But does a speculative bubble matter? The cryptocurrency bubble can be left to itself (tax evasion and criminal transactions aside).

Why shouldn't we do the same for housing?

There are two general reasons why we should be concerned with a house price bubble.

The first is that, dangerously, housing is currently in the middle of a Minsky speculative bubble.

How close we are to the ‘Minsky Moment' and the crash which follows one can never tell. But when a market goes into the downer it is likely to cause great distress to people and to the financial system. (Recall what happened in the US in 2008.)

The second Stein's law is the longer it goes on the more people who suffer when it stops.

The sooner we ease out of the bubble, the less distressing it will be in the long run.

The second is that rising house prices compound economic inequality, especially against those who do not own their own homes.

This column deals only with the dangers of a speculative bubble. The distributional issue belongs to another column, although it is kept in mind here.

Perhaps there is a third reason.

Should public policy actively promote a speculative bubble in housing? It does in at least two ways.

First, the tax system favours speculation in housing over other sorts of investments.

The story is complicated and various powerful resolutions, such as a comprehensive capital gains tax, have been ruled out.

Recall that the Key-English Government tightened up on some of the loopholes in housing-investor tax avoidance in its first term and later introduced a limited ‘brightline' capital gains tax for rapid housing turnover.

Do not be surprised if this government removes more loopholes.

The second promotion of the speculative bubble is the way we report house price changes.

Understandably real estate agents choose the statistic which encourages speculation. Thus, the current focus on the national median selling price up by 19.8% in October compared to a year earlier.

However, the Real Estate Institute (REINZ) also publishes a House Price Index (HPI), which covers the price of all houses and not just those sold. It increased by 13.5% in the same period, less - but still high.

The selection of houses being sold is different from the total housing stock and, not surprisingly, what is sold experiences bigger price increases than average

We need an official House Price Index.

A decade ago the government turned down a proposal for Statistics New Zealand to construct one. (As usual, the government showed little foresight of impending policy challenges. We also need an official Housing Affordability Index which recognises that the cost of unit debt servicing has fallen with lower interest rates.)

It would still show sharply rising house prices but be authoritative.

In the interim, we need to focus on the REINZ HPI.

The difference will become critical as housing prices stabilise.

Perhaps there should be a specific reference to housing price stability in the next Policy Targets Agreement between the Minister of Finance and the Governor of the Reserve Bank.

But how to stabilise them?

Removing tax loopholes and reducing the hyping of the market is a start.

But the key mechanism in a Minsky bubble is leveraged borrowing for speculation.

That causes the greatest havoc when the bubble pops.

On the other hand, borrowing for own-homing against one's future earnings makes sense.

So the new LVR restrictions need to reduce the amount of highly leveraged borrowing within the housing market by requiring an increasing share of homeowner equity for mortgages beyond particular thresholds: for instance, 20% equity required for borrowing up to $800,000 (that is, for houses below $1m), and 40% equity for any borrowing beyond $800,000.

The immediate effect would be to continue to assist first home buyers while reducing overall leverage in the housing market. The longer-term effect would have price rises at the top of the market curbed (and that would reduce them in the middle of the market, again favouring first-time purchasers).

Meanwhile, we need to increase housing supply. Continue reading

• Brian Easton, an independent scholar, is an economist, social statistician, public policy analyst and historian. He holds positions in six New Zealand universities and has held them in overseas ones in Australia, Britain and the United States.

It seems like everyone is running for the door these days when it comes to investing in this dirty fossil fuel.

The country of Norway and the city of Seattle are moving to divest their funds from coal.

Religious organizations like the United Church of Christ, the Church of England, and universities like Oxford, Stanford and Georgetown have announced plans to either divest from coal or reduce their holdings.

But coal is not the only subject to give Catholic responsible investors pause.

What about investing in companies that materially contribute to war?

What about investing in oil and gas companies?

What about investing in the companies that successfully lobbied the state of Indiana to amend its Religious Freedom Restoration Act, which appeared to discriminate against the LGBT community?

Are such investments materially cooperating with the advance of same-sex marriage?

What about investing in companies that offer benefits to same-sex couples?

NCR had a lengthy conversation with Daniel Nielsen, director of Catholic responsible investing at the Christian Brothers Investment Services (CBIS) in order to better understand how Catholic responsible investing functions in a changing cultural environment.

Founded in 1981, Christian Brothers Investment Services is a for-profit investment adviser with more than $6 billion in assets under management.

It is a global investment management firm with offices in New York, Chicago and Rome, and a leader in responsible investing for Catholic institutions. Continue reading

- Tom Gallagher is lead writer for NCR's Mission Management column.

Image: NCR

The proposal had the approval of the Institute for the Works of Religion's board and was put forward by its president.

Having this type of investment fund would have helped IOR managers manage a portion of the Institute's deposits.

Pope Francis's Council of Cardinals referred to the proposal to the pontiff for a decision.

But setting up an investment fund in Luxembourg may have made the controls and checks process for the IOR more complex.

Francis has, since the start of his pontificate, opposed suggestions the IOR behave like an investment bank.

Continue reading

The Ethical Investment Advisory Group (EIAG) wants to tighten its policy on cheap supermarket booze because of concerns about "corporate complicity in the misuse of alcohol, including through inappropriate pricing and promotions."

Supermarkets and other retailers that derive five per cent or more of their revenue from the sale of alcohol could be excluded under its new ethical investment policy.

It is the first time that supermarkets have fallen under the scope of the Church of England's ethical investment policy on alcohol.

Supermarkets have been accused of fuelling Britain's binge drinking problem by offering cut-price alcohol deals.

John Reynolds, Chair of the EIAG, said: "The EIAG is concerned about corporate complicity in the misuse of alcohol, including through inappropriate pricing and promotions.

"Institutional investors don't talk to the supermarkets about this and our old policy had no teeth because we couldn't divest from a supermarket.

"We want to use our influence as shareholders to bear down hard on poor corporate practice and to encourage good practice."

The EIAG said it would "engage" with retailers that fail to meet the minimum standards on responsible sales before imposing the ultimate sanction of exclusion from investment.

Until the EIAG makes new recommendations, the old exclusions of companies deriving more than 25 per cent of revenues from alcohol will continue to be applied by the National Investing Bodies.

Sources

• The Nambian
• Christian Today
• Image: The Daily Mail