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PM John Key denies market failure in housing affordability; says housing cheaper in NZ than Australia; says young NZers should thank National for its leadership and low rates

PM John Key denies market failure in housing affordability; says housing cheaper in NZ than Australia; says young NZers should thank National for its leadership and low rates

Prime Minister John Key was questioned about housing affordability in question time last Tuesday by Greens co-leader Russel Norman.

The full video of the exchange is on youtube.

In the exchange, Key denies any market failure causing a housing affordability problem for New Zealanders and denies any housing bubble similar to anything seen during the last Labour government from 2005 to 2008.

He also said young New Zealanders thinking of leaving for Australia should realise houses were more expensive in Sydney and Melbourne than in many parts of New Zealand and that younger generations should be grateful for the National government's economic leadership and low interest rates.

See the full exchange below:

Dr RUSSEL NORMAN (Co-Leader—Green) to the Prime Minister: Does he stand by his statement of 19 March this year that the housing market is “going to take off”?

Rt Hon JOHN KEY (Prime Minister) : Yes, in the context in which it was made. The housing market had been pretty flat for some time, and I was expressing my opinion that things would pick up. In fact, we are already starting to see that. Quotable Value reports that sales activity has been significantly higher in the last few months than has been the case for several years, especially in Auckland. For the member’s benefit, I was not talking about a housing boom of the sort of the price bubble that we saw in the mid-2000s, though.

Dr Russel Norman: Given that we have a situation where house prices are rising at four times the rate of inflation and twice as fast as wages, according to official data, are we facing a situation of market failure that is seeing homeownership become impossible for more and more Kiwi families?

Rt Hon JOHN KEY: No. I mean, one thing I think we can rejoice in is that interest rates are at a 50-year low, and that is one of the big factors that assist people in terms of their homeownership. But there are recommendations from the Productivity Commission, in relation to its most recent report on housing, that I think would be worthy of Government attention.

Dr Russel Norman: Is it not the case that house prices are out of reach for typical New Zealand families on typical New Zealand wages, and that this is a major factor that is driving people overseas and forcing a generation of New Zealanders to watch their grandchildren grow up on Skype?

Rt Hon JOHN KEY: No, and if the member wants to visit Sydney or Melbourne he will come to realise that house prices are significantly cheaper in most parts of New Zealand than in Australia.

Dr Russel Norman: Why is the Government not taking measures to increase the supply of new, affordable, well-insulated housing to address the market failure to provide enough housing that ordinary Kiwi families can afford to buy?

Rt Hon JOHN KEY: There is absolutely no market failure when it comes to insulating housing, and I am surprised the member raised that, because we happened to work together as political parties to see more homes insulated in the last 3 or 4 years of a National-led Government than had been for decades, virtually, I would suggest, under previous Governments. In terms of making houses more affordable and attainable to New Zealanders, one way not to do that would be to put a capital gains tax on them, as the member wants to do. But if the member wants to support us in reform of the Resource Management Act so that we can— Mr SPEAKER: Order! I think the Prime Minister has gone on sufficiently there.

Dr Russel Norman: Did the Prime Minister hear the remarks from Fran O’Sullivan at the Local Government New Zealand conference, where Ms O’Sullivan particularly referred to the market failure around housing supply being a major intergenerational issue, whereby older New Zealanders have seen their house prices go up very considerably, but a younger generation of New Zealanders are struggling to be able to afford to buy their first home?

Rt Hon JOHN KEY: I think if you went and spoke to any generation of New Zealanders, they would say that it is always quite difficult to purchase one’s first home. That is the case for most New Zealanders. They struggle and they save. But fortunately this generation of New Zealanders has the economic leadership of a National Government that is ensuring that interest rates are on their lows, that there has been a reform of the Resource Management Act, and that Maurice Williamson’s great work around licensed building practitioners, etc., etc, are all making the Kiwi dream of buying a home possible.

Dr Russel Norman: Does the Prime Minister honestly believe that housing affordability has not changed over the last 10 to 15 years, and that it is much harder for younger New Zealand families to get on to the housing ownership ladder than it was 10 to 15 years ago and the Government has a responsibility to address that problem.?

Rt Hon JOHN KEY: No, I think it got a lot worse under Labour. That is because it just did not know how to do anything else than spend taxpayers’ money, force up inflation, and drive up interest rates, and it failed to respond to adjust the bits of the economy that would make housing more affordable, outside of interest rates, like the Resource Management Act. And that member, every time this Government wants to reform the Resource Management Act and make it...

