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Posts Tagged ‘Housing

ACT seems to have lost its way.

with 21 comments

I was an ACT voter for over 20 years. I had been comforted, despite the fact I might not have agreed with all of their policies in detail, in the belief they were “classic liberals”. Pro market, pro free choice, pro individual rights.  Having been along to a public meeting to listen to what David Seymour had to say, I am horrified to see the direction ACT has headed.

Firstly, to hear him describe a tax cut as “crazy”.  Kwasi Kwarteng is a very sound Conservative politician who wanted to make it clear that the UK is open for business so dropped the punitive top rate of 45% on the pound.  Seymour did not like that. When you consider that British earners also pay 12% National Insurance on top of their income, every right-thinking person should support tax reduction.  To be fair the argument is that it should not be funded by deficit but Reagan knew he needed a growing economy and did not want to penalize people for success.  It was a booby trap left by Brown at the end of his reign and should have gone years ago.

Secondly, I asked him about Ardern’s speech at the UN and her proposal to clamp down on free speech. I expressed disappointment that he did not stand up for the rights of the anti mandate protestors, as Rodney Hide did and asked how he was going to win my vote back.  Seymour waffled about some of them being not nice people and stopped the people of Wellington going about their business.  Never mind that the protestors were on public land and deserved to be listened to. He dismissed the question as being the path to a 2% vote. Never mind that 30% of the population are anti mandate and nobody trusts Winston First.

On the third element I thought he was pandering to an elderly NIMBY audience by describing the Medium Density Residential Scheme (MDRS) as the 3 (houses) and 3 (stories) right to build as being “crazy”. So, I followed up after the meeting with him directly and also looked online.  It turns out ACT, David Seymour and Brooke Van Velden are TO THE LEFT of Labour and the Greens in standing up for the rights of property owners. This is one area where Labour and the Greens have worked in a bi partisan way to deliver good long-term policy, but ACT oppose MDRS.

“It could mean floor to ceiling windows on the third floor looking into your living room, with no thought for existing homeowners.” 

“The alternative is that we’ll get sewage in the streets…”

Scaremongering shite of the worst kind. There are rules for height to boundary. Councils take a long term approach to Infrastructure, as they should. They can predict increased demand and if, like Wellington, they have under invested then that should not affect the rights of property owners.

MDRS is using the power of the market by increasing the supply of land in built up areas through increased density.  Entirely sensible policy.  Europe encourage much more dense housing and it is far more preferable to intensify housing in built up areas than to keep building over green space.

I happen to know something about the MDRS and it is a great thing.  It allows property owners more certainty about being able to develop more densely instead of being subject to discretion of council.

Seymour says it is all about infrastructure and the fact there are monopoly providers of infrastructure.  Perhaps he has not heard of the development contribution which is about $20,000 to build a housing unit in Auckland as well as an additional charge of about $15,000 for Water and wastewater infrastructure.  Infrastructure is being funded by levies on new housing units.  It takes decades to make a difference but the funding policy is right.  Gains go to developers so a levy on new build is simply user pays.  The ACT policy of 50% of GST going to local councils is not a bad policy but should be in addition to MDFRS, not instead of.  Aucklands latest Unitary plan has plenty of exceptions to the MDRS, taking discretion for permit back into council hands.

Auckland property building is proceeding at a huge pace compared to 20 years ago and I assume private owners in other regions are also providing new housing. The state houses in Glen Innes, Pt England etc are all being replaced by townhouses and multiple units. I know of a specific example where 1 ex state house is being replaced by 7 town houses. I compare that to the situation 20 years ago with a similar size piece of land where I had to buy the back 3rd of the neighbouring section and use the back third of my section to add one more unit.

Look at this graph from Auckland council showing an increase from under 5000 units to over 20,000 units per month in the last 12 years.  Kiwibuild has been incompetent in providing low-cost housing but a change of policy has allowed private industry to step into the breach.

