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Posts Tagged ‘mortgages’

Shafting our own children’s future? Hell yeah, why not!

15 June 2013 6 comments

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student debt

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We’ve all seen the headlines; heard and seen the media stories; house prices in New Zealand are going through the roof and becoming more expensive with each passing day. A recent Herald story stated,

Experts say there is no sign of the market slowing soon, and one commentator forecasts the average price in Auckland could hit $1 million within three to four years.

Acknowledgement: NZ Herald – House prices soar as average forecast to hit $1m

Aside from being a total failure of the so-called “free” market, what else is causing prices to skyrocket?

National says that local bodies are holding up consents.

Some blame it on immigration and/or overseas investors buying up houses and pushing up prices.

Others blame it on investors and speculators exploiting the lack of a Capital Gains Tax to buy up properties, which reduces availability, and pushes up prices.

Others blame central government for not investing enough in tradespeople, to build new houses.

This blogger will add one more component into the ‘mix’; easy availability of capital.

Prior to 1984, housing prices were contained by limited, local availability of funds which banks could on-lend to house buyers. New Zealanders’ savings were poor pre-1984, and Muldoon’s scrapping of Labour’s compulsory super fund in 1975 did not help matters.

As the graph below shows, housing prices up till 1972 were steady. People usually had 10% deposit; borrowed perhaps 60% to 70% as a first mortage from a friendly bank manager; and the balance was financed by what was known then as “Vendor’s Finance” – the seller agreed to 20% to 30% as a Second Mortgage for the buyer. The latter incurred much higher interest rates.

Overall house prices were therefore ‘capped’ by the limited availability of  money, from banks and vendors. Banks acquired their funding from local depositors.

In  1972 and 1980, two international oil shocks resulted in massive inflaton inflation in the country, sending house prices surging.

Post 1984, Roger Douglas de-regulated the country’s financial laws and banks were able to borrow vast amounts from overseas lenders. There was no longer a shortage of funds for mortgages. The concept of  “Vendor’s Finance” and second mortgages disappeared almost over-night.

Purchasers could now borrow 80%, 90%, even 100% to buy a house.

As money became easily available, peoples’ expectations for bigger and bigger returns also rose. If Buyer X could borrow $200,000 to buy a house that Vendor Y had purchased last year for only $150,000, then there was nothing stopping the vendor from demanding the top dollar; $200,000. Maybe more, if Buyer Z could afford to service a $300,000 price.

The sky was literally the limit.

And as the graph shows, that is where house prices were going; skyward.

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Acknowledgement: Interest.co.nz

This has created big problems for us.

Firstly, housing prices are no longer affordable for young New Zealanders. As more and more properties are locked up by their parents’ generation (often referred to as  “Baby Boomers”), the availability of new and existing houses becomes less and less.

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Acknowledgement: Interest.co.nz

Secondly, as we borrow more and more money from overseas to invest in ever-increasing priced housing – our private debt is now approaching Greece-like proportions.

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nz-overseas-debt-1993-to-2010

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So we have fewer houses, being sought by more buyers, for higher prices, creating more overseas debt…

Anything wrong with that picture?!

Yes, plenty.

For the past fourty years, this country has borrowed vast sums – billions – to finance our property speculation. Every time a vendor made a tax-free profit, it was financed by borrowing money from other countries. We were – and still are borrowing our way to “wealth”.

It is neither sustainable nor common sense. And very soon, the bubble will burst; politicians will blame but themselves; and the public -as usual – will be left wondering what the hell went wrong.

Labour has proposed a Capital Gains Tax on housing (except for the family home) as part of  the solution. National – in a display of unmitigated stupidity – opposes any such tax.

The Reserve Bank has come up with their own “solution”,

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Mortgage rule move will force buyers out

Acknowledgement: Dominion Post –  Mortgage rule move will force buyers out

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The Reserve Bank’s suggestion of limiting lending to 80% of a property’s value is wrong for two reasons;

1. House buyer’s will simply return to the days of second mortgages from lenders other than banks (usually through lawyers or secondary finance companies). The second mortgage will have a highrer interest rate. Home buyers will simply end up paying more in outgoings to service not one, but two, mortages.

