Friday, 15 April 2016

‘Why younger people can’t afford a house: because money became too cheap’


This piece from The Guardian is just as relevant for the problem here in New Zealand: ‘Why younger people can’t afford a house: money became too cheap


  1. people will borrow money if they think they can make a better return with that borrowed money that what they pay in interest.

    interest rates in france are low yet house prices are falling. NZ during the 1980s had high intrest rates yet house prices increased.

    it is one dimensional to claim central bank lowers interest rates it will stimulate borrowing and the economy. Japanese interest rates are low for a very long time but many houses in japan have been abandoned.

    There are other factors involved than just low interest rates. There has to be a demand for loans. That is a expected return greater than the interest rate charged. The state can not force people to borrow to stimulate an economy.

    international capital flows into an asset class is much more important than state setting of interest rates.

    1. Rental yields in Auckland are terribly low. A poor investment, unless... You think there will be more fools down the road who will buy your asset from you for waaay more than you paid. How will they afford it? Debt. So it's a mixture of factors.

      Simon, think of the new money as extra fuel that keeps the fire burning and growing.

      Planning laws and a tax system that penalizes work and subsidies the ownership of assets coupled with some external sparks (foreign investors, immigration, industrial boom like in SF, etc), produce an abnormal increase in selling values which reflect both real values and speculative premiums. new "investors" enter the market not because of the hopes that the real values will keep going up, but because they think more people will continue to speculate. Equb was talking about it a few days ago. 80% of the house buyers in Auckland are currently investors (multiple property owners) and NOT 1st home buyers. Also, there are fewer and fewer transactions. Essentially, investors are buying houses from each other pumping up their prices by getting more and more debt.

      Meanwhile the reserve bank keeps pouring fuel.




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