Auckland Building Consents by month

I will send this note to ACT and am curious to see what response, if any, it evokes.  One of the bloggers here is pro ACT so I am curious to see what he thinks of the ACT lurch to the establishment authoritarian left. It seems more about appealing to the older ex Winston first voter than having principles.

ACT still won’t get my vote.

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Written by Whiskey&Pie

October 4, 2022 at 8:59 pm

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

Ideas out of the Past

with 7 comments

Over on Britain the Tory Prime Minister, Boris Johnson, has had yet another brilliant idea for dealing with the fundamental problem of real estate prices getting away from working people, preventing them from buying housing.

Putting on my Class Warfare hat I have to say that this idea is entirely appropriate for a Tory:

Wait a moment, I think I’ve heard of this idea before. From history…

Debt bondage, also known as debt slaverybonded labour, or peonage, is the pledge of a person’s services as security for the repayment for a debt or other obligation.

I can see Boris as a feudal lord: he’s picture perfect to play the Sheriff of Nottingham in some new version of Robin Hood.

Of course it’s not just Britain. Here’s a story from 2014 in the USA:

A few weeks ago, with no notice, the U.S. government intercepted Mary Grice’s tax refunds from both the IRS and the state of Maryland. Grice had no idea that Uncle Sam had seized her money until some days later, when she got a letter saying that her refund had gone to satisfy an old debt to the government—a very old debt.

When Grice was 4, back in 1960, her father died, leaving her mother with five children to raise. Until the kids turned 18, Sadie Grice got survivor benefits from Social Security to help feed and clothe them.

Now, Social Security claims it overpaid someone in the Grice family—it’s not sure who—in 1977. After 37 years of silence, four years after Sadie Grice died, the government is coming after her daughter.

But there are many forms of intergenerational debt and the major one leaves Boris’s idea (and feudal practices) far behind. The following educational video was made a decade ago in the wake of the GFC, back when US Federal debt was a mere $14 trillion toddler, compared to the moody $30 trillion teenager it is now.

Written by Tom Hunter

July 6, 2022 at 11:04 am

Moby Dick

with 3 comments

It seems appropriate to thus start this little Wednesday morning collection of tasty graph and cartoon bites with something published two years ago that has turned out to be very accurate.

Call him Ishmael.

You can see why the MSM misses Trump. Now they have to put their double standards on full display.

In other predictions of the future this one for 2020, written in 1988 is awesome (RPG stands for Role Player Game).

When forecasting the future though it’s usually good to look at the past as well, as this graph of disease pandemics in Sweden does.

Here’s a graph about vaccine passports and mandates, since we seem to be moving on from lockdown mandates and mask mandates, which show similar failures. Here’s the detailed article from which the graph is taken, An inconvenient truth – vaccine passports don’t work:

Sometimes the future is entirely predictable, as with German power prices, courtesy of almost twenty years and €500 billion spent on the fabulous Energiewende (“Energy Transition”) project to get all that juicy renewable power from the wind and the sun. In such latitudes it’s more the wind but it makes no difference anyway. If your question in response to this is, “But the wind is free, why is power so expensive now?”, then you should SFTU on this subject for the rest of time. Also see this as New Zealand circa 2035 if we keep pushing the same stuff. Of course we could go nuclear?

Finally I’ll leave you with this graph, courtesy of Michael Reddell’s latest updated analysis of housing costs in New Zealand, especially in relation to incomes, 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.

Basically the only way my kids are going to be able to buy a house is if we leverage the hell out of our existing one, and even then it may mean not living in Auckland. As Bob Jones has pointed out, now linking to BNZ economist Tony Alexander, they may not be living in NZ at all once the Chinese Xi Snot controls are gone and they get the chance at higher incomes, lower costs and not being locked up.

You should check out Reddell’s earlier posts on the housing problem, which I’ve quoted a few times here.