This will not help first home buyers.

2. Unless they are part of the privileged few – the One Percenters – first home buyers will find it next to impossible to pay rent and save for a deposit on a house. Factor in other financial burdens such as student loan repayments, and life just got immeasureably harder for young New Zealanders.

The upshot of the Reserve Banks “solution” is that it does not address the problem of rising house prices.

It merely penalises young New zealanders.

Meanwhile, the Baby Boomer generation buys and sells properties, tax free, pocketing big gains, financed by offshore borrowings.

This is madness, and make no mistake – we will end up paying for this insanity in a big way.

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WINZ, waste, and wonky numbers

8 February 2013 48 comments

From previous blogpost,  Bill English: When numbers don’t fit, or just jump around

… Paula Bennett has directed WINZ to make life more difficult for the unemployed, when registering with WINZ. As if losing one’s job wasn’t stressful enough, Bennet has forced the implementation of some draconian rules and requirements for beneficiaries. (The implication being that it’s the fault of  the unemployed for being unemployed?!)

One of the bureacratic bundles of red tape are the number of forms issued to WINZ applicants.

For those readers who have never had the “delight” of dealing with WINZ – these are the forms that are required to be filled out. Note: every single applicant is given these forms (in a little plastic carry-bag).

And if you have to reapply to WINZ for a benefit (if, say, you’ve lost your job again) you are required to fill out these forms all over again.

This is where taxpayer’s money is really going to waste in welfare.

All up, seventythree  pages of information and forms to  read, understand,  fill out, to collect information,

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73 pages of WINZ forms (1)

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73 pages of WINZ forms (2)

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(Blogger’s Note: for a comprehensive view of each page, please go to previous blogpost:  Bill English: When numbers don’t fit, or just jump around)

This system becomes even more laughable when one considers that if an an applicant has been a WINZ “client” (ie, beneficiary) before, they remain on MSD’s computer files. Much of the information sought is already  on-file.

The cost of this must be horrendous, and it is ironic that at a time when National is cutting “back room” support staff to save money, that they are permitting taxpayer funding for this ‘Monty Pythonesque ‘ exercise in out-of-control form-filling. (More on that below.)

No wonder that this was reported in Fairfax media,

Social Development Minister Paula Bennett this morning said latest figures showed 328,043 people were now on benefits, with 57,058 of those on an unemployment benefit.

Reforms passed by Parliament require people on an unemployment benefit to reapply for it after one year. Bennett said this change had led to 5000 people cancelling their benefit.

More than 1400 of those said they had found work, more than 2600 didn’t complete a reapplication and more than 1000 were no longer eligible. ”

See: 5000 beneficiaries quit dole rather than reapply

How many people with minimal education or poor command of the English language could hope to fill out so many forms of such complexity?

By contrast, applying for a bank mortage is vastly simpler – an irony considering the vastly greater sums of money involved.

In fact, an application for an ANZ Mortgage comprises of eight pages (four, double-sided),

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KONICA MINOLTA DIGITAL CAMERA

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Eight pages for a mortgage to borrow anywhere from $250,000 to $1 million and upward.

And 72 pages for an unemployment benefit of  $204.96 per week, net, for a single person over 25. (See:  Unemployment Benefit – current)

So how much does all this cost us?

Last year, this blogger emailed the Ministry of Social Development (MSD) with an Official Information Act (OIA) request, asking what the cost of all these pamphlets cost,

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Date: Tue, Wednesday, 14 November 2012 1:38 PM
From: Frank Macskasy
Subject: Information Request
To: Paula Bennett “Paula.bennett@parliament.govt.nz”

Kia Ora Ms Bennett,

I would like to make an official Freedom of Information Request.

Please provide information as to the costings of the following forms and information leaflets produced by MSD/WINZ;

“Work and Income Employment-Earnings Verification” (VO6-mar 2011)

“Work and Income Find a job build a future Tools to help you find work” (JOBSW0007-nov 2010)

“Jobz4u Manual Jobseeker Enrolment” (-)

“Work and Income Unemployment Benefit Application” (M18-JUL 2011)

“Work and Income Unemployment Benefit Application – What to bring” (M18-JUL 2011)

“Work and Income How can we help you” (CM0001 – OCT 2010)

“Work and Income Online Services”  (-)

“Work and Income” plastic carrybag for above items.

