Building for future

25/02/2021

Housing price increases have been outpacing wages for 20 years:

If nothing significant changes now that will get worse:

If New Zealand politicians thought the housing crisis in 2020 was bad, the worst is yet to come, warns a new report by The New Zealand Initiative.

In The Need to Build: The demographic drivers of housing demand, Research Assistant Leonard Hong modelled 36 scenarios and found that New Zealand’s population gets older and larger by 2038.

Hong calculated that the number of additional dwellings needed would reach between 26,246 and 34,556 annually under the most plausible scenarios. This excludes the annual housing replacement and demolition rate, and the current 40,000 undersupply calculated by Informetrics. 

“Historical data tells us that only 21,445 new houses have been built in New Zealand annually since 1992. This is nowhere near enough to accommodate our growing population,” says Hong.

For the next 20 years, even with zero net migration, we still need to build close to 20,000 dwellings annually to keep up with population changes.

“Policymakers should stop blaming the housing crisis on land banking investment and speculation and find policy solutions to drastically expand housing supply to keep up with demographic changes.”

Demographic changes will also have adverse effects on our prospects for fiscal prudence. The report demonstrates that the number of those over 65 years will be up by at least 23% in 2060.

This means fewer future taxpayers and more pressure on working-age New Zealanders to fund public services such as health care and education.

“Our future is an older and larger New Zealand and we must start preparing for it,” says Leonard Hong.

“We need to make a growing and ageing New Zealand a liveable place for New Zealanders, and this starts by building more houses now. Otherwise, future generations will have to deal with terrible housing affordability prospects.”

“This report should be a wake-up call for the government,” concludes Leonard Hong.

The full report is here.

 

It is no use tinkering with policies that attempt to reduce demand. The shortfall in supply is too great for that to make any significant difference.

The only solution is to build a lot more houses and start doing that now.

The government is frightened of the fallout should house prices decrease. It won’t have the courage to say that building more houses is a much higher priority than safeguarding the equity of existing home owners with big mortgages.

But the demand for housing is such to mitigate a lot of that risk.

Even if it didn’t, the financial and social costs of not addressing the housing crisis are a much greater problem that needs urgent action to enable a lot more houses to be built much sooner than any existing policies will do.


Where’s the urgency?

11/02/2021

Another day, another announcement of an announcement that shows no sense of urgency:

The Government needs to show more urgency and commitment if it ever wants to make meaningful strides towards solving the housing shortage and getting wins for the environment.

National’s spokesperson for Housing and RMA reform Nicola Willis says first-home buyers will be disappointed the Government isn’t moving fast enough to make house building easier.

“House prices have risen more than 40 per cent since Labour came to office, yet Labour has shown no urgency when it comes to making it easier to build houses in this country.

“National has offered to work with Labour on emergency legislation, much like the special powers used in the Christchurch rebuild, which would accelerate house building nationwide.

What worked in Christchurch would work everywhere else.

“We’re disappointed that Labour hasn’t accepted our offer to form a special select committee and get on with this, much like it turned down the chance to work in a bipartisan way on RMA reform while National was last in Government.

“Now Labour plans to spend another three years moving RMA legislation through Parliament. Given the time it will also take local councils to amend their plans, it could easily be the late 2020s before any of these changes take effect.”

Ms Willis says she is concerned about the proposal for developments to be within biophysical limits and have positive environmental outcomes before proceeding, which David Parker has acknowledged will need to be carefully managed to avoid impacting house building.

“These changes may actually make it harder to build houses.”

National’s spokesperson for Environment and RMA reform Scott Simpson says Labour is heading down the wrong path with its reforms.

“For a Government that talks a big game on the need for environmental gains, it is moving at a snail’s pace.

“There’s a real risk its plans for new legislation will make things more complicated, costly and confusing than is currently the case, without achieving the environmental gains they seek.”

At the last election, National proposed splitting the RMA into an Environmental Standards Act, setting clear and efficient environmental bottom lines; and an Urban Planning and Development Act, making it easier to build houses in our cities, Mr Simpson says.

“This approach would ensure that our natural spaces are well protected, while also making sure we have a positive process for allowing houses to be built in already developed areas.”