Frankly I can no longer see this being resolved, given that, as he points out, both the leaders of the National and Labour Parties said the other day 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

December 15, 2021 at 11:04 am

Inflation heading this way in 2022

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In effect we’ve already been seeing inflation in New Zealand for a year now, as the huge flush of government created / borrowed money, designed to keep businesses and people afloat, has flowed into a New Zealand economy that could not absorb it thanks to lockdowns and other restrictions imposed by the government to fight the great Chinese Xi Snot pandemic. It’s just that our inflation has mainly been in the form of insane increases in house prices across the nation, none more so than in Auckland (Refer to the chart at the end of this article).

But in the US inflation is not showing up in house prices – yet. Over there it’s crashing into people’s consciousness in the prices they’re paying for everyday products.

Inflation hit 6.8% for November, which is the worst mark since 1982 when the country was still recovering from the Jimmy Carter years.

That’s just the generic figure and its calculation quite deliberately misses some everyday things. For ordinary people the following is the real inflation they’re facing.

Incidentally that article points out that this shocking piece of economic news is the likely reason why the following happened…

Earlier in the week, news broke that the White House had been colluding with mainstream media outlets in order to change the narrative surrounding Joe Biden’s fledgling economy. That collusion quickly produced results, with outlets such as CNN, MSNBC, and CNBC complaining that the administration was being treated unfairly.

Inflation for some of these things are already flowing into NZ, starting with the price of petrol. But the rest will be along soon enough to add to our already unaffordable homes, as pointed out by Mr Reddell at Croaking Cassandra:

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.

Graph from an older post, A Distorted Economy:

Written by Tom Hunter

December 11, 2021 at 5:00 pm

Not the way their lives should end

with 12 comments

Over at Chris Trotter’s blog, Bowalley Road, he recently had a post on the problems that state housing provider Kāinga Ora (KO) is having with “unruly tenants”.

Specifically the problems they’re having with gang members terrorising their neighbours, often very aged neighbours, and the seemingly complete inability of KO to do anything about it. Chris claims that it’s a case of the Labour Minister, Poto Williams, being “entirely captured by her officials”.

No! It is the entirely logical outcome of a modern Left-wing approach to crime that sees criminals as merely a by-product of a bad society, who cannot and should not be punished further.

To that end I saw a comment there from one “Swordfish”, which Chris did not publish but advised to be taken to reporters. Being somewhat familiar with the commentator I tracked him down to his blog, Subzero Politics (which I don’t frequent), and specifically the story of his parents and KO. I won’t re-produce the whole thing here but hopefully the NZ blogosphere will spread this wide enough that the MSM might take an interest in it. It’s horrifying.

My Parents (aged 90 & 91) have been forced to endure 4 years of constant, prolonged violent intimidation and extreme anti-social behaviour (the latter including being very regularly kept awake until dawn, sometimes over 2 or 3 consecutive days) from the Kainga Ora tenant on the other side of their dividing-wall in a two-house Unit (My Parents have lived in their house for almost 60 years & have owned it since the 1970s).

His parents have been driven into a very poor state of health as a result of all this, largely coming from one man, with assistance from an occasional friend of his. “Swordfish” has kept a detailed diary of events and there have been multiple calls to the Police.

Based on my diary entires, my Parents have suffered precisely 116 – let me repeat that … 116 !!! – really large-scale explosions of violent intimidation since their neighbouring tenant arrived in late 2017. Together with several hundred mid-level, more minor & sporadic acts of violence & intimidation. The latter occur on an almost daily basis, except when he is away. This tenant has always been very violent & aggressive in his everyday behaviour, clearly a deeply-ingrained facet of his personality. 

These have involved violent confrontations with others, sometimes out on the street, with what can only be described as insane behaviour inside his own house, which apparently shares a concrete brick wall with the parents. In the last three years his rage has been directly aimed at the parents.

