Matt Nolan

Housing shortage

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Following on from this mornings post on house prices, I thought I should touch on an article in the press today, about an upcoming housing shortage.

I’ll be honest here, terms like “housing shortage” and “over-supply” annoy me a bit – as what people are trying to say is that there are too many (or too few) houses to support the current price in equilibrium.

Now, at the moment “too few” houses are being built given what people perceive the equilibrium price to be. This price depends on the population inflow, and average number of people per dwelling, and the opportunity cost of the land.

I agree with this statement – house building has fallen way below sustainable rates. Read more

Will Taylor

Deposit Insurance Crackdown

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However much I was looking forward to launching my own incredibly risky finance company, I’m glad that the RBNZ and Treasury have tidied up what was a terrible decision by the government to extend deposit protection to finance companies at no charge.

Details here (ht: Migeul Sanchez). News coverage here

I particularly like the quote in the stuff article from an anonymous commentator

“The two-year deposit guarantee announced by the Government on Sunday was a “free lunch for [finance company] gluttons”

While I prefer the term economic opportunist to glutton:) I thin it sums up the situation before the rule change quite nicely.

Now that I think about it, 3% off the 30% return I’m promising may not actually be that bad given how risky our investments will be, we just need to work out how to get a BBB- credit rating….

Agnitio

Matt Nolan

Housing price free-fall on the cards?

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In the US, one of the main reasons given for the housing bubble was a result of an “over-supply of housing“.

In New Zealand we did not build that oversupply of housing even though population rose quickly pushing prices up.  This was because it was very difficult to get consents and we had a substantial shortage of builders 🙂

This is why we are unlikely to see a free fall in house prices like the one seen in the US.  Our bubble was only in the expectation of house prices – it did not feed into excessive construction and so when the price corrects it will be less harsh.

Discuss 🙂

Matt Nolan

“More” local investment may lead to less

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The National party has announced that it wants more of the Cullen fund to flow into domestic investment projects.

Now it may seem to make sense to “increase investment” at home – but we have to think about what this capital is doing when it moves around.

If capital at home made the highest return, then we wouldn’t need to legislate a 40% investment – as the Cullen Fund would put all its dosh there anyway. As a result, by “forcing” the fund to keep 40% onshore, we are reducing the return on our investment plain and simple.

Someone might say that “we are making job, and we’re making money” but they would be practically illiterate – just like the buy NZ made campaign. “Employment” and “domestic production” are not a positive externality. If we are investing money overseas and getting more goods back in return, then we are effectively getting “something” for “nothing” – what is wrong with that.

Investing our capital overseas does not throw it down a black hole, and if the return overseas is greater, it is the best way to reduce our current account deficit, or increase our wealth, whatever random macroeconomic aggregate our government is targeting.

Update: Kiwiblog discusses here.

Matt Nolan

Fruit, viruses, and prices

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In the food price index numbers there has been a big deal made about recent increases in the fruit and vegetable category.

The common explanation is that an especially cold winter reduced supply, which has feed into higher prices now.

This explanation seems believable, especially given that a shock during the season does not just influence the supply of product instantaneously, but should influence it further later on. However, it also didn’t weigh up with my observations that:

  1. People around me have been eating a lot more fruit,
  2. The supply of fruit at the supermarket has actually appeared relatively strong.

This is not consistent with the “supply” story we have been told. Although my observations are probably wrong (insofar as they do not match with what has actually happened), I feel that I can paint a story around them. Lets go:

Read more

Matt Nolan

Comic: NZ deposit insurance for finance companies

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Mike Moreu is on the money again! The link is here.

Why is there no haircut for the insurance? Why are the fees not linked in inherent risk?

I agree that in some countries governments need to “recapitalise” banks by buying parts of them. I agree that a deposit insurance scheme can avoid bank runs (and can do so in a way the private sector may struggle with because asymmetric information leads to “too little” insurance). However, effectively charging the safe institutions more for insurance (which is what is happening to the banks) is RIDICULOUS – and will lead to too much risk being taken on in the future, at the taxpayers expense.