There are always some terrific ads at half time in the Super Bowl.  

Arguably the most prime time spot in American TV advertising, the cost of securing a timeslot is enormous. This year, a 30-second commercial for Super Bowl 54 in 2020 cost about $5.6 million. I don’t think you’ll ever see NZAB with an ad at the Super Bowl but who knows, we should dream big!

So, if you’re a company that’s up for that you’ve got to have a catchy ad. Some of the ads are comic genius, featuring some big-name actors along to boot.

Take one of this year’s ads from “Rocket Mortgages” – it was a cracker. The theme of “certain is better” was really simple and it resonated with us a lot.  

It starts with a couple about to bid on their first home before wondering out loud: “I’m pretty sure we can afford this?”.

Cue the entrance to a big-name comedian who then goes through various humorous analogies of the limitations of the statement “how can you be sure?”.  

You can see the whole clip here

I love cause and effect. Squeeze a balloon and it will pop out somewhere else. Squeeze it enough and it will pop.

Banking is a bit like that at the moment, but for once in a long time, Agri may be set to benefit.

As you all know there’s heaps of noise about the housing market going up, lots of investor frenzy and yet again the purchase of the ubiquitous family home seems to be getting further out of reach for more families.

Its political dynamite – a hugely populist issue and one that the current Government seems determined to solve.  

Why do they need to make changes and step this up a gear?  “It’s the capital, stupid”

The Government has chucked a few traditional things at it (LVR restrictions) and ruled out a few others (capital gains tax), but they aren’t really working. They haven’t in other countries either. That’s because it doesn’t actually address the underlying issue - How ridiculously easy capital is available from banks in the home loan sector. As we say in the office - “It’s the capital, stupid”.

Big picture for a moment, there was massive stimulus last year with the RBNZ supporting the availability of capital to both Government and the Banks by continually expanding its Large-Scale Asset Purchasing (LSAP) to over $100bn (effectively printing money).  

A fair chunk of this money has found its way into the banking sector and the banking sector’s regulations and corporate profitability models are highly stimulative toward home lending. This is simply because:

1. Its much easier to originate and serve a home loan (paint by numbers for credit departments and once set-in place, they don’t need much review) AND;
2. RBNZ capital regulations mean a home loan is over 100% more profitable (at the same margin) than one to Agri or Business.

But is all that set to change?

There’s some big sound bites coming from this Government at present. Take these from Grant Robertson:

“We want to tilt the balance towards first home buyers while also incentivising more investment into the construction of homes”

“We all know that building more houses, particularly affordable housing is critical, but we can also do more to manage demand, particularly from those who are speculating”.

“It is the time for bold action. The market has moved quickly and rapidly in a way that is not sustainable – we have to confront some tough decisions and we will do that”

Now some of that will be referring to the upcoming changes in the RMA. But make no mistake, he’s about to make it way tougher to invest into housing (if you’re an investor purchasing existing homes).

Bank’s are feeling it too. They’ve become a lot more sensitive to the social impacts of lending. They don’t want to be seen to be encouraging the property market (via increased capital availability) to take it out of reach of family homeowners.  

So here are some new ways that we could see the Government influencing this, aside from more LVR restrictions:

1. The Big Kahuna:

The RBNZ introduces (directed by Government) a second RBNZ amendment act – changing the mandate of the bank to include housing affordability alongside monetary policy and full sustainable employment.

To actually implement that, the RBNZ would then immediately increase the RWA (Risk Weighted Assets) requirements for banks’ lending to investor rental properties. In short, it requires the banks to hold more capital against these loans making them less profitable.

Cue much higher interest rates for these loans as banks find them less profitable.

2. Make interest payments on housing investments non-tax deductible (excluding new builds).

I can hear the cries of “this makes no economic sense” straight away but the Government won’t care.   And they did it in the UK in 2017 to stifle property investment.    

This would immediately make housing less attractive.

Incidentally, it’s not as bad as it sounds (net impact might by about 1-2% reduction in cash yield), but this will put the frighteners up the investor market.   I would still expect new builds to be exempt from this.

And why is this good for Agri?

Well, the amount of capital in the banking system is not reducing.  

Think of that balloon again – you squeeze one area, its going to pop out somewhere else.   Make some parts of the lending sector less profitable for banks and they will examine the profitability of other parts of their portfolio more favorably.  

Agri is one of them.

Scale is important here - take the below graph showing the change in lending in both Agri and Housing over the last 12 months

We’re absolutely thrilled to welcome two new team members to NZAB, on the back of strong support from our growing customer base.

With the huge growth down in Southland being led by Michael McKenzie, we welcome Grant Dermody as Client Director to work alongside him, as an advisory lead.

Likewise in Palmerston North, Brendan’s team is expanding yet again and we’re delighted that Charlotte Grogan has agreed to join us, again in the position as Client Director.

We love working on behalf of our farmers to make them truly at the centre of their financing needs and give them the confidence and direction to grow and also the ability to sleep at night.

We’re up to 17 staff now, across NZ, and we’re not finished. We’re going to keep cherry picking the best people in banking and finance and unleash all their skills and experience into your camp, so farmers can truly get what they deserve from their banking relationship.

We very much appreciate all of our customers, both old and new.   We work hard for them and they reward us by telling their business peers - about NZAB and how we could be part of their own growth story.  

We know negative thinking isn't great, but 100% positive thinking doesn't always work either.   Welcome to neutral thinking.

I’m an avid podcast listener.

Early morning runs and a fair amount of time in the car provides plenty of downtime to be entertained, educated or just zoned out!

One theme I have found really interesting in a few different forums recently has been around the power of “neutral” thinking.

It’s not hard to find literature and information on the power of positive thinking.

Books like "The Secret" espouse the value of positivity, visualising an outcome and then having it almost magically turn to reality.

By contrast, we all probably appreciate the dangers of negative thinking.

One study I read suggested that a negative thought is 70 times more powerful than a positive one!

Neutral thinking by contrast is far more constructive.