In the very worst of the Major Explosions (and there have been 7 of these = out of 18), in the midst of his multi-hour intimidation, he has gone right along their fenceline, down to their letterbox & driveway, aggressively strutting back & forth straight outside their house, violently swearing & making loud threats – just the most blatant violent intimidation – interspersed with loud declarations of dominance / fighting prowess (essentially Maori Warrior-style ‘Proclaiming’) … and on 3 separate occasions he has actually rushed onto their front lawn in the middle of his explosion & vandalised their property (in one of the worst cases, for instance, smashing their concrete fence with a sledgehammer at 2am.

But there’s been plenty going on inside his house, at all hours of the day. “Swordfish” lists some of these activities, including:

1) Uber-Violent slamming into the dividing-wall with full force (punching, thumping, pounding and full body-slamming)

(2) Throwing very heavy objects or weights at the dividing-wall with full force (we don’t know exactly what the objects are but the noise is always so shocking that it sounds like some kind of heavy steel builder’s tool or similar … like something really heavy & substantial being thrown or slammed into the wall with full force … like he’s trying to smash a hole right through the dividing-wall … just makes my Parents jump 10 feet in the air with total shock)

(3) Driving large or heavy objects (presumably the same things as above) into the bedroom floorboards with all his strength

(4) Doing very aggressive haka-like stomping in the bedroom right next to the dividing-wall with full force … clearly aiming to scare & intimidate.
….

Twice his parents were so terrified that they fled to their neighbours across the road to phone the cops.

To me, one of the saddest aspects is the following:

My Parents are not only lifelong Labour voters but also long-term Party members with a long family history in the Labour Movement … they’ve been viciously betrayed by this Govt … having voted Left all my life, I swung into Non-Voting at the last Election.

I cannot help thinking this is the experience of many older Labour voters (and in the USA, older Democrat voters), who do not realise just how fundamentally their Left-wing parties have changed. These sad old people have been let down by almost every arm of the government (save the healthcare system) in every way in their twilight years. If even the cops are powerless then what hope is there for these people, and many others like them, judging by other stories?

What a hell of a way to end up and it will not just be Left-wingers who end up being betrayed. I can only hope that I’ll have enough wealth in my latter days that I won’t be reduced to depending on our governments in any way in the future.

Written by Tom Hunter

November 30, 2021 at 10:15 am

The Bitcoin House

with 6 comments

Read an interesting article today on the news out of the USA that some 30% of men are not employed in that nation.

What was unusual about the article was that it decided to ignore the usual angle of exploring why this is the case, instead focusing on how all these millions of American men actually live without a job.

One section looked at investments and aside from a doubling in retail stock market investment accounts there was also this:

Now crypto. You can laugh all you want, but the simple fact is that the price of bitcoin is up from $4,861 on March 12, 2000 to $47,763 today, or basically up 10X, (and remember it even hit $64,888.99 this spring).

Hmmmm. That’s an annual increase of 11.49% per year over twenty one years. Not bad.

The other day I checked out what our house is worth and was shocked and appalled to find out how much it’s increased in value in just the last year.

I’ve known for some years now how crazy things have been with NZ housing. I’ve been saying for a decade that this could not go on. Yet it has and although I thought I knew how crazy it has become I was still under-estimating the insanity.

Moreover when I ran the numbers over time I saw that our “investment” in house has increased by 11% per year on average for twenty years.

Written by Tom Hunter

September 19, 2021 at 5:23 pm

More Insanity for your delight

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Well you may not be delighted at the first item, especially if you have kids looking for a house in New Zealand.

I’ve removed the name of the real estate company as I see no reason to give them free advertising after they dropped this through our mailbox the other day.

A 71% increase above the CV. Obviously the house and other structures on the site are worth nothing.

This is not a flash area, even by the moderate standards of Glenn Innes in Auckland, yet this is what’s happening even there. They’re also quite open about land banking and development, as if things like the “brightline test” and no longer being able to deduct expenses as a renter just don’t amount to a speed bump.

That’s because these are companies with teams of lawyers and accountants, and there is no limit to how “money” can be shuffled around to avoid the prescriptive revenge of Leftist governments.

