Bernard Hickey hears plenty of talk about housing affordability and inadequate housing supply. He is sick of talk and wants to see some action

Bernard Hickey hears plenty of talk about housing affordability and inadequate housing supply. He is sick of talk and wants to see some action

By Bernard Hickey

Gums have been flappin' aplenty this week over the dangers of a housing boom to the economy.

The Reserve Bank, the Government and ratings agency Fitch have opined about how dangerous a housing bubble is for household debt, our banking system and economic stability.

It was a chorus of tub thumping and finger wagging.

Reserve Bank Deputy Governor Grant Spencer was first in line, warning that avoiding a housing boom was critical for economic and financial stability. He even went as far as suggesting the Reserve Bank could increase the Official Cash Rate if the housing boom morphed into a surge in consumer price inflation.

He also reiterated the bank was looking at increasing capital requirements for banks issuing mortgages, particularly the riskier high loan to value ones, and at limiting high loan to value ratio loans themselves as part of its new 'macro-prudential policy' toolkit.

Then Fitch piped up from the sidelines with general warning that strong house price inflation could turn into an asset bubble that hurts banks when it bursts.

It muttered darkly about New Zealand's high household debt and how a significant house price correction could affect the 'credit profiles' of ANZ, Westpac, BNZ and ASB.

Then as if to confirm the fears, the Real Estate Institute reported house prices surging to record highs in March and house price volumes galloping back to the levels seen in March 2007 at the peak of the last boom.

House prices in Auckland rose 16.1% in the last year and NZ$4.1 billion worth of property deals were done during March alone.

That's NZ$132 million a day circulating around the economy, some of which is being skimmed off to buy curtains, cars, holidays and, of course, flat screen televisions.

The New Zealand dollar also surged to fresh record highs this week, which is helping to fuel a new spending and borrowing binge.

Finance Minister Bill English was the biggest finger wagger at the end of the week, saying real progress in increasing long term savings was within New Zealanders' grasp: "It would be a shame to throw it away on another risky housing cycle."

He said the government would work with developers, builders, regulators and councils to improve housing affordability.

So much talk this week, but so little action.

And it's been that way for a decade.

The Reserve Bank has been warning since at least 2004 about housing booms and borrowing. Yet its actions betray its complete lack of success in stopping it or even controlling it.

It had a chance between 2004 and 2007 to raise rates high enough to nip it in the bud, but failed because of its strict mandate to target consumer price inflation and to ignore both asset prices and lending growth.

It even investigated using other 'macro-prudential' like tools in 2006, but wouldn't soften its single target-single tool doctrine.

New Governor Graeme Wheeler even said as recently as December that even if he had the tools he wouldn't use them. A careful reading of Spencer's speech this week also shows the Reserve Bank has assumed this housing boom won't translate into higher consumer price inflation.

And the high New Zealand dollar is doing it's dirty work of controlling inflation anyway.

The government has talked up a storm, but has done nothing to solve the supply or demand issues driving the latest boom in Auckland. It has even blocked the Auckland Council's attempt to get its new unitary plan in place early, insisting instead on a three year delay.

It has done nothing to encourage or cajole the private sector into building the 13,000 houses needed every year in Auckland, rather than the less 5,000 a year they built over the last decade.

Housing NZ is planning to build a total of 1,441 houses net in Auckland in the 5 years to 2016, or less than 300 a year. In the last 2 years it has actually subtracted a net 13 houses from the Auckland housing market.

As Jerry Maquire was told in the movie of the same name: "Show me the money!" In this case it should be: Show me the houses!"

We should watch what our policymakers do. Not what they say.

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Nothing will change until people wake up to the fact that interest mortgages are simply a wealth transfer mechanism. Put youself in the bankers position, why the heck would you willing change a nice little earner of free money? Not going to happen is it? Even all those wonderful tools mentioned in your article are still talk Bernard, all they will do is slow the process down and not prevent it. I mean watch the landlords on here go off when I correctly assert they are the recipients of unearned income, they are not going to admit to, or give up, their nice little source of unearned income either. 

