Key on Negative Equity
Interesting comment here by John Key in explaining why Labour's foreign ownership of land policy is a bad one:
"There's a balance to be had here when it comes to foreign ownership of land. If we completely ban it land prices will fall. Those farmers that have a lot of debt on their property will find that they owe the bank more than their property is worth and will be forced off the land and I don't think that's healthy."
So what Key is saying is that his policy is to avoid anything that does not keep land prices as high as they are even at the moment (forgetting the peaks of two years ago) to avoid negative equity situations. Same with residential housing as well we can assume because we wouldn't want the market to move up and down would we?
Little wonder New Zealanders keep buying more land. There is absolutely no risk attached to it when the leading politician comes out with intentions such as that. Where is Key's worry about negative equity when it comes to SME's? Silence.
And dare I say it, most property developers have all fallen over in the recession, leaving a vast shortage of people to take the risk in the future to build new properties to support a growing population and the construction industry. How does John Key feel about their situation? Surely if we can't let farmers get into negative equity, the same argument could be made of bailing out property developers? But I bet that doesn't happen anytime soon. They aren't as warm and fluffy and don't have their own Union.
And dare I say it, most property developers have all fallen over in the recession, leaving a vast shortage of people to take the risk in the future to build new properties to support a growing population and the construction industry. How does John Key feel about their situation? Surely if we can't let farmers get into negative equity, the same argument could be made of bailing out property developers? But I bet that doesn't happen anytime soon. They aren't as warm and fluffy and don't have their own Union.
posted by Cactus Kate at 8:45 PM
10 Comments:
It amazes me how concerned National has been about propping up bad investments this term. I am sure they normally wouldn't.
Since the Global Financial Cluster event i have found the Austrians illuminating. But it is simple behavourism: if you reward behaviour you will get more of it.
If house prices can "only go up" by legislative fiat, then it makes sense to build more houses and put your money in property.
This reminds me of late Muldoon... we can never, never get rid of supplementary minimum prices because...
Well, we can.
If the average family home is worth 7x average wage in our low wage economy that is 280 000 to 350 000. Dunedin and provincial NZ prices. Auckland is very, very overvalued, and it cannot last.
Maybe Key should only comment on Tourism because if he believes in the notion that propping up property prices is good for the economy - then we are all friggin' doomed.
Trading currencies obviously does not equip you to understand how the "real" world operates.To generate wealth you make and grow thing and sell them to the rest of the world.
Following his line of thinking - why not sell all the farming land to the highest offshore bidders and then we will all be rich and we lived happily ever after.
"So what Key is saying is that his policy is to avoid anything that does not keep land prices as high as they are even at the moment (forgetting the peaks of two years ago) to avoid negative equity situations."
Key didn't say or imply that. He said there had to be a balance. He said if we *completely* ban foreign ownership etc.
Phil's near total ban would have wider implications for foreign investment that we wouldn't like, but open slather for land isn't good either.. in short we need the balance Key is talking about.
If I were Key I'd slap a purchase price tax on land sales to foreigners, but get this.. the foreigner doesn't pay extra.. the tax comes off the sellers price. That way you don't discourage foreign ownership but you do make it less worthwhile for farmers to go that way.
Over time it should mean that farmers and their bankers put more value on the non taxed stock and improvements and less on the land.
JC
Farmers have positive equity, because there exist people worldwide who wish to purchase land in NZ at and above current prices. Idiots - there's one born every minute.
Property developers have negative equity, because there is no one in the world who wants to buy into the average NZ property development at current prices. Idiots exist, but even idiots have their limits.
CK - Agree completely. A lot of farmers seem to be little more than property speculators in Swannies whose business case seems to be based entirely on the belief that farm values will always increase. Their return on investment comes exclusively from the increase in land values.
A short sharp correction in land prices clearing out the speculators could actually be beneficial in the long run.
Why don't farmer lease land to foreigners?
Yes but I think banning land sales to foreigners is a stupid populist policy anyway, so National needs a stupid populist argument so that the (stupid) electorate doesn't get swept up in Labour's drivel.
Anyway, CK for dictator ok thanks.
JJ
In NZ you have nationalised socialist fiat money, a system of permissions and regulations covering every piece of land in the country, fractional reserve banking, as well as politicians, central planners, bureaucrats etc. who think they know better than everyone else what everything (all property included) is "worth" and how everyone else should live and behave.
The fix is in. These tudies will continue to manipulate, jerry-mander and warp the economy in an attempt to preserve the system and their position. Each distortion necessarily leads to others and each ends up demanding yet more interference. In the end, none bring wealth to the economy, although certain insiders indeed do very well indeed.
Interesting how despite a record of utter failure there are still those imbeciles calling for yet more government distortions- there is even one on this thread whining for yet another new tax on land sales (what a xenophobic racist piece of work he must be!).
Meanwhile Chris is correct. If you want to understand what is going on you need to read up on the Austrian School of economics- Von Mises, Reisman, Shostak, Polleit et al. Also take a look at what Peter Shiff is saying. Peter is the guy who exactly predicted the crash and the causal mechanism a decade ago...
Anyone remember Jim Rogers, the adventure capitalist? He's heavily into commodities and recommends investing in farming. Shock horror! Recently he told a TV business show host she should get out of TV and into farming. "Do something productive," he quipped. He predicts administrative, bureaucratic, rent-seeking "paper-pushing" activities will disappear as the economic system changes. It'll be produce or perish. "Become a farmer," he said.
LGM
Rob Carr said...
"It amazes me how concerned National has been about propping up bad investments this term. I am sure they normally wouldn't."
On what do you base this bizarre pronouncement that "they normally wouldn't"?
Have you not experienced a National government before? Because this is pretty much business as usual for them. They talk a lot of free market rhetoric in opposition but they never put it into practice in government.
Post a Comment
Links to this post:
Create a Link
<< Home