Friends of ours, a Russian immigrant family we met twenty years ago when they landed in NZ at the same time we did, lived in this very street until last year and after years of scrimping and penny pinching, did well enough out of this insanity to be able to buy a section not far away and build a new house. Given the racism from their neighbours that they had to put up with for years they were glad to go.

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The second item is something we all try to avoid, getting tangled up in government bureaucracy – and death.

Many years ago I laughed at one of the crazy stories from the book Catch 22. One of the characters, Doc Daneeka, is gaming extra income by getting flight pay via signing up to fly on standard shakedown flights of bombers that have been repaired. A quick flight around the base and it’s all good, but Daneeka doesn’t even want to do that and the pilots let it slide. Then one of these bomber flights – with his name on the roster – crashes into a nearby mountain in full view of the base. “Poor Doc Daneeka” says one man, even as the Doc, standing beside him, is saying, “but I’m right here”. He ends up living in a ripped up tent on the edge of the base, stealing food wherever he can. Even the amoral capitalist genius of Milo Minderbinder and the evil bureaucratic genius of PFC Wintergreen, cannot resurrect him. It gets to the point that people ignore him when he speaks to them. He also just vanishes from the story eventually, his true fate unknown.

Meet the modern French version of the Doc, Jeanne Pouchain, and marvel at real-life insanity.

‘They said I don’t exist. But I am here’ – one woman’s battle to prove she isn’t dead.

The letter informed her that a lawyer in a court case relating to her cleaning business had told the court that she had died, aged 53, in February 2016. Somehow, this unverified claim – there was no official death certificate, how could there be? – was allowed to go unchecked and unchallenged.

The thing that really gets me is that a relatively minor court could let this happen, but somehow higher courts and supposed authorities can’t seem to reverse the process:

Several courts, including the Cour de Cassation, the highest in the French judicial system, have examined the case and conceded there appeared to be “irregularities”, but deemed it was beyond their competence to bring Pouchain back from the dead. So who can? Pouchain’s local MP’s office tells me they have taken up her case. The MP, Valéria Faure-Muntian, told Pouchain she has spoken to the justice minister, Éric Dupond-Moretti, who is a member of the French bar and will keep a close eye on the case.

Aside from frozen bank accounts and not being able to access the French healthcare system, there’s also ordinary things like not having a passport and a driver’s licence, which crimp your lifestyle to say they least, although when I read this bit …

Then [the gendarme] looked on the central database and he said, ‘I wouldn’t drive if I were you, because you don’t exist. You don’t have a licence.’”

Ok. So what happens if they arrest her for that? Or for anything really? How can you charge a dead person with a crime, convict them and send them to jail? Perhaps she should have tried getting the system to fight itself to a resolution.

==================================

The last concerns the hopeless story creation in Hollywood in the last twenty years, with a seemingly endless line of re-boots, sequels and super-hero movies being made – and starting to sag in box-office returns.

Somebody on social media decided to spark some ideas using merely the photos of two actresses.

Written by Tom Hunter

July 11, 2021 at 4:00 pm

A distorted economy

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Two graphs that summarise where we are economically as a nation, and without even looking at the tourism numbers, which are bad enough on their own.

First up, real estate prices for residential properties.

Those increases, in one year, are staggering. In dollar terms they exceed any “help” that any government, even one as spendthrift as Labour, can give to young, first-time home owners.

The price to income multiplier increased during the “nine long years of neglect” of National from 5.05 to 6.08. Under Labours stewardship it’s now at 8.61.

It’s been common wisdom for twenty years now that Aucklanders were cashing up and heading to the Waikato and Bay of Plenty. But since when are retired Aucklanders or Wellingtonians cashing up their houses and moving to Gisborne (almost 50% increase) or for that matter the West Coast (33.6% increase). There will be specific reasons for this inflation but they all boil down to factors driving the basic economic law of demand exceeding supply.