Scarfie - housing is STOCK - STOCK earns money! Landlords are in the business of holding/buying Stock and deriving income from that stock. If you think that being a landlord is easy then you're seriously mistaken. A landlord has to work and often has unpredictable tenants who can cost them money. The landlord pays the rates, repairs, insurances etc.
No one forces people to be tenants. Tenants choose to be tenants.
 
Banks are a necessity in most cases and have their costs of business also. Again you can choose to use a bank, no one forces people to use them.
 
While I agree that house prices are expensive the mechanisms that are driving prices higher are not being dealt with. I would seriously question the antics of Real Estate Agents in pushing prices up.

  • There is a serious lack of data on dwelling numbers in NZ.
  • No one seems to know the number of houses sitting empty.
  • No one knows the actual numbers of off-shore investors who own houses in NZ.
  • Are these houses sitting empty or rented?
  • Off-shore housing investors enjoy significant tax advantages
  • Real estate agents are using dubious techniques for advising vendors on their house value - in fact it would appear that price-rigging practices could be at play.
  • Land supply has been locked up
  • Council charges and compliance are an enormous impediment
  • Lack of competition in building supplies
  • Earthquake and Leaky buildings

 
If we don't know the Housing Stock numbers and empty rates across the different regions then we are speculating on many issues.
 
There is a constant mantra from Real estate agents on the housing shortage and the only figures that are quoted are the number of houses for sale (supply) vs buyers (demand). This is pushing prices up further as it indicates scarcity. 
In Christchurch there are numerous homes sitting empty that are perfectly livable. In fact I have found 3 out of every 5 I properties I have viewed as sitting empty. Sometimes this rate is 4 out of 5 depending on the area I am in.
 
Valuing houses has changed dramatically and is now about how much a buyer can afford rather than what the land and buildings are worth.  People go to banks to see what their borrowing power is and then buy their home on that borrowing ability which has caused the market to spike. As this behaviour has pushed prices up landlords have benefitted from the increased valuations of the property they own, which has had a roll on effect to rents. The WFF pushed prices higher as it enabled people to afford to pay more and that is another contributor.
 
You cannot point the finger in one direction and lay all the blame there.
More people would be living in poverty and substandard housing if we did not have banks and the ability to borrow.
Scarfie I have to ask do you own your own home?
 

Notaneconomist - you demonstrate how hard it is to remove propaganda/false assumptions, from some folks grey matter.
 
Banks are not a necessity. If they weren't there, the item would be cheaper by the non-inclusion of interest. One could simply write and honour an IOU.
 
Stock is no guarantee of making money - if the tenants have no income, there is no money to be made.
 
But some of your bullet-points are correct. There may be houses sitting empty, or partially empty (old folk in big empty family homes). Price-rigging has probably always been in play; "I have good news for you" comes to mind. Maybe not quite rigging, but certainly boosting.
 
But increasing scarcity of raw materials, and the cost of energy, make both those Council charges, and the price of conventional housing - higher in relation to 'incomes', than before.
 
You can always think outside the conventional square, though. Houses are mostly expensive because folk are scared to be anything but the same, and as big as they can get.

Scarfie: If landlords receive "unearned income" how would you change that?
Tax rental income at a  higher rate ? 
Confiscate private rentals? 
Discourage investment in property in general ?
Create a huge land bank of government housing to fill the gap?
What?

The simplest thing would be to change the money supply and take the interest component out of it. That would not eliminate landlords but it would take the heat out of the market. This should eliminate capital gains, which are really just an expression of interest. Funny thing is that the money supply used to be discussed openly back in the 1970's, that is what the Social Credit Party was all about and they peaked at 20% of the vote.
 
But the "how" isn't something I have considered at depth Big Daddy. Look at it like I am in the education phase and don't realistically expect to change anything. This whole thing is powered by greed and you are not going to change that. There is also the risk of unintended consequences when making new laws and taxes. The biggest thing you could probably get your head around is that the practice of extracting unearned income is destructive. So you seek to increase your wealth and security but don't realise that while you do that you are actually making for a society that is less secure.
 
