious that shafting renters, is also shafting some first home buyers, and making property investment more difficult doesn't help with rental supply.
Changing taxation and interest write-offs is not meant to target supply, it's meant to target demand. The supply side is building. So, that's not really any sort of insight, it's just the usual opposition whinge.
What are the numbers on rent increases following the announcements? It certainly wouldn't surprise me, particularly anyone who has bought recently needs a massive rent to deal with the big capital outlay - but show us some figures - and then answer whether it is a greater increase than the highest ever monthly increase in rents, which occurred before the announcements?
Politicians are so disappointing. Labour wants to centralise the polytechs, centralise health admin, cut out a heap of bureaucracy - implementation may prove to be shit, but it's almost inarguably a sound idea. But National rail against the principle of it, despite it being both sensible and what they are meant to stand for - small government and efficiency etc - but of course Labour said it, so we must oppose it. Listening to either party is a waste of bloody time.
Housing hornets' nest