In Auckland those factors have been population growth increasing faster than homes can be built – which in turn is based on government immigration decisions on the demand side vs. building regulations and costs, and even more so the land-banking of city planning causing huge lifts in the cost of land, far beyond the increase in house value itself.

But can those factors be driving demand exceeding supply across the whole nation this time? Immigration has been basically zero for the last year and while land-banking and city planning are a nation-wide supply restricting problem there have not been dramatic changes in those factors in the last year, and some areas have always been more relaxed than others. So what’s driving this recent nationwide inflation?

  • Government changes on investment deductibility and the increased time over which the bright-line test can be applied (basically a Capital Gains Tax) mean that investors are deciding now it’s not a great time to sell, reducing the number of listings (supply)
  • Sensitive people are feeling the breeze of general inflation and take positions to protect their own capital base by lifting those sales from the market, further tightening supply. Better to sit on the potential capital gains, increase the mortgage and use that money to buy a new boat. Notice the increase in prices for second-hand boats, caravans and motor homes.
  • Interest rates pushed down in 2020 as the classic mode of Keynesian response to a potential recession. That increases demand, at least for a while.

The government must be hoping that this is just a one-off and that once the housing market has adjusted to a post-Covid world, things will settle down. We should all hope for that but I see merely the results of a “critical mass” of factors that have finally come together at one point in time rather than individually affecting the market at different times. Even if this spike cools down, the ongoing house price increases will still be greater than we can cope with.

Then there’s this:

That’s Fonterra’s share price in the last three months. An awful drop from $5 per share to $2.82 that exceeds the percentage drop in 2018. That last was caused by financial problems at the company. Problems that, like the housing situation, had been bubbling away for years, but which hit critical mass that year.

Fonterra has since cleaned up many of those problems and was looking pretty healthy internally, with a good payout. So what’s happened?

Professor Keith Woodford is on the case as usual with two articles in May that discussed what might be coming.

You can read the details in those two articles . The summary comes to five points, the first two being around proposals only.

  1. Reduce farmer requirements to own shares, with them needing to hold one share for every four kg of Milksolids supplied, compared to the current one share for every kg of supply. That last is a hangover from Co-op days when the shares were a nominal $1 that never changed as farmers joined and exited co-ops.
  2. Shut down or cap one arm of its two-armed share investors world, the Shareholders Fund. This Fund and the related Trading Among Farmers (TAF) scheme allowed a two-way flow of “units” and shares between the Fund and the Farmer share trades, which kept the price of shares and units within a cent or two of each other and supplied vital pricing information to both farmer investors and external investors.
  3. The Fund allows non-farmers to buy shares and get a dividend but with no shareholder voting. While there was talk about enabling the company to raise capital this way without trying to get cash from cooperative members, the real reason was to remove the redemption risk as farmers exited the company. Under the old co-op model they would not have had the cash to pay them out. The Fund and TAF would shift the risk.
  4. The flaw was that the only way TAF could remove the redemption risk should Fonterra lose a major number of suppliers was by taking on a new risk of losing control of the company to non-farmer investors.
  5. The risk now is not from exiting farmers but from a substantial and ongoing reduction in production, perhaps in the order of 10% to 20%, primarily driven by future environmental regulations around herd sizes. That’s one rock. The other is that farmers still want to control the company.

While only proposals, they did suspend trading before the announcement and they have cut the link between farmer share trading and the external fund, showing the future to investors.

Those investors, the market, have reacted badly to all of this and although it would be easy to say that this is just frippery that ignores the now “healthy” internals of Fonterra, the fact is that share prices tell us what the market thinks of any company’s future.

Clearly Fonterra’s and perhaps the rest of the dairy industry’s future in NZ is not good. What that means exactly for the wider NZ economy is another question, but clearly for some environmental and economic extremists like No Right Turn the message is the same as for the Huntly power station and the fishing industry: Let It Die.

I guess my kids are screwed in NZ

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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