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Low Interest Rates, House Prices and Public Finance
Popular wisdom has it that low interest rates create or exacerbate house-price bubbles. Yet recent reductions in interest rates in New Zealand appear to have, if anything, slowed the housing market, at least in Auckland. Further, countries with negative interest rates – Switzerland, Denmark, Sweden and now Japan – are not countries renown this decade for housing bubbles. The 2004-08 housing bubble in New Zealand took place in an environment with rising and high interest rates.
People on the political left should be challenging these popular wisdoms. And should have empathy (but not sympathy!) for financial speculators. We deal with these behaviours best by putting ourselves in the heads of the perpetrators.
Let’s consider a situation reflective of Auckland in recent years. An ‘investor’ buys a house for $800,000 with the expectation of selling two years later for $1 million. If ‘he’ (statistically more probable than ‘she’) pays cash, and allows house-sitters to stay there rent-free, his expected financial return will be $200,000 (25% of the outlay).
If he borrows 80% on his real estate purchases ($3.2m loan) he could buy 5 houses with his $800,000 cash. (He would now be a ‘leveraged’ investor, borrowing $3,200,000.) If his loan is interest-only, his interest costs will be $256,000 (4% mortgage interest rate), $320,000 (5% interest rate), or $384,000 (6% interest rate). His two-year investment return on outlay is 93%, 85%, or 77% (depending on the interest rate). These are very high returns (even without letting the properties), and higher returns with lower interest rates. This is the conventional story.
But what if higher interest rates lead to higher capital gains? This is not the conventional view, but it does make sense. When interest rates are high, banks lend less to businesses and more to speculators with securable assets. So, if higher interest rates increase the proportion of lending that goes into real estate (as well as attracting bank deposits and the like from foreigners), then expected capital gain will rise as interest rates rise. Increased capital gains with increased interest rates is what we saw in New Zealand in 2004-08.
I redo the above figures, but allowing for 20% expected capital gain if the mortgage interest rate is 4% and 30% capital gain if the interest rate is 6%. The two-year rates of return on outlay would now be 68% (with 4% mortgage interest rate), 85% (5% mortgage interest rate), and 102% (6% mortgage interest rate). The higher the interest rate, the higher the return.
While a capital gains tax would only make a small dent in such speculative profits, lower interest rates in 2015 may be making bigger dents. Already New Zealand banks are lending more to a diverse range of businesses which employ people, and relatively less to speculators. Interest rates could fall more, despite the lack of appetite for lower rates from the Reserve Bank Governor.
Negative interest rates – as in Europe and Japan – stabilise the debt accumulation process that gave us, for example, the 2008 global financial crisis. And, where they exist, negative rates do not appear to have created the rampant expectations of capital gain (as discussed above) which destabilise world systems much more quickly than greenhouse gases do.
With very low interest rates, governments can borrow with minimal debt-service cost, improving public services as well as modernising physical infrastructure. Even The Economist thinks (Building Works, 29 August 2015) governments should be taking more advantage of “rock-bottom interest rates”.
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Senior doctors want explanation for decision to delay Grey Hospital rebuild – ASMS
West Coast senior doctors want to know why the Grey Hospital rebuild is being delayed because of a relatively small budget over-run due to previously undetected earthquake vulnerability, says Ian Powell, Executive Director of the Association of Salaried Medical Specialists (ASMS).
“The decision to put this long-awaited and much-needed project on hold is incomprehensible,” he says. “Senior doctors are rightly suspicious of the reasons behind the decisions, given the fraught history of the project, and fear for future progress.”
Grey District Mayor Tony Kokshoorn has expressed disappointment “to say the least” with the decision (http://www.stuff.co.nz/national/health/76520643/greymouth-hospital-delay-another-bad-news-story-for-the-west-coast–mayor), and Mr Powell says the Mayor is right to feel wary.
“Senior doctors and other health professionals, along with many other local people, have worked very hard to get this rebuild underway and our fear now is that this is a roundabout last-ditch effort to scupper the project,” he says.
“The amount of money involved in the budget over-run is small in terms of the overall cost of the project and the importance of this rebuild to the local community. In fact, the delay is likely to lead to increased costs.
This decision has been forced from above on the West Coast District Health Board. Senior doctors on the Coast appreciate the difficult position the Board has been put in.
