Both the Labour Party and the National Party are deluded when it comes to affordable housing. This weekend on The Nation, Housing Minister Nick Smith said $460,000 was “within reach” of first home buyers. Seriously? Phil Twyford was no better, referring to targeted prices for affordable housing in Auckland under their Kiwibuild policy of a similar amount, $360-480,000 for a 2 bedroom terrace home! But what both are proposing is supporting existing nose bleed prices by encouraging first home buyers to mortgage themselves to the hilt and buy into a bubble, the height of fiscal irresponsibility.
Yet Nick Smith himself said recently that he was setting a two decade target of restoring an income to price ratio of 4 in Auckland, effectively meaning that current prices would either have to fall 43% or stay stagnant for 19 years while incomes caught up! High property prices and the huge debt that underpins them was a leading cause of the GFC and has ruined the productive sectors in all western countries where a housing bubble has been allowed to expand. The New Zealand National and Labour parties solution is not to deflate the bubble and introduce economic policies that redirect money into more productive and less damaging sectors of the economy. Oh no. They both want to carry on, business as usual supporting over leveraged current home owners with big mortgages and the banks that have loaned too much money to them. As Corin Dann said in the April 2014 interview with Smith;
“…so something’s fundamentally wrong isn’t it with the model….government’s are failing to solve that”.
Smith assiduously avoided any questions on moderating demand. He and the rest of the National neoliberal acolytes refuse to admit that easy credit from the banks and excessive immigration are outstripping any of their pathetic efforts to ramp up a supply side solution. There is no shortage of houses in Auckland (Less than 50% of Aucklanders own their own home, there are thousands sitting unoccupied and rents are not rising much) There is a lack of affordable houses for low to middle income families. How can a low income family where two people are working round the clock just to survive, save a deposit and pay off a $300,000+ mortgage? They need properties costing no more than $150-200,000. I would think twice about taking on a $300,000 debt with a $150,000 pa income let alone $60,000.
National trumpets low interest rates, something they have little control over, as making high prices affordable. If kiwis could set their rate for the life of the mortgage they would have a point. But most people are either on floating or fixed for 2 years or less. Is National suggesting people borrow as much as they possibly can now and assume no one will get sick, or divorced or made redundant? Are they suggesting the interest rate cycle is now redundant and those new borrowers will never see double digit interest rates over the life of their mortgage? Are they suggesting the economy can maintain ever growing private debt without ever reaching a point where debt repayments starve consumption and jobs that maintain those payments?
Labour are not much better. The current housing bubble and private debt rocketed under Clark and Cullen. In April this year Labour leader David Cunliffe said in a Q&A interview;
“We’re not talking about crashing house prices, there is no way that house prices are going to crash. Middle New Zealand does not have to worry about that. But what we don’t want – what I don’t want – I’ve got one home – I don’t want to see the value of it crash, but I don’t want my two sons locked out of the market when they come to need a home, because some banker in some foreign country’s playing our market for all it’s worth, or because we’ve got a ridiculous tax structure which is providing an effective tax subsidy for landlords so owner occupiers can’t compete,”
Labour claims to recognise the demand as well as the supply issues but doesn’t want to do anything that detrimentally affects prices. They want the static option where incomes catch up to house prices but like National won’t acknowledge the generation this would take in even a best case scenario. Their Capital Gains Tax policy is a joke as it is difficult and expensive to administer, does not apply to the family home and at 15% is less than the current, poorly enforced CGT which is set at the owner’s marginal tax rate. Many speculators will be paying less under Labour! Their policy of stopping non residents from buying will help, but if it is too effective, and prices drop substantially, they will be under pressure to reverse it. It also does not apply to probably our biggest non resident investor nationality, Australians, many of whom have pumped and dumped rental property in the regions in the last decade. Prices in many provincial towns would have remained low without Aussie speculators.
The Greens are no better. They too consider deliberately targeting prices to be electoral suicide and their plan to intensify and stop urban sprawl will support or increase the prices of existing and new homes. They like Labour want to restrict non resident buyers but are too liberal to target immigration.
New Zealand First wants to restrict non residents and reduce immigration but are not explicit on whether they would like to see lower prices.
Kiwi’s, like their Anglo Saxon brethren, are addicted to debt and the feel good rush of rising property prices even though for the average single family home owner they are worse off. With rapidly rising prices, each step up the property ladder means a bigger mortgage than a few years earlier. Many can’t even reach the bottom rung and others will be stuck on the first or second rung as prices and mortgage size outstrip their income and the rungs get further and further apart. The bigger the mortgage the less that household has to spend on other things, or to save, and the worse the Current Account deficit gets as the banks repatriate growing interest payments.
National and Labour have allowed property inflation driven by easy mortgage credit to run away in the last 15 years. They have created a feel good monster that they are too afraid to slay for fear of electoral backlash and economic crisis. But their half arsed proposals to contain the monster, to “manage” it, are doomed to fail, as its containment requires constant growth in private debt. Without a growing diet of mortgage credit the monster will starve. With further credit growth they will get their crisis anyway and the monster will die regardless. They have made their decision. The young and the low income will have to do without affordable housing in order to support the investment decisions of current property owners, no matter if those decisions will eventually bring the economy to its knees. Asset inflation and the debt that supports it is now a dominant factor in our economic system. Asset prices and debt need to come down and the economic system changed to something less speculative and more sustainable. Just don’t look to National or Labour for a solution.