Gee, I’m angry. I can’t tell you how angry I am. The OCR hit a 14-year high today, with banks advising that approximately 60% of fixed mortgages will be coming up for renewal in the next 9 months – many of those over the summer. Thankfully, I don’t have a mortgage myself but many people do. As a result of stupidity that borders on financial incompetence, the Government and the Reserve Bank have caused carnage for ordinary New Zealanders. For the moment, forget co-governance and Three (Five) Waters. Many middle-class families are going to be going broke before long.
This Government’s main ploy to try to save itself is to blame the former National Government – forgetting that they have been in power for five years. But I am not going to go back that far. House prices were rising under the last government for sure, but the real rises started in 2018. Much of this was because the promised Kiwibuild houses clearly were never going to be built, and those people waiting for an increase in supply felt that they had to get into the market or they would be locked out forever. Yes, some of it was fear of missing out, but some of it was desperation, needing to put a roof over their families’ heads.
As demand increases, obviously so do prices. House auctions were described as feeding frenzies, with prices going much higher than anyone ever expected. People were paying crazy prices just to have somewhere to live, but don’t worry – there were plenty of low fixed interest rates around. Banks welcomed people with open arms (although banks do stress test potential borrowers). A million-dollar mortgage at 2% is manageable; a similar mortgage at 7% could be $4,000 per month more. Nobody seemed to worry too much about that back then.
Once Covid hit, the true socialist streak in the present government began to rear its ugly head. Socialists love to spend like there is no tomorrow, but previously, this government had exercised some spending caution, afraid that they might be tarred as spendthrifts. Once there was a good excuse, all caution was thrown to the wind. All the surpluses were squandered in a matter of months – and then, unfortunately, a grateful nation of fools rewarded the Labour party with an overall Parliamentary majority.
Enter Adrian Orr, the worst Reserve Bank governor of all time. One might expect someone in his position to know a little bit about economics, but Orr simply got the printing presses out. Creating government bonds out of fresh air and printing the cash to meet them, he created the perfect scenario for asset inflation. House prices continued to climb. By that time, if a buyer hadn’t got into the housing market, they were going to be paying eye-watering prices.
And so it was, until the end of 2021. The pandemic was mostly over, supply chains were beginning to return to normal, and it was starting to look as if life in 2022 was going to be as it should be.
Just one pesky thing got in the way. Quantitative easing always causes inflation. Always. It is a basic economic principle. And although initially all the cheap money in the economy went into the housing sector, causing asset inflation, that was never going to be the end of it. Rampant inflation in other sectors was always going to follow. And so we have seen the price of just about everything increase markedly this year. But the worst effect is once again going to be felt in the housing market: not in house prices now, but in mortgage rates.
Did we really need to print so much money? Of course we didn’t. Even a small modicum of financial prudence from the government could have reduced this bill significantly, but socialists don’t do financial prudence. They never have. And while I never expected much from Grant Robertson, who has no real understanding of financial matters, I would expect the Reserve Bank governor to know precisely what was going to happen once he got the printing press out. Inflation was going to rise significantly and he would have to raise interest rates – significantly. He must have known that. So why did he do it?
Why did he put the financial well-being of so many ordinary New Zealanders in jeopardy when he knew that his actions were going to cause rampant inflation? This is not the course of action of a responsible Reserve Bank governor.
I heard Grant Robertson on the radio today. He acknowledged that this would make things tough for some people, but insisted that it would all be okay, as we only have 3.3% unemployment. The man is a buffoon. How many people can afford an extra $4,000 per month in interest on their mortgage? Remember, that is from tax-paid income, so the increase may be something like $5,000 per month in gross income. Some people will be facing increases like that this summer, as their cheap fixed rates have to be renegotiated. And this is on top of higher insurance bills, higher rates and higher costs everywhere else.
We are told that inflation is 7.3% and that wage increases are generally higher than inflation. That may be true, but it is only part of the picture. The inflation rate is an average of a ‘basket of goods’, and not all of those goods are increasing in price. The inflation calculation does not take interest rates into account. So for those with large mortgages – mainly those who have bought houses in the last 4 years – increasing interest rates are going to have a dire effect on the family income.
And all this is at the hands of an extremely incompetent government that many of them will have voted for.
The Labour Government can blame the war in Ukraine. They can blame supply chain issues. They can blame the previous government. They can point the finger around the world and observe that other countries are just as bad, or worse. The truth is that like it or not, this Government inherited a set of books that had been well-managed. They did what all socialists do – they spent everything, much of it wasted on projects that are either unnecessary (the two-tier health system and Three Waters) or will never go ahead (the Auckland bike bridge). They have no one to blame but themselves.
But where this leaves thousands of homeowners who soon will not be able to afford their mortgages remains to be seen. They have my sympathy.