Please provide total costings for EACH item printed, on an annual basis for the last four years, and a break-down of costings for usage per year and per WINZ client.

Thank you for your assistance in this matter.

Regards,
-Frank Macskasy
Blogger

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After seeking an extension, on 4 February this year,  the MSD replied with these costings,

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MSD 1 Feb 2013 OIA response (1)

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MSD 1 Feb 2013 OIA response (2)

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Firstly, it’s disappointing to note that of the eight items that I requested costings for, MSD could provide figures for only five. They admitted not have costings for two documents (“Jobz4u Manual Jobseeker Enrolment” and “Work and Income Online Services” ) and made no mention of another (“Work and Income Unemployment Benefit Application – What to bring” ).

However, based on figures provided for other documents, we can certainly make some rough guesses. If MSD’s  figures are correct,  over four years, the cost of printing these 72 pages is around $1 million. Not a hell of a lot, when considering that WINZ benefit’s will be approximate $4.9 billion for just this financial year alone (see:  Budget 2012 – Vote Social Development).

But if a Bank can offer mortgages from $1 to millions of dollars, using an eight page application form – then why would a government department be wasting hundreds of thousands of dollars – millions over decades – for a measely $204.96 (per week, net, for a single person over 25)?

The reason is fairly obvious.

A Bank welcomes a new client in the hope of offering a financial service – eg, a mortgage. Banks view clients as assets.

Under the current government, WINZ is actively discouraging people from signing up for welfare assistance,

Reforms passed by Parliament require people on an unemployment benefit to reapply for it after one year. Bennett said this change had led to 5000 people cancelling their benefit.

More than 1400 of those said they had found work, more than 2600 didn’t complete a reapplication and more than 1000 were no longer eligible. ”

See: 5000 beneficiaries quit dole rather than reapply

Yet, at a time when we have a critical shortage of skilled workers in this country – especially tradespeople for the Christchurch re-build – National views those seeking welfare assistance as a liability.

This is about as short-sighted as a conservative, market-oriented government can get. It shows a lot about the narrow-sightedness of National’s ministers when, like a bank, they don’t see that 170,000 unemployed is an asset waiting to be upskilled; trained and supported into new careers.

Just imagine; 170,000 new builders, computer technicians, doctors, electricians, nurses, quantity-surveyors,  scientists, teachers, vets, etc. Imagine the economic growth this country would have if National viewed an army of 170,000 unemployed as an asset waiting to be tapped – rather than discouraged.

I can imagine it.

National evidently can’t. Not when they prefer to spend millions on 72 pages of bureacratic rubbish, which would put of a lot of people.

I wonder how much business a bank would get if they demanded that new clients fill out 72 pages of forms?

Not much,  I’d wager.

So why does the government do it?

Addendum

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Unemployment rate falls as more give up job hunt

Source

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This is the predictable consequence when a hands-off government does nothing to grow the economy and generate new jobs.

This is the predictable consequence when a government treats unemployed workers as a liability to be discouraged and labelled as ‘bludgers’ – rather than recognising the asset that they really are.

This is the predictable consequence of a National government.

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The Great NZ Sell-Off Continues…

7 September 2011 4 comments

Despite recent assurances from the Prime Minister, John Key, to restrict foreign purchases of NZ farmland, his assurances that,  “I think we’re making progress in this area” seems to be based on empty words and little more.

As the Dominion Post  reported last year, “an average of 82 hectares of agricultural land per day has been approved for sale to offshore investors”.

Some recent headlines bear out that report,

It seems quite clear that John Key’s optimistic view that ” I think we’re making progress in this area” is wildly misplace. As usual, his soothing, reassuring words bear little relationship to reality.

But voters have yet to figure that out, collectively.

What the New Zealand public does understand, with crystal clarity, is that selling our farmland to overseas investors is counter-productive; counter-intuitive; and short-sighted economically.

It also cheats our children of their birthright.

New Zealand farmland is over-priced and farmers have gotten into trouble with massive bankloans and reducing equity. In part, this is due to the weasy credit that has been available to NZ society since 1985, when our banking system was de-regulated by you-know-who.

