No Minister

I guess my kids are screwed in NZ

As regular readers know I focus on the USA and avoid NZ and its politics because there are other writers here who look at that.

But a short while ago a friend of my daughter told me that if she’s at a party where she knows few people and wants to get a conversation going, all she has to do is ask whether anybody there thinks they’ll ever own a house.

Guaranteed conversation starter for the Millennial / Gen Z crowd, with much ironic humour and outright four letter abuse of “Boomers” and the current environment.

Apparently the best that they hope for is that Boomer/Gen X parents will somehow enable them to buy a house via inheritance and/or selling their existing houses to provide the lever into a normal life.

Even renting blows, though they don’t blame the landlords, surprisingly.

Surely it must be due to our very low interest rates, fueling a housing speculation boom while also screwing senior citizens into the ground – at least any of those foolish enough to have left their money in “safe” bank accounts.

Michael Reddell gives the lie to that claim

And, talking of the US, this is real house price inflation in (a) New Zealand as a whole (cities and towns and villages) and (b) the 20 or so metropolitan regions all with populations in excess of a million people that had house price to income ratios of less than 4 in the most recent Demographia report. You might not want to live in some or even most of these places, but plenty of people do (from memory, population growth in Columbus and Atlanta for example has exceeded that of New Zealand).

Obviously I made the right decision returning from the USA twenty years ago.

Rewards baby!

Except of course that your bog-standard S&P 500 index or DJ Index fund has returned better than this over that period of time, and without screwing young people into the ground on housing.

The compassionate society.

As usual Reddell nails the key points:

So this should have been perhaps the cheapest time in history (rents relative to income) to be renting – here and abroad – and yet real rents have been rising, and the government cannot even manage a package that they, and their officials, are confident will lower rents. It really is hopeless.

As he points out about the latest “package” and its overseer:

What I found most striking was how this very senior minister, now with 3.5 years in office under his belt, floundered when asked about the effects of the government’s measures. It wasn’t, apparently, for him to say what the effect on house prices would be. Not only that but officials had apparently offered quite a range of views, (if so suggesting they didn’t really know either). He didn’t know what the effect would be on private rents either.

To be fair, no government minister or advisor really ever does have a clue about the impact of government regulations and rulings and policy and decisions on such things. It’s basically a big mystery.

I confess that despite having passed several economics papers at varsity I’m not a big fan of economic models that propose accurate forecasts based on changing, multiple variables. But there is one economic rule that is as solid as the laws of motion:

Supply vs. Demand.

It’s in every Ecomomics 101 textbook, but of course those lovely sloping graph lines should not be interpreted as “Price = X when ….”.

Nobody knows that. But what that most basic law tells us – and yes, it works in evolutionary biology and ecosystems as well – is that when demand exceeds supply prices rise, and when it’s the opposite prices fall.

That’s it. That really is all you need to know.

In New Zealand, for a variety of reasons, our housing supply sucks compared to the demand. Fix that and everything else that is good will follow.

Sadly, Labour, via Twyford, actually had a handle on this in his various policy promotions in 2017, ideas that National overlooked or ignored. Twyford, and Labour, were on to winner. But for whatever reason, Labour did not follow up on those ideas and instead is left with technocratic methods around “helping” home owners, “tamping down” on the greed of speculators and so forth.

Reddell runs the numbers and reality:

If house price inflation slowed to 1 per cent per annum, year in year out and incomes rose by 2.6 per cent per annum, in 20 years time the nationwide price/income ratio would be 5.85.


And if by some chance you think a price/income of 6 doesn’t sound too bad. well (a) you’ve just too used to latter day New Zealand, and (b) check the table on page 15 of the Demographia report for the metropolitan areas (most of them) with ratios lower than 6, in lots of cases much much lower. New York – never really thought of as a cheap place to live – shows at 5.9, Montreal at 5.6, Manchester (UK) at 4.8, Nashville at 4.2, Edmonton at 3.8, and on downwards.

If.

Written by Tom Hunter

March 30, 2021 at 5:00 pm

8 Responses

Subscribe to comments with RSS.

  1. Your kids may be screwed, but if, like mine-and the majority of the people at that party- they voted for this lot, they know who to blame. And its not the Boomers.

    David

    March 30, 2021 at 6:37 pm

    • Oh bullshit, National owns this problem as much as Labour. They won’t do anything about it, because their voters own all the houses.

      There is no political will to fix this. It will only happen under a Labour government, and this one is too stupid to understand how to do it.

      blairmulholland

      March 31, 2021 at 8:23 am

    • Yes. As this mum of 20-somethings likes to say to them at intervals. Blame aside, and it can’t be aimed at owner-occupiers for heaven’s sake, I for one stand with Eric Crampton, who said he will cheers when/if prices tumble.

      hilarytee

      March 31, 2021 at 11:15 am

  2. Oh, I would agree. But the world is not rational, particularly the world of economics, despite its dependence on the rational man.

    Tom Hunter

    March 30, 2021 at 9:05 pm

    • Sorry mate, but the “rational man” is a figment of economists imaginations. Along with other such howlers as trickle down, tax cuts promote growth, and markets are always right.

      Marketing 101 will teach you that most buying decisions are made emotionally. People will rationalise their choice post sale.

      Sir Loin

      April 2, 2021 at 4:51 pm

  3. Interesting seeing San Antonio at the top of the list. My house here, which has four bedrooms, three bathrooms, and a hot tub in the back yard, is worth about $280k USD. I’d need three times that much for anything remotely comparable in Auckland. But there are no taniwhas in San Antonio, and the chupacabras don’t stop new subdivisions.

    I often wonder if I should invest in NZ property? I don’t think it’s going to get better for at least another generation. NZ is fast becoming a nation of tenants. And National’s landlords don’t care, because they benefit.

    blairmulholland

    March 31, 2021 at 8:34 am

    • I often wonder if I should invest in NZ property?

      I hesitate to say no, simply because I’ve spent twenty years refusing to invest further in NZ property, on the sound basis that I owned enough already, but also on the basis that it could not get any crazier. Certainly I’ve apologised to my wife multiple times as she wanted us to buy houses in Auckland in 2002 and going forward.

      And yet here we are. I’ve given up saying that it can’t get any crazier. But I still don’t want to invest in it.

      Tom Hunter

      March 31, 2021 at 8:53 am

  4. Too many variables to make comparisons between these nations. America still has a housing glut as a result of the GFC, and too many businesses shuttering after the effects of the Trump Tariffs. Oh, and they also have a Capital Gains Tax.

    Sir Loin

    April 2, 2021 at 4:48 pm


Comments are closed.

%d bloggers like this: