Just noting it is 3/8ths of the growth. This is not the same thing as 3/8ths of the houses. If a house has never been sold in the period it is impossible for it to be part of the growth, if a house has been sold 15 times in 15 years, that one house will have contributed strongly to the growth in prices. 3/8ths of houses would be the upper limit if all houses had been sold once, and gains were distributed evenly among them.
Since you mention Australia, I'm going to say I am really frustrated by Australia housing data. The only major time series for housing value seems to be the major cities one, which means comparing national household debt to partial housing value without knowing what is going on outside the major cities. That creates too large an unknown for me to be comfortable with- this is why I just don't talk about Australia.
Jim, you may need to talk me through how it applies in this particular case in more detail. From my perspective we've got two data sources:
Household Debt- The Total amount of money borrowed by people from banks. So money that has been loaned to people and used by them in some fashion, almost entirely for buying houses.
Housing Value- A Total figure of the value of all houses generated from the money changing hands where a house is sold.
And a traditional model of house purchase- that most people, when they buy a house, loan some money from a bank.
The ultimate creation point of the money in question doesn't seem to enter into it in this particular analysis, which is looking at the breakdown of the relationship between NZ mortgages and house purchases and failing to find the source of the added money from other areas of the New Zealand economy,
Steve, who are they selling the houses too when they trade down to the country? That is where the debt comes from.
Jim, even if banks are in a quasi creation process, doesn't the money still enter the economy through loaning it out? There is no evidence of banks buying houses directly.
p.s. welcome to R. Though I tend to be more involved in courses on Coursera than EdX (I happen to find the Coursera discussion forums suit me better) there is a vast potential for people to learn things of interest out there.
As far as I know the only LVR limits were in October 2014, which you can eyeball on figures 2 through 4. It might have stopped debt climbing a bit higher (the amount we cannot know because history only happens once) but looking at the graphs I am inclined to say it did not have much effect on the debt /value ratio.
Makes me think, David, that you might want to send your analysis and workings to RBNZ as an OIA request for a ‘please explain’ this magic money. It’s all their data after all.
They don't need to explain it. If they are confident their data is correct (and they are) then buying houses without NZ debt is a perfectly reasonable explanation.
They only need to be worried that banks are reporting their activities correctly (which they are confident of), that they are assessing risks in the economy to the banking sector correctly (which they are confident of), and that they are making banks take adequate precautions based on those risks (which they are confident of).
Houses being bought with NZ debt is expressly not in any definition a Reserve Bank problem with banking security, because it is not involving NZ banks.
What alarms the Reserve Bank is if NZ mortgage debt goes up. And that has not happened to a huge degree- yes it is somewhere around 4th worst in the developed world, but had it gone up to match housing increases it would be worst in the world by a long way and that would be a concern.
(I did run this by someone at the reserve Bank a few years ago in a informal "any comment" kind of way).
Now, a lot of people misinterpret the role of the Reserve Bank vs something the government should actually be doing. About the only criticism of the Reserve Bank is that I don't think you can fully count housing as a household asset in modelling, as we actually have no information on how many NZ households own NZ houses. But I don't specifically know the modelling formula they use, so don't know how conservative they are about it.
What bemuses me is that people seem weirdly resistant to that idea.
I would rate this an very receptive audience on this blog, not necessarily in full agreement (which is fine) but most people are willing to talk through the data (which I would call the true goal) rather than because of "appeal to authority" grounds. The medium (post plus comments naturally playing themselves out) may contribute to that as well as the audience.
true, for permanently I would have been better saying something like "for as long as you are measuring"
to some extent the fundamental difference between an internal market "tulip" boom and an external wave of capital is that in an internal boom someone inside the economy has to front up with the money at some point.