Dr Russel Norman: When will the Prime Minister stop blaming the last Government and accept that we have a housing affordability crisis right now in this country, that young people are struggling to buy their first house and are leaving the country to get better opportunities somewhere else, and that his Government has a responsibility to do something about it, rather than just blame the Labour Party?

Rt Hon JOHN KEY: If that member really thinks that we have a housing bubble at the moment in the way that we had under the previous Labour Government, then, firstly, he is deluded and, secondly, he might want to ask the then Labour Government why it bothered to commission a whole report on housing affordability, of which it followed very little.

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OMG how easy is this one?
turKey, head, sand

Given this forum, someone please spell out the cause for the current low interest rates, the likely hood of an exponential increase coming in those rates, & the possible outcomes should we all pile out & borrow while those rates are at record low.... im no economist & it shouldnt take one to interperet the double talk from our nations leadership! 

The RBNZ monetary policy committee sets the OCR which tends to drive the interest rates (currently low). Other central banks are doing the same.
The OCR is set low because of a lack of credit growth (new lending) in many banks at present. Nobody can tell you when that will change, but most commentators agree it will not be soon.
A decision to borrow should probably hang more on income security than interest rates in my opinion.

"But fortunately this generation of New Zealanders has the economic leadership of a National Government that is ensuring that interest rates are on their lows"
Correct me if I'm wrong, but I didn't think the govt. had any role in setting interest rates (other than the OCR maybe)?

The RBNZ is not suppost to be influenced by the government when setting the OCR, I don't believe that they have been in fact.
John Key is taking responsibility for bailing out several finance companies to sure up the NZ financial sector. He is also implying that credit rating agencies 'rate' the National party and give them a high credit score. You will find at other moments of debate the government are less happy to take responsibility for this however.

Correct me if I'm wrong, but I didn't think the govt. had any role in setting interest rates (other than the OCR maybe)?
meh I think you need to get out more. Govenments have everything to do with fixing interest rates when the only backstop to a worldwide insolvent bank crisis is the taxpayer.
Hence the real cost of Irrational demands for downward house price corrections will be regressively debited against those least able to pay and/or don't even have the wherewithal to begin to enjoy the perils of home ownership. And never will if the grasping, talentless middleclass have their way. The entitled will trample the meek without a backward glance in their haste to secure material glory.
Our government socialised a significant portion of the the leaky homes debacle repair costs without a backward glance or question as to whether the innocent  wished to participate in  the failings of private contracts arranged without their approval.

Go RN, This is one issue that JK may find comes to back bite him in the backside.  Housing is unaffordable, its drains all the money out of the real economy so that there is nothing left for more productive pursuits.  Yippee, we have low interest rates so kiwis can borrow even more than ever, thanks National
What is NZ going to be left with, a heap of rubbish houses and a massive debt to off shore interests.  How is that good for our future whatever generation we are from?
His attitude about it is really starting to annoy me, yes its expensive in Aus, so what.  O look there’s someone worse than us so who cares. Hows that helpful? 

Wow...the ignorance displayed by Key is outstanding.
Firstly, only phase one of the RMA reforms has been completed, phase two has gone off the radar, and it's very debatable as to whether they will address housing affordability.
Also, although interest rates are lower, young people still need to borrow a mountain of debt to buy a house. This isn't acceptable.
And, the new system for licensed building practicioners is not a solution that will address housing affordability. The price of of land is the main reason for expensive housing. I fail to see how the LBP system addresses land supply.
I see a big political opportunity for the Greens if they keep rolling with this issue.

Phase 1 of RM changes made things worse.  Phase 2 won't be any better.

As far as anybody can tell there is a housing surplus. Certainly indicated by some of the comments here, yet to see a more conclusive analysis of the whole country (though I am willing to assume there is some kind of shortage in Christchurch). Show me that and I might start to believe that its a land supply issue.

FYI from a reader via email:
Hi Bernard would like your thoughts on something that occurred to me recently. It is with our favourite topic in NZ and that is of housing.

I have just spent a few days in Whangamata visiting an old friend, who was staying in a, what was, a Post Office Welfare cottage.

Walking around the town I was struck by the total lack of people, the shops that were closed for winter, and at night most streets had
only a couple of houses with lights on. Showing that there were real people in them!

We went through one day to Pauanui and Whitianga, which appeared depressingly deserted. Bearing in mind that many of the empty properties
were absolutely palatial and represent substantial investment. In fact, even though my wife and I are happily retired in Katikati, the trip has permanently
removed any desire I might have had, to live in these seemingly attractive holiday resorts. Finding for much of the year they would be very bleak places indeed.