So some random ideas, some of which are about lowering the cost:

  • I would find it very difficult to use another form of unearned income to control another, so tax is out. What could be done is to stop treating landlording as a legitimate business, because is isn't actually productive anyway. So no expenses are tax deductable, although this still really violates the tax principle.
  • You would have to take a hard look at local government and take out the unearned income component of the income stream property provides to them.
  • I personally like the idea of private land title, but perhaps we do away with this and move to something more like communal ownership as is done with Maori. I don't joke when I say this could happen for the Waikato & North under the Declaration of Independence 1835. Land could also be centrally controlled and leased, communism yes but doesn't need to come with the rest of the fishhooks. Again not necessarily my preference, I just put it out there for discussion.
  • If you did simply ban Landlording then town planning would pretty much become defunct, you could let people build what they want. Developers would find it much harder to speculate if they can't have tennants so a better approach to design would happen. Costs would come down as developers exit, no problem as they are also guilty of unearned income.
  • Completely do away with any consenting process apart from sanitation. Let people do their own due diligence when buying. Monopolies on materials would be broken.

Others things to do with the day so that gives you something to work on.
 
 

Now we know where you are coming from scarfie... you're an old Social Crediter, them of the 'funny money' ideas. Ha.

So if the government owned and allocated all the housing then each time the government changed there would be this massive amount of moving needing to go on as the exiting government got kicked out of the nice houses into the crappiest ones and the new government (and all their cronies) moved into the nice suburbs.
 
This would obviously give an enourmous boost to the house moving industry. But then the big question would be how do you tax the house moving companies - because of course being a service industry they are neither a productive or legitimate business ?

Impatient like Bernard, are we?

QV Average House Value Million dollar club:

1    Herne Bay      $1,956,556
2    St Marys Bay  $1,639,056
3    Parnell            $1,369,222
4    Epsom            $1,221,167
5    Stanley Point  $1,172,167
6    Remuera         $1,164,889
7    Takapuna        $1,151,722
8    Ponsonby       $1,151,000
9    Westmere       $1,144,000
10  Mission Bay     $1,098,111
11  Devonport      $1,077,056
12  Freemans Bay $1,056,889
13  Mt Eden          $1,056,000
14  Cambells Bay  $1,018,500
15  St Heliers        $1,011,389
 
*Updated 31/03/13
 

re The government has talked up a storm, but has done nothing to solve the supply or demand issues
 
And as usual, you focus on supply issues (Show me the houses!), and totally ignore demand issues
 
 

Bernard old bean...no point in yelling at the poodles...it's the ones with the total control you need to go after...the big four banks...the parasites sucking away the profits...bubbles are their thing Bernard..along with keeping complete control over govt financial policy and letting Wheeler out for walkies!

dont fight the fed, unless your a dumb kiwi
Nz is recieving  a tidal wave of zero interest money seeking assets & return.
Now the RB is talking up interst rates which  will push the NZ$ up to parity.
It will not stop house price rise as the money is freshly printed in USA & JApan at O%
It will destroy our exports & exclude kiwis from the housing market.
If it wasnt so sad it would be funny
Property developers were loaded with high costs and high risk by Gov/ councils  and have walked away, Absolutely no way they will start up again.
Double whammy, stand back as prices now soar.
 

Bernard is just having a rant because he knows he sold his house too early and too cheap, and has missed out on the big price increases in the last few months.
PS. I remember that house being up for sale. It had almost no books in it.

We all know what John Waters says about people that dont have books in their house:
 
http://www.goodreads.com/author/quotes/17366.John_Waters

Quite right SK.
'"The chip on my shoulder could sink the QE2. I've got an attitude problem and nobody better get in my way...I'm in a bad mood and the whole stupid little world is gonna pay!”
John Waters, Crackpot: The Obsessions of John Waters

Sounds just like Mr Landlord.
 

No Landlord could possibly have a chip on their shoulder at this time moa man.
No landlord would be in a bad mood either. 
And I can tell you the world certainly ain't stupid!
All's well in landlord land. 

Yip, when you can bludge extra rent from your tenants who are forced to pay for fear of losing the roof over their heads. Then you gloat about it on an open forum, you show the world the real people you are... Pernicious little men and of no more character then those pleasant fellows that come into ones home when no one is around and take everything they can get their grubby hands on. 'All legal,' you yell... But legal doesn't make it moral.

Co'mon now General HubHub, I am not a little man.

