No Minister

A plague on both your houses!

with 8 comments

The discussion of our terrible housing market – especially the massive and relentless rise in house prices over many years now – is one I’m used to hearing often from the friends of my kids. In fact one of them joked a year ago in Wellington that when she’s at some party and doesn’t know anybody, a sure-fire conversation starter is to talk about how her Generation, Gen Z, may well be screwed when it comes to buying a house, especially those who lack the Bank of Mum and Dad.

Yet as is often the case, it takes the perspective of a foreigner to really bring home the news of just how bad things are. In this case via a Canadian who tried – and failed – to get a foothold here in NZ, New Zealand shows how a housing crisis can become a catastrophe:

I arrived in New Zealand’s capital of Wellington in early 2020 with my fiancée, a New Zealander, to buy a house and start a family. We knew that the Pacific country’s overheated housing market would be a challenge, but we’d lived in Toronto and Vancouver. We considered ourselves prepared. We’d soon learn that New Zealand’s housing problems are similar to Canada’s, just much worse.

Having scrimped and saved for years in Canada, and with a slightly stronger currency to exhange, they decide to have a crack at $750,000 place, all 800 square feet of it with a miserable commute, no backyard, no parking spaces, no grocery store and in one of our worst areas for socio-economic deprivation.

An adviser looked at our bank balances and asked if we were expecting a large donation from family. Our smiles faded. Without at least 20 per cent down, the bank wouldn’t even look at our application papers. A year later, we tried again with the help of a mortgage broker. The result was the same, but house prices had soared by 50 per cent. We started packing our bags for Montreal, which still has relatively affordable homes.

Admittedly he’s a journalist so no great loss for New Zealand, but there are plenty of brighter and more valuable people – and ones younger than him – who are making the same decision. As he puts it:

When my fiancée and I decided to announce we were leaving New Zealand toreturn to Canada, I prepared myself for awkward conversations. I needn’t have worried. Most of our friends beat us to the punch with their own plans to leave, turning the first months of 2022 into a long going-away party. For those who remained, the conversation boiled down to one question: “It’s the housing, isn’t it?”

For those who love history, here’s the bipartisan aspect to this disaster.

Yes, I know that John Key and National were stymied over changing the Resource Management Act by Peter Dunne, but I’ve always had three problems with that excuse.

First, that attempt was not made until late in the Key Administration. A government of National and ACT alone (National/ACT had 63 seats between them) could have made the changes in his first term as PM between 2008-2011.

Second, Key worked on Wall Street and made a fortune. He also ruled the National Party well (preventing Jamie Lee Ross incidents or killing them off quickly if they did happen, re Richard Worthless). Yet we’re supposed to accept that that he didn’t know how to apply a blowtorch to the soft and squishy lower reaches of that preening wanker, Peter Dunne, and others?

Third, in any case the housing crisis is driven by more than just one factor in the form of the RMA, and none of those others were addressed by National either.

In 2017 I thought that Labour’s Phil Twyford had some good ideas for getting the housing market to work better, especially the parts that have driven city land prices, which is the primary component of the overall house price insanity.

But those ideas all vanished and he was left holding a typical Labour/Left Big Government solution in the form of the ill-fated Kiwibuild.

I suspect that the real reason that National and Labour are so helpless in the face of this market failure is that house values now constitute such a part of our “wealth” – feeding our consumerism via increased borrowing against the rising value of housing – and are the only investment in New Zealand that’s “safe”. Dropping those values to levels that are more affordable for young people, let alone crashing them back to where they should be in terms of wage and salaries, would incredibly economically damaging to too many people.

Especially the people who got on board this gravy train years again, like the Boomers and Gen X’rs like me. People who vote. BY contrast this is what our kids and grandkids are facing, courtesy of Michael Reddell’s updated analysis of housing costs in New Zealand, especially in relation to incomes and Price/income ratios, with the key insight:

At best, it takes 33 years for price/income ratios to get back to three – the sort of ratio seen in large chunks of the US, in cities large and small. At best, it would take almost a quarter of a century to get back to a price/income ratio of four.

Frankly I can no longer see this being resolved, given that, as Michael Reddell points out, both the leaders of the National and Labour Parties have said that significant price drops – say 25% – would not be acceptable.

Why? It would simply put us back two years. Although buyers in the last two years would be looking at negative equity, that’s a temporary situation that can be worked out of and has been in the past.

If you’re not willing to unwind a clearly screwed-up marketplace by even a small amount because some recent entrants will feel some (book-value) pain then you’re basically admitting that the current situation of relentless and ever larger price increases will continue, which will lock out a lot more potential entrants, particularly the young. The graph above is a “best-case” scenario if price drops are not permitted – and it shows an awful situation for people wanting to enter the housing market.

