Thursday, 2 August 2007

Reserve Bank & housing

Think back not too long ago and you might remember a time when there was a Reserve Bank governor who seemed to know what he was doing, and a National Party leader who gave every appearance of standing for something. Remember when?

Today on Leighton Smith's ZB morning show Don Brash will be interviewed over the pressing issue of how restrictions on land supply are causing havoc with price inflation. Listen in from 10:30am, or give him a ring. If you're not near a radio, you can listen in here.

UPDATE: Click here for NewstalkZB's audio from 10:00am to 11:00am. Don Brash interview starts at 32:40. Link should stay live for one week.


  1. On the other hand how can land be unlocked from its tight restriction without bankrupting most developers and locking people into devalued homes?

  2. You really think Don Brash had things under control? I think not. Remember he was the major proponent of focusing entirely on the inflation number, a number with many falsehoods within it.

    He squeezed the life out of the NZ economy with this single minded approach. He paid no attention to those who questioned it and entertained no dialogue on the issue.

    Good point Greg. Land is the key here along with bank credit. How to change the current framework without causing a major collapse will be tricky but gradual changes can be made. I don't think we can get away from the fact that land prices are ridiculously overvalued.

  3. And Brash confirmed, as everyone with Economics 101 knew, that it's the supply side.

    Greg? You first need to argue that lifting of land restriction would lead to such issues.

  4. The argument is that restricted supply supports high prices, which also includes the affinity of foreign money for such a situation.

    It is reasonable to figure that increased supply will decrease prices. Like the current sharemarket weakness (i.e. dive), people are locked into positions until prices recover (unless they like selling at a loss!).
    I am not arguing against lifting restrictions just outlining what seems plausible.

    Do you have an alternative line of thought or would you personaly hold property through a period of regulation relaxation? ;)

    I checked Newstalk ZB's archive but unfortunately Brash's interview seems to be absent. According to the archive at 1030 Smith was discussing breast feeding.

  5. Greg

    If you, me or anyone else invests in an asset, then that is a risk taken. One must be man enough to take the subsequent consequences and not cry over losses should they occur.

    Naturally, should the asset appreciate in value that's all well and good. Happiness. People don't complain then.

    When assets depreciate in value that's not so good, but that's the market. You can't force everyone else to support the value of an asset just because YOU purchased it and just because YOU want its value protected or improved.

    Should an asset class such as housing drop there will be many, many people moaning and crying to be let off the hook. But the choice to buy in was their own- freely taken. No-one else should be required to subsidise their asset value just because they got it wrong.

    So, release the land immediately. In the long run that is a far superior route to take than gradualism. It is moral. In the short run it would cost far less overall and it would destroy much less wealth than a scheme of subsidy and protectionism.

    Rule: ALWAYS take short losses BEFORE they compound.


  6. I didn't argue for full release or gradual release. I just pointed out what is reasonable: changing land restrictions changes the market and increasing supply decreases prices. I am ambivalent.

    The crux is the magnitude of shock in the market by suddenly increasing land supply.
    Consider the end of farming subsidies in the 1980s.
    I'd love to hear some figures on scenarios.

  7. Yeah that was a good interview with Don. Thanks for the time taken to give the updated link.

  8. Greg

    Immediate cessation of interference is best.



  9. People adapt immediately. Best if they adapt to reality rather than the artificial of arbitrary scams and schemes.

  10. I am strongly inclined to reducing inference but I am also inclined to sell before the market does adapts itself leeming-like off of a cliff. Fortunately, for my equity the world is larger than the NZ housing market.

    As an aside, I love it when market 'analysts' speak of 'corrections' (billions of dollars fleeing). A 'correction' implies a rational action and rational action can be forseen and if forseen precipitous dives shouldn't occur. Conclusion, so-called 'analysts' are shysters and should butt out of glossy TV spots and newspaper columns and leave the pointless weasel words to politicians. /rant

  11. What's so bad about "corrections"?

    There can't ever be "perfect information." Some of the people are going to get it wrong. There is no omniscience, even in a completely free marketplace. That does not mean there is anything wrong with the market (that is, people freely choosing what to spend their money on). It is merely a practical demonstration of one of the realities of life.



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