Don’t wait for others to help, act now says economist
YOUNG PEOPLE looking to buy their first home should rely on their own resourcefulness rather than waiting for the outcomes of the Tax Working Group to improve housing affordability.
That’s the advice of BNZ chief economist Tony Alexander in his Weekly Overview newsletter.
He warns such improvement is based on the false idea that making people pay tax on their property investments will generate such a wave of selling that prices will correct greatly.
“The introduction of a capital gains tax will not produce the big selling and pullback of fresh investors from the housing market that some people are expecting.”
Instead, he recommends first-home buyers consider other solutions within their reach. “Were I a young person starting afresh now I’d be in KiwiSaver because of the home purchasing advantages it will give me.
“I’d be cultivating people with spare funds for the help they could give. (This seems to be a glaring gap in our capital markets.) I’d be thinking about offering them or others an equity-sharing scheme.
“I’d look to work myself into employment offering flexible work hours and locations so I could reduce peak-time commuting issues.
“I’d look at locations near public transport, I’d look well away from the city centre, and I’d look for something very few other people might want to touch.
“I’d look for property either with something wrong with it or some characteristic which other people would turn their noses up at.
“And I’d approach the house hunt as an ongoing activity, going for a regular walk rather than a time-focussed tramp, one for which I would always be prepared to alter my goals and aim for a different lamppost further down the road.”
Alexander says young buyers also should keep an eye on what’s happening across the Tasman.
“My experience is that when lending conditions change in Australia, a tendril of those changes feeds through to New Zealand with a lag …
“Lending conditions are tightening over there and some version of this tightening will surely land on our shores as well.”
Alexander believes borrowers should fix their mortgage interest rates for three years given the Reserve Bank doesn’t expect to raise the Official Cash Rate of 1.75 per cent until late-2020.
“There seems to be a clear bias toward cutting interest rates if anything negative comes along,” he says.
“But then again, they are probably waiting until inflation actually physically threatens the three per cent upper limit of the target range.
“Having twice got it wrong tightening monetary policy and having to quickly reverse rate rises since 2010, they can surely be forgiven for wanting to poke the whites of the eyes of inflation before moving for a third time.”