I think pretty much every economist in NZ recognises that any long-run concerns about the level of affordability are due to supply 🙂

I suspect the RBNZ has something else in mind with LVR’s, namely concerns about banks taking on excessive risk in a situation where they are implicitly backstopped by government. I don’t think they should be talking about prices at all, but they seem to disagree on that point …

They have had a housing affordability problem for decades. As recently as the 1980’s, this was not associated with credit at all; mortgage finance was so unavailable that young people saved most of the purchase price of a home, and in fact national savings were very high because of this.

Very strict LVR’s have been a feature of the South Korean mortgage industry right from its early stages – 50% is typical, with tinkering taking it up and down by 20% each way. Yet even LVR’s or around this level have not stopped house prices maxxing out, young people locked out of the market, AND significant expansion in mortgage debt.

“Supply” is everything. Economists who do not get it, need to be made to write this 1000 times like naughty schoolboys.

Fullwiler has a very good grasp on what is ‘possible’ in the modern banking system. Expectations should be based on this. Inflation expectations based on a perception that the CB can ‘expand the money supply’ are only ‘rational’ in a model that assumes this to be possible. But this is not a model that has endogenous money. To take this further we would be talking about the difference between Real Analysis and Monetary Analysis.

The physical economy and inflation expectations are central parts of what goes on though – and I often find them underplayed eg:

http://neweconomicperspectives.org/2013/01/understanding-the-permanent-floor-an-important-inconsistency-in-neoclassical-monetary-economics.html

That would be why, even though Glasner and Rowe do not agree on the transition mechanism fully, their policy conclusions are very similar. I will try to have a sit down and see if I can more clearly write this out at some point 🙂

My expectation is that given some lvr cap (would it be 80%?) it would still be possible to get a 90% loan, it is just that the extra 10% would be an unsecured, personal loan carrying a high interest rate and a high risk weight (from memory unsecured personal loans have 100% risk weight).

This is actually “hitting risk weights” in practise, and encouraging front loading of payments, or improvements (to lift the value and secure the extra 10%). Perhaps a more ideal policy would be to implement risk weights that are dependent on leverage, and I suspect that some banks’ internal models do this, but forcing everything above a limit to be considered unsecured is a pretty good way to go, and I think has a parallel with common practise for commercial lending.

I think that ‘inflation set by expectations’ might be a bit high level for this kind of discussion, most sides would agree with that.
In the comments it didn’t look like Glasner and Rowe ever agreed. For what it’s worth, I think that Glasner has the stronger grasp on how credit money works though.

Ahhh, my thinking isn’t new – inflation comes from largely from expectations in of themselves, and this view is pretty much as mainstream as you can get! And in both the above views, the constraint comes from capacity and the way agents change prices and set expectations given that – hence why I feel there must be a way to tie them together.

I seriously do think there must be some correspondance here – the comment section on this is grand:

http://uneasymoney.com/2011/09/21/comments-on-christensen/

By all means think more about how the two views can be reconciled. But from the point of view of the monetarists any “excess” creation of money is (before too long) inflationary and should prompt a reaction from the CB. It cannot be refluxed or destroyed as in an endogenous money economy.
So this is different from what you are noticing – that money is being created specifically to facilitate property purchases and price rises, but the cause is not the money creation, it’s the purchase intentions themselves.
I think there is a deeper issue here, but I was mostly trying to get a handle on your (what seems to me) new endogenous money thinking.