However it made me ponder when you take all the different towns around NZ, in the above category, just how many houses are empty for much of the year
and the value of these investments and the costs involved in maintenance, power bills and rates etc.

Now, don't get me wrong, I know it's every ones right to own a holiday home, and getting away from it all, whatever that is, has a great deal of attraction.
But thought, I wonder if anyone has ever quantified, the capital that is locked up in extremely unproductive ways, such as holiday homes and maintaining the
infrastructure necessary to support large populations for short periods of time.

It did make me think how hard people have to work to support these, seemingly, attractive situations and tie up capital at the same time.

Interested if you can see this from a different perspective.

I much enjoy your website.

Kind Regards Tony

You make a very good point about empty second homes and wasted capital.
If only we could rip them off their foundations and transport them back to places where we need a lot more houses.
Perhaps Puanui and Whangamata need to be moved back to Auckland.

Not likely!
If my understanding is correct the majority of the palatial homes around Russell, for instance, are owned by rich absentee foreigners. We hardly wish them to sell, as they are a main pillar funding the current A/C deficit. How else would the Aussie banks repatriate  their KIWI for AUSSIE at a worthwhile rate.  Fonterra just ain't big enough to shoulder the necessary KIWI buying burden.
But these Guys and Gals are up to it
And what's more they are seemingly beyond the law or they are it.

Stephen Hulme: Valid point. But, (and heres the gripe) do you have any data to substaniate that. What sticks out is the paucity of data (provided in new zealand) that in turn enables wild guesswork and assumptions that lead to the type of broad-brush propositions undertaken by the hickey-man in his ageist tirades.
QV and Terranet both have the means and capacities to provide the following information
 The number of residential properties where the title is held in the name of

  •  non-residents
  •  non-citizens (data matched with customs and internal affairs)
  •  family trusts
  •  any other type of trust
  •  charities or churches
  •  limited liability companies
  •  partnerships that are not a joint-family-home (3 names or 2 males)
  •  address c/- a bank, solicitor, accountant, or trust (not a straight family home)
  • any residential home where the rating address is not the address of the property.

The reason this is suggested is the possibility (probabilitty) a great number of residences are held in family trusts wherein the children (genX and genY) are in fact the beneficiaries. The answer to these questions potentially undermine the the foundation of the hickey-argument. But, hey, dont want fact to get in the way of fiction do we.
Lastly, could you offer your opinion of a comparison between the data published by the RBA and RBNZ, particularly the daily publication by the RBA and its daily open market operations.

None other than a local restaurant owner telling me so.
Re RBA versus RBNZ . To be honest I never take any interest in what is happening in Australia, I have no desire to analyse another rounding error derivative economy. But I live in New Zealand so I take an interest - but my serious on-going study is the US market. 
I professionallly traded financial instruments there for 20 years and it is still the reserve currency nation. 
Tell me what do you wish to know about central bank open market operations, that might be markedly different between NZ & AUS - both purport to manage liquidity in the banking system employing injection and withdrawal of liquidity using a variety of tools?

Simply pointing out the RBA publishes it's interventions on a daily basis, whereas the RBNZ appears not to. That's what I mean about the lack of data. Not interested in the specifics.

The RBNZ certainly does with the exception of FX swaps & basis swaps - Deputy Governor Spencer denied daily publication of this liquidity management tool after the RBNZ declared it's intention to intervene in the FX market.  I think he is completely wrong to deny the citizens access to this info for no good reason other than he can. - it's release would never be confused with direct intervention actions.
Background article and links
Delayed swap data - Sections 7&10

Bernard: easier to shift the people to the regions than the houses to Auckland.
Move some big Government departments to smaller centres, corporates may follow?  Then service industries will be needed.
Reinvigorate the regions.

As we all know, its not always about occupancy as much as it is about (perceived) capital gains. No RWT on an empty property. 

Tony you are so right .They are extremely unproductive as are rental properties but what else is a kiwi going to invest in when the banks love funding baches and rentals

I have a family member who moved to Whangamata and took over a business there about 2 years ago. I've also spend many man summers, and plenty of time in between in Whangamata at my extended families jointly owned holiday property. Its a lovely place, but has some serious issues around long term viability.

Absentee ownership in small coast communities is a huge issue. The local community stuggles to remain viable outside of the peak summer times. As more and more homes fall into the hands of absentee owners the towns population shrinks. This has an impact on govt delivered social services, such as schools, health etc. The closing of local hospital services from somewhere like Whangamata means that any elderly residents are forced to move to say Waihi, or another bigger center to be able to access health services. They sell up, their properties get taken over by an absentee owner, and the cycle continues. I'd say that places like Whangamata need less absentee owners, and more campgrounds for summer time holidays. Rather than empty odes to the financial status of baby boomers.

