What is the impact of raising OCR on you as home owner, first home buyer or renter? Raising OCR, raising Interest and housing costs – what can you do about it?
Good or bad Time for Housing?
Controlling the Housing Market by OCR
Apart from market values (market prices) the interest rates are the main driver for buying or selling and influencing the housing costs in either way. Housing is a social commodity and everybody needs housing at some stage. That is why using OCR to control the housing market is not to the benefit of renters and homeowners alike for two reasons:
· Interest rates control economic growth, jobs and consumption
· Interest rates impact the entire nation, but the housing market differs regionally significant
Raising the OCR is to slow down NZ’s economy. Well, with increasing interest rates in 2013 I thought, everything that is not Auckland and Christchurch has been already slow enough—how slow should it be? And right those interest rates have dropped slightly again in 2014 when I re-fixed one of my home loans. That kept me thinking.
Auckland & Christchurch—And the rest of the country?
When looking at NZ’s infrastructure everything is focused on two cities. That is where people want to live because of jobs, lifestyle and are willing to pay for it. But why would you punish regions with raising interest rates, where exporters already struggle due to high valued NZ Dollar?
NZ’s two-speed economy such as Auckland and Canterbury with centre Christchurch versus the remaining rest is obvious, when comparing smaller cities with a lack of jobs and property prices still below the property peak of 2007. With this in mind it is unlikely for me that the Reserve Bank is able to fight those different problems with higher interest rates as that would hit areas and families that suffer already.
Will the raising OCR impact your life?
So because of the illustration above, yes — the raising OCR would impact your life. With so many conflicting media reports, people need to understand two fundamental things;
 There is not such thing – one property market — even in larger cities like Auckland, there are different areas which maintain their own specific market and different cities have their own property cycle (often called property clock).
 Market values (result of the property cycle) and housing costs are not directly connected. You can see that for instance when house prices go up or down steeply but rents not necessarily.
Prices are driven be supply and demand, housing costs more or less by levies, expenses for finance and inflation. When finance becomes more expensive, business costs increase alike and services become dearer.
An that is why the impact on everyone differs. Also opposite to home loans, people with money invested in term deposits will earn more interest on their money with raising OCR.
Why not pushing productivity for higher income?
Historical, there have always been either problems with the dated housing stock (cold, damp), quality (leaking homes) and affordability (over valued). NZ’s homes are priced because of poor supply and high demand.
Local councils provided the frame work for cheaply built housing and charge high levies for services around residential housing. But politicians desperately try to find “somebody” who is willing to pay for upgrading the dated housing stock without offering incentives. If you look at the current discussions around “WOF for rental housing” one target group has been already found. But what is with the majority of owner-occupied homes?
And who knows why not pushing more infrastructure projects into the rest of NZ to grow businesses, jobs and higher income? More income would Kiwi families give the choice wanting to rent or buy a home.
Infrastructure and renting culture
The link between home ownership and interest rates is obvious. But what is the impact on the housing culture? Renting in NZ is rated as second choice because of the housing politics. Two problems are obvious; substandard of rental housing and the legal framework around renting that offers too little protection for renters and landlords alike. And rent-wise any local council fees are billed to landlord’s account to be passed on to tenants accelerating housing costs.
Have you ever wondered why people move to Auckland and are willing to pay accelerating prices? Infrastructure supports businesses and people are finding jobs. Politicians sell Auckland as fast-growing business city with a young, diverse and highly educated population. Where is the diversity to manage the rest of the country?
“Rent or Own” - whatever your decision is, housing politics won’t make it easier for you in future. Politicians want to get your vote and your money as tax payer.
Help yourself by avoiding sweet deals “buy now, pay later” and hire purchase. Grow your potential, invest in yourself. Follow good paid jobs and settle after you can afford a mortgage. Many Kiwis lose over 500k in paying interests over the lifetime of their mortgage. That is much more they can expect as capital gain. Monitor the OCR and use your income wisely. Good luck.
Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.
His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of life—how to avoid pitfalls in unfamiliar territory when investing or forming relationships.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
Come along and share your views—learning from each other gives confidence