Labour was telling us there was a housing crisis long before the party was in power.

It’s now in its second term, the lack of supply is driving house prices well beyond the means of average earners and rents are following a similar path.

The RMA is one of the factors contributing to development and building costs.

The government should stop playing politics and work with National to get solutions with the urgency that’s required.

 


Crisis warrants emergency response

27/01/2021

Emergency powers are needed to solve the housing crisis:

National is calling on the Government to introduce urgent temporary legislation to make housing easier to build, and has offered to support the law change through Parliament.

At her State of the Nation speech in Auckland today, Leader of the Opposition Judith Collins said the time had come for an extraordinary solution to an unfolding emergency.

“It is too hard to build houses in New Zealand. We need to make it drastically easier. With rents and house prices spiralling out of control, Kiwis can no longer afford to wait.”

The law change would give Government the power to rezone council land, making room for 30 years’ worth of growth in housing supply, both through intensification and greenfield development.

The appeals process would be suspended so district plans could be completed as quickly as possible. Requirements for infrastructure to be built prior to zoning would also be suspended.

It would be a nationwide equivalent of the emergency powers put in place to get houses built in Christchurch following its earthquakes, which enabled the multiple between median incomes and house prices to remain constant there between 2014 and 2020.

What worked in Christchurch could work in the rest of the country.

Ms Collins has today written to Prime Minister Jacinda Ardern, suggesting that a special Select Committee be established immediately to develop the emergency legislation, with the committee’s recommendations available for consideration by the end of March.

With house prices having jumped 41 per cent since Ms Ardern became Prime Minister and the waiting list for public housing almost quadrupling to 22,409 households, building public houses alone will not be enough to make a meaningful difference, Ms Collins says.

“New Zealanders have had enough. It’s time for the two major political parties to work together to fix this problem.”

National’s housing spokesperson Nicola Willis says that while the dream of home ownership has been disappearing for many Kiwis, rents have also ramped up by an average of $100 a week in just three years.

“This means people are struggling to keep up with the other necessities of life – food, power and doctors’ visits.

“National wants more for New Zealanders. We don’t want a future where the only answer to being able to afford a place to live is to get on a Government housing waiting list.”

The debate over whether or not there is a housing crisis is over.

House prices are increasing far faster than incomes and inflation, rents are following, and poeple earning more than the average wage can’t afford to buy a house.

Unless drastic action is taken to address the root cause – supply falling so far behind demand, prices will continue to climb and the problems associated with unaffordability will get worse.

The government must make it easier to build houses and it must do so with urgency.


House prices don’t have to keep going up

26/01/2021

A guest poster at Kiwiblog predicts a property price crash.

Jenée Tibshraeny considers the impact of a 20% fall in prices:

1. Someone wishing to make a 20% deposit would have to save $23,400 less. . . 

That would make houses more affordable though it would come at a high price for any vendors who had bought recently.

2. Rents would likely stabilise. . .

That would be an improvement on increases that are making the poor and not-so-poor poorer, although some would still be too high for many.

3. Homeowners would feel less wealthy. . .

If they don’t have to sell, that’s only a feeling.

4. A 20% fall in house prices would put 7.7% of mortgage debt ($22.3 billion) in negative equity, according to the RBNZ. . .

That would be only a paper loss for anyone who held on to their property but an expansive problem for anyone who had to sell.

5. Businesses – particularly small ones – with loans secured against residential property would get nervous, threatening people’s jobs. . .

That isn’t good for businesses or their employees.

6. Business confidence would take a knock, with a question mark over the degree to which this would stymie investment. . .

Falling business confidence reduces investment and employment.

But what of the harm caused by continuing steep rises in house prices?

New Zealand’s economy and financial system are precariously built on the housing market. It is for this reason policymakers would rather protect than risk damaging this market.

But what we need to realise is taking a block off the top of the game of Jenga that is the housing market, and sliding it back into the foundation, is possibly lower risk than taking another piece out from the bottom to keep building an increasingly shaky tower.

More research needs to be done around the trade-offs surrounding changes in house prices from inflated levels.

2021 needs to be the year of challenging the narrative that house prices must always keep going up.

