Brian Edwards Media

I’m gonna sit right down and get myself a mortgage…

gingerbread house

First you have to understand that I know nothing about economics. I am totally unqualified to discuss anything to do with finance. I leave that all to the brains in the organisation, one JC, to whom I have the good fortune to be married.

So you’re well within your rights, indeed you might even be well-advised, not to continue reading. Then again, you might adhere to the old precept that where ignorance is bliss ’tis folly to be wise and lend at least half an ear to what this Irish ignoramus has to say.

So  (It’s imperative these days to begin every sentence with “so”!) I hear that the Governor of the Reserve Bank has cut the Official Cash Rate by .25% to 2.25%. Borrowing money has just become cheaper. This is good news for people who want to borrow money, particularly people who want to buy a house but haven’t got remotely enough money to pay for the house. I”m happy for them of course. Debt has just become cheaper and more attractive. We won’t worry too much that this debt is going to take years, possibly decades to repay. Nor will we depress those happy borrowers with the reality, gained from personal experience, that that cheap mortgage will be an albatross round your neck for all those years or decades, and that the happiest day of your life will be the day you get rid of the bloody thing. No, let joy be unconfined, the doors to the property market have just been opened a little bit wider.

Now far be it from me to question the wisdom of such an eminent figure as the Governor of the Reserve Bank. But I thought there was something of a housing shortage these days, “a crisis” some alarmists have called it. And I was pretty sure that house prices, particularly in the metropolitan areas, and super-particularly in Auckland, had skyrocketed well beyond the reach of the average and indeed the above-average buyer. So how much sense is there in making borrowing money to buy a house easier when there’s a housing shortage and when house prices are at record highs?

“Buying”  is of course not strictly the right word. You haven’t “bought” a house when you take out a mortgage. You’ve bought a minority share in the house. Your bank owns the rest. And will do for years to come. And in those years to come… Well, who knows what might happen? To paraphrase an old saw: what goes down will inevitably go up again, and for reasons that are entirely beyond your or my control. So you might at least consider giving a second thought to putting your money on term deposit and renting.

You won’t of course. And for two reasons. The first is that the interest you’ll get on your term deposit is, in no small part thanks to various Governors of the Reserve Bank, bloody pathetic. And second, you’re a Kiwi and you’ve been raised in a property owning democracy where social legitimacy pretty well depends on owning a house and where renting is seen as somewhat, shall we say, déclassé. As my old friend Austin Mitchell so neatly put it: welcome to the “half-gallon quarter-acre pavlova paradise”.

Still, it could be worse. In a previous life Judy and I built a sleepout to house our joint progeny, or some of them. We borrowed the cash from our insurance company. A steal at 20% per annum.

You’ve never had it so good, mate! Or that’s what you think now.

12 Comments:

  1. The trouble is that we have inflated our way out of the consequences of debt for so long now nobody believes the music will ever stop playing.

    Being conservative by nature I have advised my family during each of the last three housing booms not to get carried away because its going to end in tears. And each time it hasn’t. And each time my credibility has shrunk further.

    One day i will be right, but like any good economist I will have predicted three of the one and only busts.

    • Old Tony, one of the benefits of growing old is learning the futility of trying to predict the future. Had I listened to the wisdom of my elders and betters during my teen years I would by now be living under a railway arch.

      I never give advice to my children first because they start rolling their eyes and secondly any advice I give is likely to be wrong. This has the advantage that whatever happens I can say, “I would have told you so if you were prepared to listen” which suitably infuriates the listener.

      • Interesting tactic. However, I’ll keep telling my children and grandchildren not to drive while intoxicated or stoned. The risk of them not listening is considerably less than the guilt I would feel if hadn’t issued this warning and they were injured or killed while driving in either state.

        • 1.1.1.1

          My children are of an age where if they need me to tell them not to drink and drive they would terminally stupid and I would feel that I had failed as a parent. When I talk of not giving advice I should have clarified my point to say that I RARELY offer unsolicited advice and certainly not where future events may render that advice wrong or irrelevant.

          I like to think that I have raised children who can think for themselves and do not need some old buffer to keep telling them what they should or should not be doing. As for grandchildren I would hope that my children will have learned enough to deal with their children without uninvited advice from their father.

    • I’d go along with that, Tony, though we were so convinced of a major crash in 2007, we sold up and have been waiting ever since, for the chance to buy our gin palace back for $300k less than we sold it. Still waiting. You can’t have houses forever going up at 12% year in, year out, whilst wages creep up at 2%, can you?

      • 1.2.1

        Supply vs demand. Auckland shortage will continue until RMA is fixed/scrapped and building regulations refocussed.

        Failing that, best you can hope for is a plateau or gentle decline. Sad to hear you were shafted by the likes of Hickey’s nonsense predictions in 2007. Sue the sod.

        • 1.2.1.1

          But you still want building regulations: there’s hope for you yet.

          • 1.2.1.1.1

            Building regulations should be limited to health and safety as they always were before lunacy took over.

  2. Far enough from the general election so as not to appear a bribe but close enough to be remembered.
    I know, the Reserve Bank is independent.
    Isn’t it?

  3. That certain current 47% of Kiwis just love that “show me the money” line.
    And hey! we have a PM who is a money expert.
    Isn’t he?

    So…………..where is that brighter future hiding again?

  4. There was a report not so long ago about a lady who was evicted because she swore in front of her landlord.

    If that is not an argument for taking out a mortgage than I have no idea what is.

    • Appalling, I agree, Millsy. But it seems to me that is really an argument for better tenants’ protection laws. Had she sworn AT her landlord that might have been different, though, even then, eviction would seem pretty draconian.