LVR restrictions: exempting new construction

The RBNZ today exempted new home builds from high loan to value restrictions.

The reason for putting the policy in place is financial stability. That is to reduce the accumulation of high-risk debt in the banking system. By this test, and this should be the reasonable test, this is bad policy.

By this exemption the RBNZ is saying that it is less risky to borrow to build a new house than to buy an existing house. I disagree that new house prices move less than existing house prices. So, the RBNZ is now exercising a policy of exclusion – against those high LVR borrowers who want to buy existing homes.

The justification that we need to build more houses, surely is retorted with, is this the right policy to address that problem? It also raises the question of why was this not a consideration before the LVR policy was implemented? What did the RBNZ actually know about how high LVR loans were being used, by whom and where?

By increasing highly leveraged credit flow to new builds will not solve issues to slow land release and planning restrictions.

By seemingly bending to industry and political pressure, the RBNZ has tarnished its shield of independence. I am fearful of ongoing lobbying and political interference it invites heading into the 2014 election.

Regional unemployment

The 2013 Census data is a treasure trove. A striking regional picture is the unemployment rate by territorial authority.

Urate by TA Read more

Politicians vs policy analysts

Jonathan Portes has an interesting post on the Department of Work and Pensions’ analysis of Mandatory Work Activity. Jonathan does a great job summarising the research and it’s fantastic to see good evaluation coming out of the Department. The political headline of the post is less positive: “DWP analysis shows mandatory work activity is largely ineffective. Government is therefore extending it…”. The implication is that, whatever the evaluation shows, the Government is committed to the policy.

Iain Duncan Smith’s welfare reforms have not been universally welcomed.


That sad state of affairs is not unusual: many studies have been unable to link bureaucrats’ cost-benefit analyses with any change in regulatory efficiency. Read more

Autumn Statement 2013

The Chancellor gave his mid-year summary of the UK’s position to the House yesterday. He said

Mr Speaker,

Britain’s economic plan is working.

For those of you unfamiliar with the UK economy, here are some headline charts:

UK macroeconomic situation
1UK_rGDP 2UK_rGDP_growth
4UK_unemployment 16Real_wages

Read more

QOTD: Delong on targets and the ‘great stagnation’

Golden passage from Brad Delong.  For once I’m going to put up a quote and not add my thoughts – as they’d just get in the way:

The focus on real GDP growth and its possible–or likely–slowing is a setup to panic us into making policy decisions we really do not want to make. The “great stagnation” literature as it is currently constituted seems to me at least to guide our attention in the wrong direction–and to quite possibly stampede us into making policy decisions we really would not want to make if we thought more deeply and calmly. The chain of logic is that measures to reduce inequality have a cost in terms of reducing the growth rate of the economy–that the bucket of redistribution is, in the terms of Arthur Okun’s Equality and Efficiency: The Big Tradeoff, a leaky bucket–and that when growth is slower we can no longer afford to engage in redistribution. This seems to me to be the wrong way to conceptualize it: the evidence that the bucket is leaky is weak–or, rather, there are many buckets, some very leaky, some not leaky at all, some anti-leaky–and in any event whether we should tradeoff potential growth for other objectives is not something the depends on how fast growth is. Policies that make sense if underlying GDP per worker growth is 3% probably still make sense if underlying GDP per worker growth is 1%. Policies that don’t make sense if underlying GDP per worker growth is 1% probably still don’t make sense if underlying GDP per worker growth is 3%.

But my aim here is simply to lay down a marker as far as point is concerned: to enjoin you not to get stampeded into going someplace you really do not want to go.

 

Comparing recessions: Unemployment in New Zealand

Keeping in mind Shamubeel’s point that we need to be careful looking at aggregates, I thought it would be nice to update the graph from this post back in early-2009 – when people were talking about 11% unemployment (Note:  I have moved both series across a year).

 

Cheers Statistics NZ.

This supports the type of story we have seen from the employment rate data, and our suggestion here that the 87-92 period was incredibly ugly for NZ.  As a result, even though in GDP terms the current slowdown looks like one of the worst NZ has experienced (though not so much in RGNDI terms – given the lift in NZ’s terms of trade) overall employment and unemployment outcomes have thankfully been nowhere near as bad as in the early 1990s.  I’m looking forward to all the analysis that will appear sifting through the data and working out why this is the case 😉