A fall in house prices would hurt some people, but what if the steep increases are doing more harm than a fall would?

Ben Thomas writes:

. . . Prime minister Jacinda Ardern must take her share of responsibility for encouraging the property feeding frenzy of the past few months, which threatens to create a new and permanent class division in New Zealand society.

Ardern did not create the conditions for New Zealand’s housing crisis – blame for that falls mostly at the feet of Sir John Key, Helen Clark, and the Reserve Bank’s plummeting interest rates and removal of loan-to-value ratios (LVRs) in response to Covid-19.

However, through her actions and her words, the prime minister has not just failed to dampen down, but has actually poured petrol on the pyrotechnic panic-buying that has seen prices spiral out of control. . .

In December, she gave her clearest commitment yet to seeking “sustainable” growth in house prices: “I think people expect you see that in the market,” she told Interest.co.nz by way of explanation.

What’s sustainable? The sort of mad prices people are paying now, well above what anyone on an average income can afford aren’t.

This reassured homeowners. But the comments are extraordinary: the Government does not even currently guarantee savings that are deposited in Kiwibank in the event of a financial crisis (and which offers a 0.9 per cent interest rate on term deposits).

The flipside of the implied, but increasingly explicit, guarantee for housing is a signal that the Government will try and ensure housing only ever becomes more expensive, even if more slowly. That’s a red rag to investors who can leverage existing homes to borrow almost free money, and desperate first-home buyers borrowing to the hilt.

It also ensures, as we are seeing now, record low levels of houses available to purchase. Why would you sell now if the prime minister has guaranteed that your house will be worth more next year and in fact, probably, next month? . . 

You don’t have to live in it or rent it out is you know that significant capital gain is assured making it a very secure investment, albeit one predicated on growth rather than yield.

Just as the public (or at least those who can save, beg or borrow for housing) is responding to incentives offered by the Government, Ardern is responding to incentives of her own.

The obscene political calculus is that, while 64.1 per cent of people still live in owner-occupier households, if property prices were to double in the next three years Ardern’s party would probably be re-elected with an even larger majority than it currently has. . . 

What politician would not find that attractive?

The result of pursuing these short term incentives is less palatable for the long-term legacy of a centre-left government. That is, overseeing the final seismic shift in house prices, out of the reach of all but existing homeowning families, that leads to not just widening but perhaps irreversible inequality.

It’s worth considering the scale of the disparities between two different New Zealands.

The idea that an Auckland home could earn more than an Auckland worker is no longer even shocking. But during the month of October alone, the value of a median price Auckland house went up by $45,000.

Whether or not it’s shocking,  it’s wrong.

Like any mass panic, it is contagious. Alert level 3 lockdown stopped the coronavirus spreading outside Auckland in the second half of last year, but it could not hold back Auckland investors from bidding up, then buying up, property throughout the regions, as has already happened in large parts of south Auckland.

Gisborne, on the East Coast, one of the regions the hardest hit by the early Covid disruptions and with a median household income roughly $23,000 less a year than Wellington’s, saw house prices increase by 43.8 per cent.

We have, in part at the government’s urging, gone past a housing crisis, a mere shortage of homes, and into a frenzied carve-up of the country’s future wealth.

Whatever this month’s announcement, the bigger “reset” that is almost complete is a fundamental shift away from a society where social mobility is possible (however imperfectly) through education and work, towards one where property and even the trappings of a middle class life are kept exclusively within one band of society. Haves and have-nots; the landed gentry and serfs.

The idea of New Zealand as an egalitarian country where Jack and Jill were as good as their masters and mistresses has been in no small way been built on the ability a sizable majority had to own their own homes.

Now that has become an impossible dream for too many and created the nightmare of increased rents and more poverty with all the social problems that stem from that.

This has provoked the usual calls from the left to increase taxes, or impose new ones. That would be nothing more than tinkering and hasn’t worked as a brake on house prices anywhere else.

The steep prices are a result of demand outstripping supply and the only sustainable solution is to increase the supply.

The much slower rise in house prices in and around Christchurch when constraints on development were lifted after the earthquakes shows what can be done.