Moaman/SK
You might want to be careful accusing me and my family of not having any books.
Heard of staging a house and 'decluttering'?
I spent a whole weekend packing our 1,000s of books into a one of those storage boxes on a trailer.
And please think about the links you send people to.
Real people read these things. Including my wife. She doesn't take kindly to people accusing us of not having any books.
Bernard

Niether Sk or myself accused you of not having any books Mr Hickey.
Mr Landlord did, and I see his comment was made the Editors Choice.
 

Bernard I am frustrated too. I blame our dysfunctional political system. It doesn't seem to respond to the people. Bring on the revolution I say.

Brendon...I blame Bernard.....obviously no mechanisms have been employed to cool the housing fire, and no land freed up for lower cost housing ...just to spite him for saying all those awful things about 30% reductions , how Wheeler's a nincompoop , Olly's a Tax evader,Old people should die already, and so forth.........
 He ( Bernard) got a letter from the Council you know....!  saying , "Have you had enough hippie ....or do ya want some more"...?
 You know, I can't help but think if Bernard switched sides, so so many would see the wrong they're doing.....or just figure it must be wrong given it's new found support.

Quite right Count. Silly Bernard! He should know the only way to get things done is to create a crisis by pushing things too far. Tell that Wheeler chappie to put interest rates down 2%. That should do it.

I suggest we blame ignorance.
 
There;s a lot of it about.
 
All the folk commenting above, have had ample opportunity to learn, yet with the singular exceptopn of 'Scarfie', seem to think we can just go on as usual but - because 'usual' used to be 'always bigger' - they seem tio assume that we can continue to grow.
 
Bernard - I appreciate you need to stir the pot to stay current - but you've been given enough to knoe better, too. Globally, we are reduced to fracking, deep-water, kerogen. In light of the dwindling ability to do work, how about you ascertain the ability of those taking on mortgages, to be able to continue paying them off, long term?
 
http://www.smithsonianmag.com/science-nature/Looking-Back-on-the-Limits-of-Growth.html

Oi there PDK......there are those among us who, while being aware..! of finite resource do not ride cavalry style behind the Peak banner into the breech once more....
 You need take more care when grading others and their competance to grasp what stares us in the face.....the time constraints that don't allow the rest of us folk as you put it to read extensively on it ...make it our passion, does not mean a lack of care , but a lack of desire to join  a crusade that appears destined to be ignored for reasons of procreation until it can no longer be ignored, at which point...the point becomes moot.
While I have the greatest respect for your obvious intelligence and knowledge on the subject  matter  you mention, I would point out your predjudices with one brush tars all attitude could stand improvement  if you are to gain more sympathy and interest in your crusade.
 Stay well PDK....it's not a dress rehersal, live it.

I'm with Christov.
PDK .....  The big thing you miss is that many many people throughly agree with you.  We just don't make it our only topic.

KH - kind of "yes, yes, I know we're sinking, but this is a discussion about deckchairs"?
 
Hard to see how you can't make it 'your only topic'. Folk seem to miss the scale of things, sometimes, the relativity.
 
There was a World-Watch snippit on Sunday, Nat Radio. All about how there aren't enough bubs being born, to keep Europes oldies into the future. Govts are encouraging procreation. Woe woe.
 
Think about it - they are advocating one extra person - or perhaps two - per household. This in a scenario where we will be dropping from using fossil-fuels (in Europe) as if we have 300 slaves apiece, working 24/7, and not needing fed.
 
The piece was serious - BBC and Dochebelle radio - but in energy terms (the only ones that count, ultimately) it was about something 1/300th of the size of the real problem, given the timeframe being addressed. See what I mean? Not even worth the consideration, was that. Initially, it has to be ignorance; not so much lack of intelligence, but lack of knowledge. Once informed, continuance has to be seen as 'chose ignorance', cognitive dissonance, denial.....   You think there's another explanation?

Yes PDK.  We know you find it hard not to make it your only topic.  That was my point.
Anyway.  - best wishes to you.

Well at least he gave you the dignity of a response KH....it's a step in the right direction.
Of course it's related to all things PDK, as in the source, Procreation I mean as causality....the easiest  thing to grasp on any level .....the last thing Mankind wants to hear.
 Ya see there's this Chicken...see...and then there's this egg...see..then, there's this chicken...  see...ad nauseum.