“The Government needs to explain why this decision has been taken and assure West Coast communities that it is still committed to this important rebuild. We understand some buildings at the current hospital site have a poor earthquake rating so the last thing people need is any delay in getting better, safer hospital facilities in order to have better, safer patient care.”
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If You Build It, They Won’t Come – CAFCA
The headless chooks of the Christchurch City Council (specifically the eight Councillors, including the Mayor) have allowed themselves to be stampeded by debt hysteria and an ideologically-driven Government into a panic stricken headlong rush to flog off $750 million worth of public assets.
The excuse given for asset sales is that they are necessary to pay for the city’s rebuild, and specifically for the white elephant anchor projects foisted by the Government on the people of Christchurch, under the onerous Cost Sharing Agreement signed between the Government and the previous Council (which was thrown out by disgusted Christchurch voters in 2013).
The whitest and most elephantine of these white elephants is the proposed covered rugby stadium, to which the Council is committed to paying $253 million. The justification for this is that it will guarantee Christchurch getting into the big boys’ club of international rugby venues.
No, it won’t.
For that we have the word of the most impeccable authority – the NZ Rugby Union, which is continuing its long and dishonourable tradition of treating rugby fans and the wider public with contempt.
It has just announced the itinerary for the 2017 Lions tour of NZ. And for the first time in more a century the Lions won’t play the All Blacks in a test anywhere in the South Island.
The Rugby Union says that Christchurch’s current “temporary” rugby stadium couldn’t handle a game of that magnitude. Predictably that led to handwringing from the Canterbury Rugby Union saying this shows that we need the new covered stadium ASAP.
But, wait there’s more.
The NZ Rugby Union has not just vetoed any Lions test in Christchurch but also in Dunedin. Huh? Dunedin has the country’s only covered rugby stadium, completed as recently as 2011, at ruinous cost to its ratepayers and amidst great public controversy. Furthermore, Dunedin is a fully functioning city, unaffected by any earthquake or similar natural disaster (not to mention the home of the current Super Rugby champions). But, no, the NZ Rugby Union says that the Forsyth Barr stadium is neither here nor there, the problem is that Dunedin itself is not up to handling an event of such magnitude. So, two Lions tests have been awarded to Auckland and one to Wellington.
Press sports writer Tony Smith says it best: “(The Rugby Union’s) rationale is proof, if ever it was needed, that All Blacks rugby is a brand, first and foremost and a sport, with all its rich traditions second. How long before Eden Park becomes NZ Rugby’s national stadium? How long until someone in a shiny suit points out ‘the England rugby team never plays outside Twickenham, so get used to the All Blacks playing all their big games in Auckland’?…Remember the movie adage: ‘If you build it, they will come’? Well, NZ Rugby has changed the script. ‘Not if you build it in Dunedin’. Dunedin’s beleaguered ratepayers have paid for the best sports stadium in New Zealand. There’s an inherent responsibility for rugby to play its part in helping Dunedin to recoup the cost of its investment” (11/7/15, “South Island Shouldn’t Be Snubbed For Lions Test”).
The Christchurch City Council needs to learn from Dunedin’s predicament before it’s too late, pull the plug on this particular white elephant, and save the ratepayers of Christchurch a cool quarter of a billion dollars. The message couldn’t be clearer from the NZ Rugby Union – “sorry, South Island, it doesn’t matter how many covered stadiums you build at your own expense, you suffer from a terminal case of ‘not Auckland syndrome’”.
The Rugby Union is a big business; let it pay for a covered stadium in Christchurch if its so keen on the idea.
The city has got a perfectly good temporary stadium in Addington and the possibility of repairing the quake damaged Lancaster Park, the city’s famous rugby ground, which is already owned by the Council.
The City Council should see this as the perfect opportunity to renegotiate that increasingly ridiculous Cost Sharing Agreement with the Government.
And scrap the asset sales that are looking more unnecessary with every passing day.
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Table Talk – The Year ahead – Tuesday 9th 7.30pm
The year begins – join Lisa Owen & panel at our first 2016 Table Talk on Tues 9 February.
With the state of the nation speeches, Waitangi Day, the TPPA gatherings (inside and outside the signing) behind us & the opening of Parliament on the day, & local elections & much more ahead, Lisa Owen of TV3’s The Nation will host commentator and PR man Matthew Hooton, Metro Editor-at-large Simon Wilson, and AUT senior lecturer Ella Henry in a discussion on the year ahead.