De-regulation meant that vast amounts of money flowed into NZ, for banks to lend out as mortgages, investments, loans, etc.

It also meant that, as money-supply increased, so did property prices. Quite simply, we could expect to sell our properties because there was an endless supply of money available from banks. Purchasers could borrow 80%, 90%, and sometimes 100% for mortgages.

So property prices went up. Our borrowings went up. Demand went up, as speculation was tax-free (remember that there is no Capital Gains Tax in NZ). It was an uncontrolled spending spree, without any consideration that eventually, the bubble would burst.

Well, in 2008, the bubble burst. In early 2008, there were signs that there was a crisis looming in the US banking industry. On 3 March 2008, the Federal Deposit Insurance Corp, the US federal agency that backs bank deposits,  identified 76 banks as in trouble , a 52% increase from a year ago.

By July 2008, Freddie Mac and Fannie Mae, were in severe financial  trouble.

On 15 September 2008, Lehmann Bros, in Wall St, New York, filed for bankruptcy. The subsequent chain reaction of banking failures sparked a global financial crisis and the world fell headlong into a recession.

Here in NZ, credit dried up, and suddenly our farms were no longer worth the high prices that people had been paying for them. The property boom came grinding to a halt, and the “bubble” well and truly burst.

We  could no longer afford to buy over-priced properties to make speculative profits that had been financed using money borrowed from overseas. It was time to pay the Piper.

For many owners of farmland, the obvious solution seems to be to sell properties to overseas interests. Foreigners have the necessary capital – which local New Zealanders do not.

Unfortunately, in doing so, we are effectively locking-out our next generation from the opportunities that our generation – the massive-borrowing, heavily-indebted, Baby Boomers – had enjoyed. We have played “monopoly” with our farms; making ever-increasing profits; as we sold land to each other in a kingd of mad, money-go-round.

Now, we can only save our indebted ‘skins’ by selling out to foreign interests.

This is simply another chapter of the story I told here; “Greed is Good?“.

Is it fare, I ask myself, that we have priced farm land out of reach of our children?

Is it fare, I ask myself, that instead of our children enjoying the same opportunities that we did – that instead it will be Germans , Americans, Swiss, Chinese, etc, who will now reap the benefits?

The greed and naked self-interest of Bany Boomers is well known. It is no secret that we have looted the wealth of this country, and have left our children with fewer prospects than we enjoyed. No wonder so many of them have left New Zealand, and plan never to return,

“A Victorian-based Kiwi with a student loan debt, who did not want to be named because he did not want to be found by the Government, said he did not intend to pay back any of his student loan.

The 37-year-old’s loan was about $18,000 when he left New Zealand in 1997. He expected it was now in the order of $50,000. The man was not worried about being caught as the Government did not have his details and he did not want to return to New Zealand.

“I would never live there anyway, I feel just like my whole generation were basically sold down the river by the government. I don’t feel connected at all, I don’t even care if the All Blacks win.

“I just realised it was futile living [in New Zealand] trying to pay student loans and not having any life, so I left. My missus had a student loan and she had quite a good degree and she had paid 99c off the principal of her loan after working three years.” – Source

As we lose more and more farmland to overseas ownership, we should also expect some fairly noticeable consequences to follow;

1. Profits will flow back overseas, to offshore investors’ banks. This will impact on our Balance of Payments (negatively, I might add). This, in turn, will affect our sovereign credit rating; the interest rates we pay for money we borrow… and finally, our mortgages.

2. As farm produce fetches higher prices overseas, expect to see this reflected in the price of dairy products and meat that we purchase in our supermarkets. We have already experienced the high cos of milk and cheese, due to high prices overseas. Expect this to worsen.

Property and farm owners may object. They will squeal like stuck pigs, in fact. But the sale of our land to foreigners, whether American or Chinese; Australian or German; will eventually impact impact negatively on our economy and on the prospects of our children.

Enough is enough.  No more pandering to the self-interest of Baby Boomers.

It is time that common sense kicked in. The sell-off of our country has to stop. Otherwise, as John Key warned, we will become tenants in our own land.

To hell with that.