The supply is so far behind demand even that won’t be a quick fix, but it will eventually work and when supply catches up with demand, the pressure on prices will subside, as it should.

House prices don’t have to keep going up. Once people get their heads round that they’ll look for other more productive investments without the financial and social ill-affects that come from the current steep and unsustainable increases in property values.


Reheated announcement won’t help housing

22/01/2021

When escalating rents are forcing families into emergency housing.

And

Mortgage arrears grow as demand for credit hits pre-Covid highs.

And

The lack of properties for sale is putting pressure on house prices and speeding up sales.

And

The public housing waitlist grows by 1000 in two months to new record high as high rents hit the poor

And

Newsroom shows the housing affordability crisis by the numbers .

We have a problem in urgent in need of a solution but all the government gives us is a reheated announcement from last year’s Budget.

The Public Housing Plan 2021-2024 outlines where the government intends to build the 6000 public and 2000 transitional housing places it promised in last year’s Budget.

In all those months since the Budget, all the government has done is identify areas where they think the need for social housing is highest, none of which are in the South Island.

A reheated announcement like this won’t solve the housing crisis and there’s shades of the KiwiBuild debacle in it.

If it’s taken all these months to sort out where to build, how much longer will it take to get the building done?

There has to be a better way.

The Government’s public housing plan will fall well short of fixing New Zealand’s housing emergency, National’s Housing spokesperson Nicola Willis says.

“The social housing waiting list is growing at an alarming rate. In the past 12 months alone another 7900 people put their hand up for a home.

“At this rate, another 32,000 people could be on the waiting list by 2025. That makes today’s announcement a drop in the bucket when it comes to fixing New Zealand’s housing woes.

“More and more Kiwis are being priced out of the private market as rents surge and house construction fails to keep up with demand.

“Rents have gone up $100 per week in just the past three years. This is a far higher rate than any time in our history. What is Jacinda Ardern’s solution to that problem?

“For many Kiwis, joining the queue at MSD to apply for emergency housing isn’t the answer they’re looking for. We need to drastically increase our housing stock by making it easier for everyone to build houses in this country, not just the Government.”

The number one solution to the fix the housing emergency is repealing and replacing the Resource Management Act. National has also proposed these shorter-term solutions:

    1. Strengthen the National Policy Statement on Urban Development: The Government should bring this urgent rezoning of land by local authorities forward, and increase the competitiveness margin, to enable intensification and growth.
    2. Remove the Auckland Urban Boundary: This arbitrary line has been found to add $50,000 or more to the average cost of houses in Auckland. The Government committed to removing it in 2017 but progress has stalled.
    3. Make Kāinga Ora capital available to community housing providers: Proven social housing providers have land and consents for new housing projects ready to go. The Government could make these projects happen immediately by releasing some of the $9.8 billion in taxpayer funding currently ring-fenced for future social housing.
    4. Establish a Housing Infrastructure Fund: This would help local government finance the pipes and roads required to accelerate rezoning of land for Greenfields developments.
    5. Implement new finance models: The Government should work with industry to develop finance models that leverage Accommodation Supplement and Income-Related Rent entitlements to drive new housing development.

“We need emergency measures to release land for development and boost construction as National did successfully in response to the Canterbury earthquakes. We will work constructively with Labour to achieve this.

Labour wasn’t prepared for its first term in government and had the excuse of being held back by its coalition partners.

Those excuses wont wash now it’s in its second term and has an outright majority.

It can’t keep trying fool us into mistaking announcements and re-announcements for action.

When the root cause of the housing crisis, and the social and financial problems associated with it, is demand outstripping supply the solution is urgent action on the supply constraints not a timid reheating of last year’s Budget announcement.


How much longer can it last?

23/12/2020

Paying three to four times the gross earnings of a farm when buying one used to be regarded as reasonable.

That’s probably where values are at the moment.

I don’t know what the reasonable ratio between urban house values and average wages is but when houses in low income suburbs are selling for more than a million dollars it is well below current prices.

Last month an unremarkable 1960s weatherboard house on less than a quarter acre section in Ōtara in South Auckland sold for $1.01 million.