Problem is its like ppl are arguing about how big and how many towers the castle will have, all the while building it on quicksand.  If you dont have the fundimentals right then it isnt going to stay up. 
Example ppl who are taking on a full recourse 95% LVR mortgage for 30 years are IMHO going to be in a bad way for a substantial part of thier lives.  These same ppl will be whining they were not told and now they need a bailout by Govn...or someone, they shouldnt have to live with their losses etc...
Rinse and repeat for how many sectors? 
Take this drought for farmers, worst in 70? years yet farmers and their mouth pieces and their party deny AGW.
Just who will be left bailing whom out?
It reads like spoilt 3 year olds at kindy....whining to mummy to sort it.
regards
 

Mist - so right, renters in NZ are going to be worse off if they choose that option long-term. 
 
 
Rises in house prices and housing affordability are nothing but smoke obscuring the real issues that NZ is facing.  Cheaper housing is not difficult to achieve, there is absolutely no desire to have affordable housing - WHY? and WHO benefits?
 
The cards have been dealt and if you don't play the game you will be left out.
 
 
 
 
 
 
 
 
 

BH, putting on my roi-du-jour hat (it be a Hard one to take off, btw), here's what Moi would do about all this.

  • stop/deep-six/zero-ise all development contributions and other development taxes (levied by economically clueless TLA's)  for a generation.  That's all of them: no goin' claimin' Your TLA is Economically Brillo.  Should release a flood of back sections in AKL alone.
  • Institute type-approved housing - kitset, modular, factory-built etc nationwide, and remove the ability for TLA's to inspect them and demand exorbitant charges.  Zero consent and inspection fees for type-approved plans and factory QC'ed stuff, should take out a layer of un-necessary costs.  It also gets us away from the architect-driven, craft-constructed small scales which the Productivity Commish identified as a prime driver of the low build rates evident over the last decade
  • Institute instant, swineging rates penalties on land-bankers.  Easily achieved via differential rating, especially if green-lighted by central Govt or set as a KPI for TLA reporting.  This serves as a bare-land tax and will push not a few such bankers into either building or selling on, all the time socialising at least a fraction of their unearned CG.

I could go on but that would just be ranty. 
 
 
 

Waymad -
1 - we're not even paying our way now, and things will never be 'cheaper'.
 
2. Agree completely.
 
3. It's one of the traditional sources of 'wealth' that gets 'invested' in new ventures. (read Nevile Shute's 'Slide Rule', re funding of Airspeed). But I have no problem with eliminating speculators - you gonna stop with land?
 
:)

1. Serious question: how do you propose public infrastructure be funded once the development contributions are scrapped? People will pay, either way. Lower house prices seems like a pyrrhic victory if people then just have to pay through the nose for privately funded infastructure.
2. Yes, I have been wondering why NZ doesn't do this for some time. We have lots of tilt-up and pre-fabricated industrial buildings.
3. Won't this just drive up section prices even more as land-bankers pass on their costs when development does occur?

1. Someone needs to pay for infrastructure - especially with greenfields. Hugh sprawlalot thinks it shoud be funded by bonds/borrowing so that future generations can pay for it and his 'affordable' sprawl housing gets subsidised.
 
2. The NZBC now has a "Acceptable Solution SH/AS1" which is pretty much that. Get a building consent once and then build the type as many times as you want with local TA's only checking foundations and services compliant. "architect-driven" ? I thought architects designed less than 5% of houses so I doubt they drive anything - it's purchaser driven if anything. No one wants the standard plan - just a change here and a change there and...

Flood the market with cheap houses and the average price will come down, simple. 
 
Creating new tax/higher interest rates will add costs to the process and make it more expensive and less affordable, simple. 
 
So yeah, hurry up and start building. 

Just need the Unitary Plan to be operative then people can (in the Single and Mixed House zones anyway).   

Nothing will happen folks while the Nats are in.
IMO its going to take someone with "guts" to get this housing situation in Auckland sorted but there are 3 main reasons it will not ever happen and I'm sure Wolly will agree !!! 
1. The banks have their greedy snouts in the trough and don't want to change at all.
2. The pollies have a personal "vested" interest in this market.
3. The Nats think that if they meddle with the PI"s, they will lose votes. 
GAME OVER ....nothing to see here folks, move along.......

