We deep dive on recent developments in the NZ property market, as the bubble created by the RBNZ expands, and they react to try to mitigate the risks.
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The New Zealand Property Conundrum
– I want to add this as well: The RBNZ (like the FED, RBA, etc.) has to pretend they determine the level of interest rates but in reality they ony follow market rates.
– Nope. I think there is no “Property Conundrum” in NZ.
– Like the FED, RBA, the RBNZ FOLLOWS rates as set by a market force called “Mr. Market”. One Mr. Michael Pettis ( https://carnegieendowment.org/chinafinancialmarkets/ ) has done some truly excellent work on this topic and he draws the conclusion that increasing “income inequality” is the driver behind falling interest rates. Perhaps you want to invite him for a video podcast here at DFA to discuss his views ? He also has a very clear view on a number of other economic topics. Check out his website (see above).
– Why are property prices still rising in NZ ? One explanation could be found in the combination of low interest rates and the still (??) strongly (??) rising rents in NZ. Investors see that interest rates are (very) low in NZ. And see that rents are still rising at a brisk rate. Then they make the decision to e.g. take out a mortgage, buy a property and then rent out the house/unit. This is a strategy (perhaps better called a “gamble, a bet”) that assumes that rents will continue to go higher in the upcoming years. This way the “investors” (with or without quotation marks) hope to have a larger return on their money than when they deposit that money in the bank. And they seem to not be worried (too much) about an appreciation (or depreciation) of the property. Perhaps Mr. Joe Wilkes is able and willing to dig up the data that could support or dismiss this theory ?
– Question: Does DFA have data on incomes in Australia ? And is DFA able calculate both the median and average (wage) income for Australia ? Both median and average are (somewhat) flawed metrics. But when one calculates the relative and/or absolute difference beteen the 2 then one also has a good grasp on how income (in-)equality has evolved over time, in e.g. Australia.