By Frank Newman on 18th February 2018
Last week the Reserve Bank left the official cash rate (OCR) unchanged at 1.75 per cent. That was not a surprise, but as is often the case, the commentary was a useful pointer of things to come.
Acting Governor Grant Spencer said he did not expect the OCR rate to change over the next 12 months or so but cautioned that the recent volatility in world sharemarkets may be a warning sign.
The warning sounds like an echo of 1987 when some 4 months before the October crash sharemarkets took a sudden dip, only to recover before collapsing again but more seriously and with devastating long-term consequences for the equity and property markets.
In my view, it’s time to be cautious. A prudent investor would be wise to reflect on the gains they have made to date, and the consequences should there be a collapse and loss of confidence in share prices and a stagnation or decline in property values. As part of that review an investor should assess their debt levels and what their cash flow would be like if interest rates were to return to their long-term “normal” rates. In the words of Mr Spencer, “If you’re borrowing you should be thinking about if you could afford that mortgage at 2 per cent interest rate higher than you’re paying up front”.
The rise would see an end to cheap money and debt financed spending, particularly on nice to have things like flash utes and company cars.
Social housing has been a hot political topic for some time now. Integrating so-called community housing into not-so-low cost residential development projects has been something of a social experiment.
Inevitably, it’s causing problems. A Housing New Zealand complex in a suburb in Christchurch has caused tension in the neighbourhood.
Neighbours are complaining about an increase in burglaries and disorderly behaviour. One is reported to have said, “The problem is that within six months, the behaviours associated with that complex have been outrageous and I’ve never experienced anything like it.” An elderly resident has put her home of 38 years on the market after being burgled twice.
According to a Housing NZ staff member, 14 complaints have been received in the six months since the new complex opened. “These complaints include claims of shouting, swearing, slamming doors and noise, a dog in the complex, drunkenness and alleged drug use in one of the flats and an assault on a tenant at the street front.”
The Police, Housing New Zealand and even the local MP have been called in to find a solution.
Putting disturbed and disorderly people into quiet communities is a stupid idea – one that only a political or social scientist could come up with. One does not need to have a doctorate in social sciences to know like attracts like. I think it’s fair to say that most people prefer to associate with those that are most like themselves, in terms of their “world-view”. That’s why suburbs tend to evolve as clusters of people with similar traits, education, income, habits and so on. Obviously putting a dysfunctional out-of-control family into a quiet “normal” community is going to cause disruption. It is horribly naive to think that it won’t cause upset and equally as naive to think the good standards of the community will somehow rub off on those causing the disruption.
Still on state housing, the country’s most valuable state house is a $3 million property in the swanky Auckland suburb of Remuera. The tenant has live there for 37 years and is now 81 years old. By all accounts the house is modest but the land is like gold.
Why are taxpayers paying for someone to live in a $3 million property? Very few taxpayers live in a $3 million house and land package so why should taxpayers pay for someone else to? Of course it’s madness. There should be a cap on the value of a state house, and that cap should be no greater than the value of an average home, and even that is generous.
The reality is the chap in the $3m property is consuming $3m of funding that could buy six average homes and house six families. If housing advocates and the new Housing Minister are really serious about housing the homeless, then that’s what they would be advocating, but perhaps they think it’s fair that in their egalitarian world taxpayers should subsidise someone else to live in a $3m state house.