The homeownership ideology

I am thankful we have not had the same extent of poor lending decisions for homeowners as the US has had. However, this article by Dean Baker highlights the ideological basis that propels many into unsound mortgages.

I particularly like this part:

Of course only an ideologue would view homeownership as an end in itself. One of
the reasons that millions of families face foreclosure and/or the loss of their
life savings is that the ideologues of homeownership continued to promote
homeownership even when it was clear that buying a home would be financially
detrimental.

I don't agree with Dean Baker all the time but on this point I'm 100% behind him:

In the interest of promoting better housing policy in the future it is important
to have a public acknowledgement of the follies of homeownership ideology. We
don't have a bottomless pit of money to satisfy their perverse ideology. If
homeownership does not make economic sense, then we should not tell people to
sacrifice healthcare and other essential needs to make the ideologues happy.
It's time to force some honesty into the discussion of housing policy - renting
sometimes make sense.

If a mortgagee sale house is empty, does a chicken coming back home to roost make a sound?

From the world of the occult

Given this little piece of exciting world news,

Lynchings in Congo as penis theft panic hits capital
Reuters Wednesday, 23 April 2008
Police in Congo have arrested 13 suspected sorcerers accused of
using black magic to steal or shrink men's penises after a wave of panic and
attempted lynchings triggered by the alleged witchcraft.

I can see a market for all those "Add inches!" spammers. Clearly the Congo will be awash with men concerned that their members have been minimised by magic.

DHBs II

I heard a good piece on National Radio on DHBs.

The key part of this item for me was the recognition by the DHBs themsleves that they needed to act more co-operatively. Somewhat ironically, the Minister of Health said that DHBs would be encouraged but that the model would not be changed.

I am glad that there is enough foresight and "can-do" attitude in the DHBs that allows them to improve the provision of health services off their own back. Now some will say that is eactly what the model intended but I am rather sceptical of that. The DHBs - as evidenced by HBDHB - were pretty much left to sink or swim on their own.

What of the future? The sharing of services and administration across DHBs ought to continue and be actively encouraged by MOH. An admission that the model was insufficient would be good but unlikely. Could there be a move back to an overarching single administration? I rather doubt that it would become reality within the next three years if for no other reason than the work required to set it up properly. But I hope that if it does come about, it will ot be because of someone in Wellington saying we need to change the model for the sake of change but rather because they see the benefits of where the DHBs themselves have led the system.

Your attitude sucks

I happened to be killing some time around Molesworth Street t’other day during the middle of the mad commuter rush home. A nice shiny new BMW SUV comes around the corner. The driver, whose appearances should not be used to prejudge him, was middle-aged, white, wearing a suit (well a jacket at least) and balding … and talking on his cellphone.

I was somewhat happier when I saw him pull into a parking space to carry on his phone conversation, although better that he had never started it while driving. As soon as he pulls over he grabs a plastic sleeve folder and starts rummaging through it, still talking on the phone. "Fair enough," I think "He obviously can’t talk on the phone, look for something in his folder and drive all at the same time." After all, he only has two hands.

Eventually Mr Unsub (I’ve always wanted to use that term) puts down the phone, rummages a bit more then puts the folder away as well. That’s when I notice he is not wearing a seatbelt either.

This guy embodies so much that is wrong with our driving culture:

• I do what I want to do – too bad about the risk to others.
• I do what I want to do – too bad if I put myself at risk

I actually have less of a problem with the second except that as a taxpayer, I will be picking up the tab when you crash your Remuera Tractor and end up with permanent brain damage.

No amount of legislation will change this type of attitude.

Guns and butter

Nudges is a great economicky type blog by Richard Thaler and Cass Sunstein. Recently they had a post about where (presumably US) income taxes get spent. I was gobsmacked when I read that over 40% goes to past and current military spending.

Are you feeling safer already?

WFF - a benefit or a tax cut?

The Standard has a post about the average cost of benefits. The comments have a discussion about whether WFF is a benefit or not. I was reminded of this particularly by an interesting post by Greg Mankiw. In it, he talks about a thought experiment about taxes and family size - namely a tax credit for couples with children.

But -- hang on a sec -- a bonus for those who have a child amounts to a penalty
for those who don't have one. (Saying that those with children should be taxed
less than the childless is another way of saying that the childless should be
taxed more than those with children.) So when poor parents receive a smaller
credit than rich ones, that is, in effect, the same as the childless poor paying
a smaller surcharge than the childless rich. To many, the first deal sounds
unfair and the second sounds fair -- but they're the very same tax scheme.

While I believe technically The Standard is correct - WFF is not a benefit - a targetted tax cut is qualitatively the same thing.

Risk aversion - betting the house

The latest volume of NZ Economics Papers Vol 41(2) Dec 2007 (the journal of the NZ Association of Economists) has an interesting article entitled "Safe as Houses: Investor Confidence in NZ" written by Faye Braithwaite and Simon Kemp.

Here's the abstract:

We investigated the psychology of risk in the context of residential property
investment. One hunderd and thirty seven participants completed a questionnaire
that measured thier sensation-seeking, general investment risk attitude, and
attitude and confidence about investing in a term deposit, unit trust shares, a
residential property syndicate and residential property. People with higher
sensation seeking scores found shares and unit trust more attractive tha low
sensation seekers, but all groups were most confident about investing in
residential property. Overall the results indicate that New Zealanders invest
overwhelmingly in real estate beacause they trust it more than other forms of
investment.

The discussion at the end of the article notes that : "Official attempts to warn people against a housing asset bubble have not so far been very effective. Indeed, they may have been particularly ineffective with precisely those peoplem who might expect to pay most attention - the risk averse."