... such as that boat marina which stuffed up the surf break.

Indeed, the bar is rather good. Hopefully its just a natural cycle its going through, but the timing of it crapping out is not encouraging.

All in the name of accommodating 209 boats - another "flagship" economic development vs environmental disaster, I fear;

Yeh, all those spots that used to be holiday camping and cabins, low investment in structures etc which was nicely balanced against seasonal patronage. Now, as pointed out, people wanting the townhouse feel on the beach. Go look at Cooks Beach up there. A large number of such houses that have gone up in a very short space of time. Wonder how much uglier it will look in 10-15 years time when nobody has the spare cash or time to maintain them......

This is an APPALLING effort by Key.
He repeatedly ignores the questions and shifts blame elsewhere

Just like a child does when confronted with an unwanted reality.

Agreed...quite shocking...if you read between the lines, Key is waiting for inflation and wage growth to catch up to the bubble.
However, the re-zoning to come from the Auckland spatial plan will be a big help here in Auckland....but this is still a couple of years away...Key needs to bring in policy to make housing more up land, build houses, discourage property investment & high LVR lending.

So is the RBNZ!

It goes to show the only Plan B that Key & Co have is the Three D's (Divert, Divide & Dehumanise).

Couldnt agree more with moving some of the Govt offices etc back out   to the provinces,especially those who have moved there in recent times.i listened to John Brumby speak along similar lines in reinvigorating Geelong and Ballarat by moving Govt departments out from Melbourne as one of the many solutions.
Greg Ninness penned a very good article in yesterdays SSTimes also on affordability.

Strange situation. Aren't there now more taxation penalties placed on absentee owners renting out there un used homes? You would have thought the opposite would be more useful. Encourage absentee owners to lease out empty homes and thereby help keep rents down and provident at least some affordable accommodation. As usual. Unintended consequences dreamt up the bureaucrats.

Well , I did tell you all at the last election to vote for the Greens or Winnie , but not for either of National nor Labour !
..... these clowns in the two major parties won't get the message until we demote them to second and third place ,  instead of first & second , as they assume is their entitlement ....

Damn right! We do need a political 'earthquake'

Don't blame the politicians.
They all mean well and are genuine in their desire to help the people.
Look to the bureaucrats who provide the advice to them in the first place.

so its official - the key to NZ's housing affordability is not lower prices but lower interest rates. Genius!!! Alan greenspan tried that one in the US and it turned out swell (... for the banks at least). Why dont we just give up all forms of productive business, set interest rates to zero, borrow 10 million bucks each and live off the dole to service the interest?? Its that easy.
has there ever been a bigger denial of responsibility or passing the buck??? What an egg. Wake up JK, LOW INTEREST RATES ARE THE CAUSE, NOT THE CURE.

No, low interest rates are a symptom....raisng them in a liquiidty trap is one sure way to set off a depression.

Low Interest rates a crime against savers, It really is that simple. It is amazing that National Voters vote for little income from their savings- crazy stuff.

uh no,
a) If you are in say china or japan you get virtually no interest.
b) bank deposits are low risk, non-events, so put your money to work.....
c) maybe National voters are brighter.....that wouldnt surprise me.

It would be great to see some research pulling together the average house prices compared to the median wage over the past 60 years or so. I agree that a small component of the problem might be young people's inflated expectations of the size and quality of our first house, so maybe this could be taken into account to some degree, like including average floor size and section size of houses over the same period?

Anne - absolutely pointless to be so narrow, you'd get no meaningful result from your efforts.
Try ascertaining the physical distance increase, yoy, required from infrastructure/servicing. Reklate the 'price' of oil to the 'price' of infrasructure, include ongoing maintenance.
You are correct we've gotten bigger houses - and it's interesting to note we use more energy per-house than we did. Jevons is alive and well.
Median wage?  For a long time now, that hasn't been underwritten. Why relate to a variable? Private debt, LA debt and Govt debt, as all rising. Worse, they don't measure Natural Capital / externalities, so that debt measure is a long way short of the physical debt measure. Wages are an expectation that they can be exchanged for bits of the planet - houses are made from and by, bits of the planet. More people= less bits of planet per head. More consumption of finite resources= less to start with. Of course the bidding will go up, in $numeric terms.
Don't let the ever-lessening-quality trees stop you seeing the diminishing forest.