By David Hargreaves
John Key has had a simply fantastic election year so far.
From the way he caught Labour completely off-guard with his education initiative in January, to hob-nobbing prestigiously with his new BFFs in China, the Prime Minister has shown the brilliantly sure-footed touch that previously enabled him to tiptoe through the minefield of foreign exchange dealing and make himself a fortune.
But I've always suspected that housing is a bit of an Achilles heel for Key and this Government. While Key has danced eloquently through every other issue this year so far like Fred Astaire in his pomp, suddenly yesterday he had two left feet.
Through his most emphatic yet ruling out of any curbs on overseas-based buyers of NZ houses, Key has drawn a clear line in the sand. And it is a line that Labour, the Greens and a possibly needed coalition partner in NZ First are on the other side of.
I take Key's remarks yesterday in either of two ways: Either he was responding instinctively and true to his background of 'don't mess with the investor' or National has extensively polled the issue of foreign house buyers and decided it is not an electoral problem.
If the first of those two options is true then Key has just taken a monumental personal risk that could blow up in his face.
If it's the second then it's a more calculating measure; a realisation that this issue is potentially problematic but the best way to face it is by toughing it out and sticking to a consistent line. But it is still risky.
There is a legitimate management technique whereby managers handle a problem by refusing to publicly countenance the very existence of that problem. Ignore it. Don't give it any oxygen. It will go away.
So, in this instance the anecdotal 'problem' of loads of foreign based people buying New Zealand houses and stopping Kiwis from getting into their own homes becomes not a problem because, that's right, it doesn't exist. And who really knows whether it does or not?
As I have argued previously, at least twice, and Bernard Hickey has argued, there is a dearth of quality information both on who exactly is buying houses and why. Therefore there can be limited understanding of exactly why house prices shot up in Auckland last year.
So, we have a Government policy on housing that is based on a set of assumptions.
While Key appeared oblivious to it, there was huge irony in him remarking that he saw little evidence that non-resident buying of houses was a problem, whilst then categorically stating that the main problem in Auckland's housing market was supply.
"It's a supply side issue. If we continue to build houses, I think we'll cover it."
And the evidence supporting this viewpoint is...? Come on...
The Government points to the fact that Auckland has built very few houses in recent years. So, the assumption is that there is a shortage. It's probably not an unreasonable assumption in many respects, but it's an assumption. It is an assumption in the same way that growing numbers of people - with disconcertingly xenophobic overtones - are making the assumption that Auckland is being taken over by overseas based house buyers and that's what has caused prices to rise.
How can the Government decide that its assumption is correct?
What Key is really saying therefore is that the Government won't sanction collecting information on what makes the New Zealand housing market tick and prices go up, it will simply rely on its own assumptions. Well, that's dangerous.
What if we actually, due to the Government cranking up housing supply, end up with a surplus of housing in Auckland, leading to a resultant withdrawal from the market of investors, and a serious popping of the housing bubble? We know that this country has on a world scale highly priced houses relative to income. Any sudden downward re-adjustment - something the Reserve Bank's worried about - would have severe ramifications for existing homeowners and investors.
Whether Key is basing his responses on gut instinct or on results of National's internal polling, it seems to me that public opinion is being misread. Badly.
There is simmering discontent, barely below the surface, among Aucklanders regarding the housing market. Without hard information as to what is driving that market, many people are jumping to their own conclusions in a rather "let's round up a posse" western vigilante kind of way. Yes, I'm afraid xenophobia is to the fore.
I had long since awarded victory to National in this election.
But I would have to say after reading Key's comments, I now see his party as vulnerable to any focused opposition attack that concentrates on people's insecurities and brooding resentment about the Auckland housing market.
Yes, houses just might provide the main battleground for this election and it could be a campaign decided on which parties sell their assumptions better. Because it won't be about facts, that's for sure.
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