Another – which 12 years ago sold for $340,000 – went for $1.1m, more than triple its last sale price in October.

Manukau Ward councillor Efeso Collins said more than 80 percent of Pacific people did not own their own homes, and rising house prices were a cause of pain for his constituents, as rents went up and incomes did not.

“That means there are times where some people have to go without,” Collins said.

“I know there are parents who are decreasing the number of meals they’re having to ensure that the kids are eating enough, and getting three basic meals a day. That’s part of what I call the social trauma that’s being faced by many constituents that I work with.”

He said people felt hopelessness about the situation, which they did not think would get any better.

“I think people have given up. There are many people in the Manukau Ward… that have just given up.

“I’m really disappointed with what the government’s done. I think the government’s thrown money at a banking system that in my view isn’t working, and that’s not going to keep house prices down.” . . 

Low interest rates are part of the problem but the root cause is simply demand outstripping supply and the ridiculously high prices of houses is feeding through to higher rents:

New Zealand’s national median weekly rental price finished off the year 21 per cent higher than it was at the end of 2015 according to the latest Trade Me Rental Price Index.

Trade Me Property spokesperson Logan Mudge said the national median weekly rent was $520 last month, marking a 4 per cent increase on the same month in 2019 and a 21 per cent increase on this time in 2015. “November’s median weekly rent matched the all-time high we first saw in February this year.”

Nationally, supply was up by 6 per cent in November when compared with the same month last year. “This is the biggest year-on-year increase in supply we have seen since June. However, with demand sky-high, up by a whopping 20 per cent year-on-year, rental prices around the country have stayed very high.” . . 

How can any but the wealthy afford even the basic necessities let alone save for a deposit on a house when they’re paying so much in rent?

How much longer can this madness last?

When farm prices get too high, people stop buying and prices come back a bit.

The ones who get hurt by that are those forced to sell at prices that take most, all, or, sometimes more than all, of their equity.

If there’s a correction in house prices that will happen to some people.

If it doesn’t, is there an alternative to even more people being hurt by escalating rents and the worsening gap between what they could afford to pay for a house and the asking price?


An expensive week

18/12/2020

It’s been a very expensive week for the taxpayer.

There’s the $333,641.70 Parliamentary Services paid for Trevor Mallard’s loose lips – and that’s likely to increase once an employment dispute is settled.

That was followed by the steep increase to the minimum wage, which might add to costs of the lowest paid in the public service and will add costs to all businesses.

As Lindsay Mitchell pointed out it will also increase the cost of benefits.

. . . Down the track it will lift the incomes of many more now that beneficiary rates  are linked to wage inflation. . . 

. . .It makes life harder for businesses and there is no increased certainty about supply of labour if benefit payment rates are competing. Earlier Henry Cooke calculated, “…benefits will go up between $27 and $46 a week by April 2023 – between $10 and $17 a week higher than they would under the old formula.”

To maintain relativity employers will be pressured to raise the wages of those above the minimum wage and are likely to pass their increased costs along to customers and nobody will be any the better for it.

It’s going to be difficult for the Reserve Bank to keep a lid on inflation. . . .

Inflation will negate any benefit from wage increases.

Then there’s the $29.9m paid to Fletcher Building for the land it was to develop for housing at Ihumātao.

It’s not just this payment, it’s the damage it’s done to property rights and the risk it poses to Treaty settlements:

National’s finance spokesman, Michael Woodhouse, said taxpayers were paying for the Government’s bungling of a land dispute.

“Taxpayers aren’t a bank to be called upon to clean up the Government’s poor decisions, particularly when it is meddling in private property rights,” Woodhouse said.

“The Prime minister should never have involved herself in the Ihumātao dispute and taxpayers shouldn’t bailing her out now.

“The ramifications of this Crown deal go much further than the lost opportunity of building houses immediately. It will call all full and final Treaty settlements into question and set a dangerous precedent for other land occupations, like the one at Wellington’s Shelly Bay.

“More than 20,000 Kiwi families are on the waiting list for a home this Christmas. The Government should not be spending $30 million on stopping 480 much-needed houses from being built right now.” . . 

The costs aren’t just financial.