Herein lies much of the problem with the housing market in New zealand. Although there are regulation on the condition of a house, the market itself is fairly unregulated and for that reason is going to be clearly affected by swings in supply and demand. Yet the above research suggests that many New Zealanders do not view the housing market as being inherently risky. Even if housing is less volatile than other financial markets, the sum of money involved means that the effect on houshold balance sheets is relatively huge.

While discussion of housing affordability is worthwhile, too many people do not recognise that the current state of affairs is a direct result of our collective paradoxical love affair with housing. The cause of housing unaffordability is not because of evil property investors or even hordes of well heeled migrants. [As an aside, the same volume of NZEP has an interesting article that shows migrant couples are generally less wealthy than NZ-born couples.] It is because we have become indoctrinated into believing that owning a home is a birthright and will attempt to buy a house as soon as possible.

When will Kiwis wake up to the need for prudent financial planning? It may not be representative but when you see TV programmes such as "Money Man" and the complete lack of ability willingness to think about one's future cash flow and risks, it is easy to believe that we are in fact in a deep coma. Somewhat ironically, I note the Money Man's repeated use of "enough money for a deposit on a house" to describe how much the subjects need to save only serves to reinforce this fixation.

This leads me on to another thought. Fortunately we do not have the same extent of jingle mail as there appears to be in the US. It is perhaps because of this yearning for housing that stops this. That said, I fail to understand why people who buy houses do not stop to think about how much leeway they have to absorb higher interest costs. Possibly there is some myopia going on with a belief that a fixed mortgage means that mortgage interest rates are fixed forever, when in reality it could well mean a big jump in mortgage payments once the fixed term ends - typically every 2-3 years. This is made all the worse for new home owners for whom initial mortage payments are almost entirely interest only - in 2-3 years time the actual principle will not have gone down much and thus the effect of a rate increase will be all the worse compared to homeowners who have paid off significant chunks of their mortgage already.

Charity - do you need an incentive?

Ok. I now have a little time up my sleeve.



The move to remove the cap on rebates for charitable donations is great. I'm still putting my own thoughts in order on this so forgive me if this sounds a bit a ramble.



There is at least one ideological reason for applauding this. For those who believe that government should be as small as possible, this provides an opportunity to put money that would have otherwise gone into the general tax purse into a cause they believe is worthwhile directly. I am not entirely of this view but am more than happy to put money into a charity and bypass government.

Now do taxpayers respond to these type of incentives? Will we see an upsurge of donations to charities after this law change? I believe the results will be mixed. Overall, the amount donated to charity is likely to increase but I rather doubt that there will be an immediate increase in the number of people donating. Those who are financially literate and (as a result) also have spare disposable income will avail themselves of the greater rebate. But the vast majority of taxpayers will likely shrug their shoulders and think (if at all) "Why give money to charity when I can spend it on myself?" That has been the way of the past and I see no reason that it would change right now.

There is an underlying problem here: the self versus the collective. I can hear the VRWC jumping up and down in indignation already. I have a foot in both camps: there is an obligation for us as human beings to care not just for those who are our "nearest and dearest" but also for those who live on the other side of the world, whom we may never see or hear of personally. On the other hand, the imposition of this by the collective is contrary to my belief in individual rights.

It may come down to a spiritual/philosophical distinction. As individuals we often ignore the plight of those less well off. Some become activists when they believe and injustice has occurred (and there is nothing wrong with that per se). Yet when people expend time/energy/resources into protests about Tibet or even things closer to home like the Electoral Finance Act, they ignore often more tractable problems. These problems are tractable in the sense that the there are obvious responses required but are usually so big that the individual feels swamped by them. The end result is that people will make token gestures and then say "Leave it to the government."

Part of the reason I like the change in the rebate is that it does send a signal - albeit one that is easy to ignore - that altruism (I rather detest that word but its hard to find an appropriate synonym) will be encouraged by the institution of government. We cannot force people to care for others - after all that is what free will is all about. But we can take baby steps toward creating a society where people naturally are concerned. That is the path to a truly enlightened society. Having some stuffed shirt telling us how to behave is all wrong. Not only does it remove the process by which we come to believe that this is the right thing to do on our own accord but it also sets up a system in which wrong decisions are accepted.

Our fate as a species depends not on what (even enlightened) politicians tell us is the right thing to do but on each and every one us understanding that concern for our fellow man is in fact in our own best interests.

A little something

The New York Times has an interesting article about bias here.

Try the gun/no gun test. Not exactly a comprehensive measure of bias but fun.

My results:

Game Over
Your Score: 500
Average reaction time:
Black Armed:649.72ms
Black Unarmed:688.8ms
White Armed:636.96ms
White Unarmed:673.52ms

So although I am slower to holster when I see an unarmed black guy, I'm much quicker to shoot the white fellas!

Heathrow's T5

I was going to post yesterday about how all the stuff ups at the new T5 in London's Heathrow Airport was actually down to a policy decision that to avoid the threat of terrorism in the air the powers that be would simply make it impossible to get off the ground. But then I thought it soounded too much unlike an April Fool's joke.

Post script: Maybe the Canadians could buy T5 - at least they won't have to worry about having to jump through hoops.

Coming soon

I intend to ramble on a bit about the change in the tax rebate for charitable donations at some point.

However, right now, I am rather snowed under with other things so will simply point to this and this. Oh and this.

I beleive this is one of the best things to come out of the Labour-led government. It may not be the sexiest or biggest vote winner but for a reason I will go into later when I have time, it takes a step toward improving our lot as a species.