In a sense our housing market has become rather like any welfare system or drug addiction: the more people who are hooked on it the less chance there is of changing it. The only difference is that with housing it’s the newest entrants who have the most to lose.

Which means that what we have here is a Ponzi scheme, and they never end well. But they do end, irrespective of the authorities.

Written by Tom Hunter

August 15, 2022 at 4:09 pm

8 Responses

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  1. Tom … a post totally devoid of context (I guess that’s what Actoids do). National came to power in 2008 in a (genuine) coalition government (Nat/ACT/Maori). Implicit is that is respect for your partners POV. Are you arguing that Key shoud have said to the Maori Party ‘my way or the highway’?… BTATM the new government was faced with the GFC and a decades of deficits (not my words … the Treasury) ,,, then along came ChCh earthquake #1.. All that changed the dynamic and, with respect, housing didn’t figure as a priority.

    As for your mean jibe against JK … he grew up in a State House (did you?). He knew first hand what ownership meant but he had to deal with the realities of MMP with the Maori Patty opposed to RMA reform.

    Glad you think Labour’s Twyford had the answer … hmmmmmmmmmmmmmmmm.

    The Veteran

    August 15, 2022 at 9:18 pm

    • Yes Vet you maybe correct in as far as it went.

      But re read my definition of a NZ Moderate.

      He fixed the superficial easy things, no doubt about that, but the under lying issues that have been cooking away for years, education, welfare, size of the state, housing etc etc….nope too hard.


      August 16, 2022 at 12:12 am

    • Vet, with all those crises, the Key / English government had a huge opportunity to make positive change, and they blew it. All Key has to show for his time is a failed flag referendum.

      For example if it was so important for Christchurch to get special RMA rules to allow rebuilding, why couldn’t the rest of New Zealand?


      August 16, 2022 at 8:39 am

      • Please, don’t ask such impertinent questions !

        Porky Roebuck

        August 16, 2022 at 11:25 am

  2. Unless it is politically profitable for the wrong people to do the right thing, the right people will not do the right thing either, or it they try, they will shortly be out of office.”
    – Milton Friedman

    A perfect description of National’s dilemma; the situation that Labour and the Left (and themselves) have put them in over many decades.

    One can rail about it and get pissed off with National critics – play the old National Good, “Actoids” and Others Bad drum – but it doesn’t change the fact that changing to a National/ACT government in 2023 will likely now not fix the terrible problems emerging in healthcare, education and social welfare – or housing.

    Tom Hunter

    August 16, 2022 at 1:27 am

    • Tom … all change has to be done within the legislative process accepting the realities of that process. The alternative is a dictatorship with edicts issue from on high and where democracy doesn’t matter. Yes, that gets things done but the price is one I’m not willing to pay.

      The Veteran

      August 16, 2022 at 10:29 am

      • You have a majority, you use it. That’s the process and as we can see the Labour Party use it to make deep, permanent changes every single time they’re in power. Their “dictatorial” approach might lose them an election – but they’re forgiven in a couple of election cycles and back they come for more.

        National just doesn’t do that. See the three posts I’ve permanently referenced in the sidebar:
        Advice from the peanut gallery
        The Precious Midpoint
        This sounds familiar
        That last one in particular, looking at the long-term failures of the British Conservatives and the US GOP:

        When it matters, Republicans look around and say, “Oh no we can’t do that, we’d lose a man. The Democrats would take seats.” They are virtually a majority for the sake of being a majority. They just want to polish it up, put it on the shelf, and look at it.

        To put it simply, Republicans approach politics like America fights wars: They don’t want to lose a single man. Democrats, on the other hand? They look at politics like the Russians looked at Stalingrad: The congressman in front votes now; when they fall the next man gets elected and he will vote too.
        So you see a repeating pattern to American politics: There isn’t a true back-and-forth. Instead, Democrats change the country a lot while they’re in power. Then Republicans hold power and push the pause button. There’s no rollback that a new executive order can’t undo.

        Maybe they cut taxes; bring back the Mexico City policy; junk a regulation that Democrats created but didn’t manage to implement; but that’s about it. When was the last time Republicans passed a huge law — one that changed America forever the way Democrats do every time they hold serve in American politics? You don’t see it.

        We are rapidly approaching a point, especially in education, healthcare and social welfare, where that approach won’t work any longer – and if you try to make it work you’ll just allow more room for Labour/Greens to make even bigger, more fundamental and permanent changes the next time around.

        Tom Hunter

        August 16, 2022 at 10:44 am

  3. I’m now at the stage where I believe this strategy to be deliberate, in a sense. It looks very much like the left are the vanguard and the right come in afterwards to tidy up. If anything is reversed, it’s likely to be what doesn’t matter. In the end, both appear to advance a very similar agenda, and both lie and obfuscate to their voters about what they are doing.

    Lucia Maria

    August 16, 2022 at 4:02 pm

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