The man defamed by Mallard lost his job and now has health problems.

The steep increase in the minimum wage will cost jobs and could be the last straw for businesses already in a precarious state.

And the political interference at Ihumātao has cost 480 desperately needed houses.

This is a very expensive start to the new government’s term.


Here’s the answer

10/12/2020

Here’s the answer to the housing shortage in one picture:

Why did Christchurch diverge from the national trend?

Land was freed up for development after the earthquakes.

Housing statistics released today and over the weekend show an unfolding disaster for New Zealand families and communities, National’s Housing spokesperson Nicola Willis says.

“We now have the lowest rates of home-ownership we’ve seen in 70 years, the biggest social housing waiting list on record and record numbers of Kiwis turning to emergency housing.

“New Zealand’s housing problems are fast becoming a national emergency. Where is the urgency in the Government response?

“It’s time for emergency measures to get more houses built, like those used in Christchurch to rebuild the thousands of houses that were wiped-out by that disaster.”

The National Government at the time recognised emergency regulations needed to free up land and remove development constraints. As a result, new house building took off.

The surge in housing supply put a lid on affordability, with the ‘multiple’ between median incomes and median house prices stabilising in Christchurch for the period 2014-2020, while elsewhere cumbersome regulations resulted in housing become more unaffordable.

National is willing to work with the Government to develop immediate measures modelled on the Christchurch response by zoning more land for housing, over-riding the RMA appeals process and increasing leniency on the timing of provision of infrastructure.

“If we get the regulations right, developers will build at scale and pace,” Ms Willis says.

“We can’t afford to wait years for this Government to get on with Resource Management Act reform while house prices continue to rocket.

“Faced with an emergency of inter-generational proportions, action is required.”

The high cost of building is part of the problem of sky rocketing house prices but the price of land is the much more significant and the solution to that is to increase the supply.

It worked in Christchurch, it would work everywhere else.


From KiwiBuild to KiwiBlame

01/12/2020

Prime Minister Jacinda Ardern has pointed her finger at the public over the housing shortage:

Prime Minister Jacinda Ardern is putting some onus on the public for the housing crisis, saying the Government had tried taxation to ease the soaring market three times without public support. . . 

KiwiBuild was an abject failure but that’s no reason to move to KiwiBlame.

Haven’t any of the proposals for capital gains and other such taxes exempted the family home?

Is this the same Prime Minister who campaigned for a CGT but then was eerily silent on the proposal for one from her own Tax Working Group in her first term?

And have capital gains or wealth taxes in other countries had a dampening affect  on house prices?

The answer to the first two questions is yes and to the third is no.

New Zealand First got the blame for stopping a CGT in the last term. That can’t be used as an excuse now and the government could introduce a CGT if it wanted to.

Good governments do unpopular things if they believe them to be the right thing.

A CGT would not however, be the right thing to address the increasing cost of housing. It would raise some revenue eventually but it would have a negligible if any impact on the housing shortage and consequent rising prices.

The steep increase in house prices has more than one cause but the main one is that supply has been outstripping demand for years.

The reason behind that includes the high cost of development, largely as a result of the expensive and time consuming RMA process and regulations that restrict where houses can be built, and how many, and how high they, can be built.

If the PM wants to point any fingers it should be at her government and herself who should be prioritising the promised repeal of the RMA and working on its replacement.

Her KiwiBuild was a practical fail and KiwiBlame is a political fail.


What’s the difference?

17/11/2020

When National promoted the Trans Pacific Partnership free trade agreement, Labour, New Zealand First, the Green Party and their followers were vehement in their opposition.

When Labour added a couple of words and made it the Comprehensive and Progressive Agreement for Trans Pacific Trade most MPs who had been so strongly against the TPP were just as strong in their support of the CPTTP and there was hardly a whisper against it outside parliament.

The Labour government has just signed the Regional Comprehensive Economic Partnership with 10 countries from the Association for South East Asian Nations (ASEAN) plus Australia, China, Japan and South Korea.

The Ministry of Foreign Affairs and Trade (MFaT) says this anchors New Zealand in a region that is the engine room of the global economy.