Book now to eat and meet up at our first talk event of the year. The panel discussion will start at 7.30 pm – so you’ll need to arrive by 7.15. Great food will be served throughout the evening and the kitchen and bar will be open from 5.30 pm.
The discussion will be live streamed on TDB at 7.30pm
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YOUNG ACTORS SUPPORT THE WOMEN’S REFUGE WITH THE VAGINA MONOLOGUES
Shape Shift Collective presents
THE VAGINA MONOLOGUES
Written by Eve Ensler
Emerging theatre company ’Shape Shift Collective’ join the global V-Day Movement to end violence against women and girls for their four day season of the Vagina Monologues at Te Pou Theatre from February 11-14. ALL ticket sales and donations will be donated to the Auckland Women’s Refuge.
A wonderfully dynamic, feisty team of talented emerging artists come together to for this hilarious, heart-fueled succession of quick monologues and choral scenes that explore themes of identity, belonging, and the female experience. Penned by Eve Ensler in 1996 this multi award -winning play has been performed by many high profiles actors drawn to the script which honours the vagina.
Conceived to join with 2016’s V-day celebrations, this production actively supports anti-violence towards women. V-Day was launched in 1998 and is a catalyst that promotes creative events to increase awareness, raise money, and revitalize the spirit of existing anti-violence organizations. This initiative has so far raised over $100 million USD for groups worldwide.
Shape Shift Collective have been granted the rights to perform this season by donating all tickets sales to their beneficiary of choice -The Auckland Women’s Refuge. ‘We chose The Auckland Women’s Refuge because they are an organisation that has heart and will do anything to support the women and families that walk into their open arms. We want to give more to this wonderful group of people to continue helping women and their children and to also raise awareness about the Auckland Women’s Refuge so we can continue to give them our community support and Aroha’ says Lisa Swinbanks from Shape Shift Collective.
The company is also holding a Fundraising Gala with live music, face painting, stalls, bake sale, silent art auction, sausage sizzle and more, from 4:30pm – 6:30pm prior to the final show on February 14th to celebrate V-Day. Locals are encouraged to come on down even if they are not seeing the show that night. It will be a relaxed community event, and a lot of fun.
A must-see whatever your gender! Prepare to laugh, cry, and get curious about your own anatomy!
THE VAGINA MONOLOGUES PLAYS
Te Pou Theatre, 44A Portage Rd, New Lynn, Auckland.
Feb 11-14 at 7pm
Book at: https://www.iticket.co.nz/events/2016/feb/the-vagina-monologues
Or, if you are unable to come to the show, but still wish to support us, please donate to our ‘Give a Little’ Campaign: https://www.givealittle.co.nz/cause/thevaginamonologues
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TheDailyBlog.nz Top 5 News Headlines Friday 5th February 2016
5:
U.N. Reportedly Finds Julian Assange Has Been “Arbitrarily Detained”
The BBC is reporting a United Nations panel has ruled in favor of WikiLeaks founder Julian Assange, who says he has been “arbitrarily detained” for the past three-and-a-half years because he cannot leave the Ecuadorean Embassy in London without being arrested by British authorities. Assange sought asylum in the embassy to avoid extradition to Sweden. Earlier this morning, Assange had said he will accept arrest by British police if the U.N. ruled against him.
Democracy Now!
4:
Russian bombs triggering mass Aleppo exodus, Syria conference told
Increasingly intensive Russian airstrikes are pushing tens of thousands of Syrians from Aleppo towards the Turkish border, the Turkish prime minister, Ahmet Davutoğlu has told a Syria fundraising conference.
The Turkish prime minister said he had been sent news of the mass exodus as he arrived in London for the conference, which aims to raise billions of dollars in aid for refugees in Syria and bordering countries.
The Guardian
3:
VICE News Reveals the Terrorism Blacklist Secretly Wielding Power Over the Lives of Millions
An American Muslim civil rights leader praised by George W. Bush, an economist honored by the British Queen, and a prominent anti-extremism campaigner have all been secretly given a “terrorism” designation on a confidential database that banks use as a reference tool for blacklisting customers, a VICE News investigation can reveal.
The highly influential World-Check database has also listed major charities, activists, and mainstream religious institutions under its category of “terrorism”. Dozens of terror profiles in the database owned by Thomson Reuters seen by VICE News include:
Council on American-Islamic Relations (CAIR) Executive Director, Nihad Awad, one of a select group of American Muslim leaders invited to join former US President George W. Bush in a press conference condemning the 9/11 attacks. CAIR, the recipient of multiple leadership awards, is also terror-listed by World-Check.
Liberal Democrat politician Maajid Nawaz, who founded counter-extremism think tank Quilliam and has advised successive British prime ministers.
Former World Bank and Bank of England advisor Mohamed Iqbal Asaria, who was given a Commander of the Order of the British Empire (CBE) award in the 2005 Queen’s Honours List for services to international development.
Vice News
2:
Global oil glut leaves Kazakhstan reeling
Almaty – The impact of the falling oil prices is being felt globally. The price of US crude fell below $27 a barrel last month amid a global glut in oil supplies that seems to be getting worse.
That is the lowest price since May 2003 and a far cry from the $100 a barrel it fetched in the summer of 2014.
Kazakhstan is Central Asia’s richest nation and its economy is dependent heavily on oil. After Russia, it is the largest oil producer among fomer Soviet states.
The situation in Kazakhstan is no better than it is in other oil-producing countries. In the city of Almaty, many people are struggling to make ends meet.
Aljazeera
1:
An Idiot’s Guide to Prosecuting Corporate Fraud
Say you’re the newly elected president of the United States, and you want to make prosecuting corporate crime a top priority.
Where do you start? Here would be good.
A new group called Bank Whistleblowers United have just pushed out a comprehensive plan they think would put the executive branch back in the business of enthusiastically identifying, indicting, and convicting financial fraudsters — restoring accountability while protecting the public.
The cumulative credibility of the group’s four founders is extremely strong. Richard Bowen is the Citigroup whistleblower who unsuccessfully warned top management about the rotten condition of loans inside mortgage-backed securities. Michael Winston spoke out about similarly corrupt practices at non-bank mortgage originator Countrywide. Gary Aguirre, a Securities and Exchange Commission attorney, was fired for refusing to let a Wall Street banker out of an insider trading investigation.
And their ringleader is William Black, an outspoken fraud-fighter and longtime white-collar criminologist who was a two-fisted bank regulator during the savings and loan crisis and now teaches at the University of Missouri–Kansas City (UMKC).
“The common theme,” Black said with characteristic bluntness, “is the unbelievably pathetic job of the Department of Justice and the FBI.”
One of the first steps the group proposes – echoing the recommendations Senator Elizabeth Warren made last week – involves appointing aggressive leadership at federal agencies with no conflicts of interest with the entities they regulate, and hiring enough staff trained in criminology and financial fraud to attack the problem.
“You don’t have to reinvent the wheel,” said Black. “The Justice Department forgot there was a wheel.”
The template for the plan is the saving and loan crisis of the late 1980s, when just one federal agency, the now-defunct Office of Thrift Supervision (OTS) issued over 30,000 criminal referrals and over 1,000 major bank executives went to prison.
By comparison, in the 2008 financial crisis, OTS and their bank regulator counterparts made zero outside criminal referrals on financial crimes. And more recently, the rate of corporate prosecutions has been pathetic.
The whistleblowers would restore a job position from that earlier era: Criminal referral coordinators at every federal agency to meet with their counterparts in law enforcement to press for prosecutions and continually improve the process. They would also issue monthly referral reports to make the process more transparent. George W. Bush eliminated criminal referral coordinators in his first term.
The Intercept
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The Daily Blog Open Mic – Friday 5th February 2016
Announce protest actions, general chit chat or give your opinion on issues we haven’t covered for the day.
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TPP pact signed amid huge protests – Asia Pacific Report
David Robie also blogs at Cafe Pacific
The new website Asia Pacific Report – just one week old – provided extensive coverage of the democracy protest in Auckland.
Asia Pacific, published by AUT’s Pacific Media Centre, has a range of stories, pictures, video and comment.
Look for Del Abcede’s stunning pictures and other content here: asiapacificreport.nz
TPP signing sparks dozens of protests across US
Jane Kelsey: All pain, no gain – why not a TPP-free zone?