.

@kimy | 15 Apr 13, 11:37am 
"Land banking is not cheap..." Auckland Council benefited a large amount of land banking from the previous councils.  Check all the empty land around Flat Bush, Botany, Henderson.. most bought by the previous Manukau and Waitakere councils.  They could do something about affordable housing if they really wanted to.

Thanks fer all yer thoughts.
 
I'll focus on #1, because in the days of Yore (that is, up till 2002), there were no or few or moderate DC's at all for 'infrastructure'.
 
Which means in the long historical view, we got by perfectly well without 'em for a century and a bit.
 
What changed?
 
The LG Act amendments in 2002, which vastly expanded TLA's ability to Spend, without doing a darn thing about new sources of Munny wiv which to Pay fer it all.  Four wellbeings....munny holes...
 
But the 'rates' bucket is carefully watched by elected Councillors, who, if they dip into it too deeply, are promptly Unelected.
 
So a Lot of new revenue went into 'anything-but-rates'.
 
And the infrastructure funding had been mainly loans and bonds  formerly - general rates, special rates,  for repayments and sinking funds, depending on how confined the benefits were.  Whereas general use = general rate funded.
 
E.g. a water supply serves defined users, so special rate 'em, problem solved.
(Confession:  I once paid off the entire debt of a small water supply area, by forgetting to include a chunk of users, calculating the rate as twice as much as it shoulda bin, and collecting mucho rates, hence no deficit.  Funny thing was - not one resident noticed...)
 
But I digress.
 
To return to the Four Wellbeings, being able to Spend on Social and Cultural well-beings, and being unable to really hammer the rates bucket, meant that DC's and the like rapidly evolved into an alternative Munny Raiser, to fund the aforementioned Munny Holes.  Because DC's are paid by Greedy Developers.  never mind the effect on the end consumer - the homeowners...and no-one likes Greedy people.
 
Plus, the 'betterment' aspect came in big time - a new development comes along, needs a revamp of the sewer lines, so, WTF, let's stick them for that new Filterator at the central plant which those dumb Councillors turned down in last year's LTP.  Who's gonna cry aboot that?
 
If you really wanna induce a headache, try reading yer local Councils DC Policy.  After a coupla pages of HUE's and Calculation Methodologies, ye'll be reaching for the Panadol or, for the lucky few, white marching powder.  Most Councils now suggest a day or three with their DC Assessors (paid for by the applicant, natch) to navigate these treacherous waters. 
 
And if you add the time value of munny on to the raw costs (TLA's are perfectly innocent of any knowledge whatsoever about compunding, interest, etc, being public servants whose salaries comes out of compulsorily acquired revenues), then DC's and the like, being often leveied early in the life of a project, have a significant 'carry' as well:  7 years at 10% doubled the raw costs....
 
So, to return to the rant, why not, now that the purpose of TLA's has been trimmed back to 'provison of services effiicently and effectively', just stop the DC rorts???
 
And go back to the well-proven and intergenerationally valid older way - loans, bonds and other debt instruments?  The old Roads and Drainage Boards did all of their fundraising this way.....Back to the future?

 
How about scrapping tax deductions on investment properties, owner occupiers don't benefit from this so why should landlords? Next step would be to instigate a land tax, no exceptions, say 2 percent per year. This would put a serious crimp in the land banking business model, use it or lose it. Owner occupiers could pay either in instalments or on the sale of their property.
 
The banking bias towards residential property also needs to end, the risk weighting for residential property needs to be increased for both high LVR loans and to account for pro-cyclic systemic risks in order to favour more productive forms of lending. Meanwhile the capital adequacy requirements for banks needs to be increased to a minimum of 20 percent, there can be no room for an implicit state guarantee for undercapitalised banks.
 
And why stop there, we could also replace company and income tax with an asset tax levied at the current rate of inflation on equity with a surcharge on debt. A capital gains tax should also be implemented adjusted for inflation. The preoccupation with taxing productivity needs to end, companies and individuals need to be incentivised to direct capital towards its most productive uses.