Controversial TPP signed amid huge Auckland protests
PM Key needs to answer for his actions, says Harawira
Maori lead massive democracy protest in NZ + video, photos
Protesters peacefully blockade central Auckland as ministers sign TPP
Judges oppose ‘investment courts’ for trade pact
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BREAKING : After massive show of Force – John Key too frightened to go to Waitangi Day
The Government have just been terrified.
25 000 people protesting in Auckland alone, shutting down the Harbour Bridge and major motorways for hours so that Auckland City was jammed solid…
…and what’s Key’s reaction? He’s done ANOTHER U-turn and has now decided not to go to Waitangi Day. Key, the Police and the Government did not expect the huge numbers today, they were hoping on a few hundred and were hoping to manufacture a violent reaction.
Police were initially going to stop the protestors at Federal street, but when the few hundred turned into 1500, they backed down and formed lines outside SkyCity entrance. Once they were taken care of, small groups of 300 set out to shut down intersections and the 25 000 who marched in the main protest sent a short sharp message to Key that NZers are utterly against the TPPA in numbers where he can’t pretend they don’t exist.
Police came looking for a fight with a small group of protestors and ended backing right off when they saw how many there were. They underestimated protestor numbers, protestor tactics and multiple protest groups.
Here’s your tax dollars being spent to protect a bloody Casino…
John Key claims the protesters were just a ‘rent-a-mob’ – looks a tad bigger than that John…
This is what Democracy looks like!
The huge turn out has spooked the Prime Minister from attending Waitangi Day. To try and rob NZers of our sovereignty 2 days before Waitangi and then refusing to turn up because you’re too frightened by the reaction is gutless and cowardly.
No violence, just well targeted attack on the infrastructure. Police didn’t see it coming, and were over whelmed. Congratulations to Jane for her tireless leadership, all the usual leaders and planners and the new leadership team who ran the blockade.
Brilliant work by everyone – we will show this Government that NZers will not just allow their sovereignty to slip quietly into the night. This signing was just one part of the next wave of protests.
Here is the step by step legislative process the Government need to undertake now Key has signed the TPPA…
Text and National Interest Analysis are tabled in Parliament
Text and National Interest Analysis are referred to Foreign Affairs Defence and Trade Committee
Executive can ratify TPPA after the select committee reports or 15 sitting days elapse, whichever is earlier.
If legislative change is required to comply with TPPA the Executive will not normally ratify until the legislation is passed
Select committee can elect to hear submissions on TPPA
Select committee reports to Parliament
Parliament may decide to debate the select committee report
Parliament may decide to vote on the TPPA
Executive must report its response to any select committee recommendations within 90 days
Any legislative changes required to bring NZ into compliance with TPPA are introduced in a Bill
The Bill follows standard parliamentary process, normally including submissions
Executive ratifies the Agreement at a time of its choosing, normally after the Bill is passed
NZ notifies the TPPA repository (NZ) that its domestic processes are complete
TPPA comes into force when required number of parties notify completion of domestic processes”
Comrades, brothers and sisters, we can fight this abomination every step of the way, and with 25 000 turning up in Auckland alone, we have the numbers to fight this and slow it down.
PS – Cameron – you predicted that I would be arrested for organising the protests today. I wasn’t, and you were wrong. But if we are making legal predictions about each other champ, I predict you have some terrible legal problems looming very soon. Let’s see whose prediction wins shall we?
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Rail and maritime workers’ condemn TPPA signing
The Trans-Pacific Partnership Agreement (TPPA) puts the rights and wellbeing of working people at risk, says Rail and Maritime Transport Union (RMTU) General Secretary Wayne Butson.
“The TPPA will make it harder to protect local jobs and lift wages.”
“Under the TPPA it’s going to become harder and harder for government to govern in the national interest. Clauses the ‘performance requirements’ in the TPPA could prevent the government from favouring local workers over foreign contractors,” says Butson.
“This will put working people at places like KiwiRail – a company that already makes significant use of overseas contractors – at a disadvantage.”
“Companies that believe our government is favouring local workers over the interests of foreign companies can also take the government a secretive overseas tribunal with the power to impose massive sanctions.”
‘We condemn this government for signing away New Zealand’s future,” says Butson.
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The Daily Blog Open Mic – Thursday 4th February 2016
Announce protest actions, general chit chat or give your opinion on issues we haven’t covered for the day.
Moderation rules are more lenient for this section, but try and play nicely.
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