The 15 RCEP economies are home to almost a third of the world’s population, include 7 of our top 10 trading partners, take over half New Zealand’s total exports and provide more than half our direct foreign investment.

RCEP deepens our trade and economic connections in the Asia-Pacific region, an important part of New Zealand’s Trade Recovery Strategy. The agreement will help ensure New Zealand is in the best possible position to recover from the impacts of COVID-19 and seize new opportunities for exports and investment. RCEP is projected to add $186 billion to the world economy and increase New Zealand’s GDP by around $2.0 billion. . . 

New Zealand is too small to benefit much from bilateral trade agreements and has a lot to gain from multi-country deals like this one.

The government has done the right thing in concluding the work started under National but could be called hypocritical after the vehemence of its criticism of the TPPP.

And while some call Federated Farmers right wing and accuse it of being National in gumboots, it has given the agreement the thumbs up:

The prospect of reduced red tape from a single set of trade rules for the Asia Pacific is a major reason why New Zealand producers and exporters will give the RCEP deal the thumbs up, Federated Farmers says.

“Anything that takes us further along the path of ironing out border costs and delays, and reducing protectionist tariffs, for our exports has to be a good thing for farmers, and for New Zealand, Feds President Andrew Hoggard said.

A degree of scepticism has been voiced about how quickly our GDP would be boosted by the estimated $2 billion a year from the Regional Comprehensive Economic Partnership agreement signed at the weekend, given we already have free trade agreements in one form or another with all of the 14 other signatory nations. But new opportunities should eventually flow.

“This is now the largest free trade agreement in the world, covering nations with nearly one third of the world’s population. It includes clear mechanisms to us to address any non-tariff barriers put up against our exported goods by the other signatories,” Hoggard said.

RCEP delivers additional tariff elimination on a number of New Zealand food products into Indonesia, including sheepmeat, beef, fish and fish products, liquid milk, grated or powdered cheese, honey, avocados, tomatoes and persimmons.

The Green Party is the only one in parliament opposing the new agreement. Opposition from outside parliament has been muted and it’s not just on trade where the left is less vocal on issues than it was a few years ago.

When National was in power stories of homeless people and their plight were regularly featured in the news. Politicians and other groups on the left were happy to be quoted criticising the government and demanding action.

Homelessness and overcrowding are still be a major problem and, given the escalating price of houses, a growing one. But the stories of people living in cars and other suboptimal accommodation aren’t nearly as frequent.

What’s changed? Just the government.

Could it be that the people who advocate so loudly for the vulnerable when National is in power let their own partisan attachments get in the way of their political agitation when Labour is ruling?


Money supply fuelling house prices

16/11/2020

Friends on Waiheke Island took us to visit friends of theirs who were selling their house on a 900 square metre section.

The asking price was $500,000.

“How many stock units could you run on the lawn?” my farmer asked, knowing at the time we were buying a neighbour’s farm of about 120 hectares with a house and wool shed for less than that.

Town and country property prices have gone up a lot in the two decades since then. House prices increased nearly 20% in the last year.

The steep climb is largely a function of supply and demand. There are far fewer houses for sale than there are buyers in the market.

Immigration has plummeted so we can’t blame that.

We can point some of the blame at the national lockdown in March and the more recent Auckland one that put a dampener on new builds, adding to the delays and costs caused by the RMA and building regulations.

But David Law at the New Zealand initiative says loose monetary policy is the bigger culprit.

. . . The Reserve Bank is undertaking a $100 billon programme of quantitative easing. The Official Cash Rate (OCR) is also now at a record low, reduced from 1% to 0.25% in March. These two decisions alone will lift returns on investment in housing and increase pressure on house prices, particularly as supply is constrained.

If the Government cares about fixing housing affordability, it should start by being clear on the reasons for those high prices.

Former Finance Minister Steven Joyce is also concerned about housing for the haves and no relief for the have nots:

. . . People can afford the repayments on a bigger mortgage so they bid up the sticker price on the house, while others look for any sort of asset yield that’s bigger than the derisory amounts available from bank deposits.

There is now much more recognition that ultra-low interest rates are driving high asset prices including house prices, but so far much less will to do anything about it. . . 

The Prime Minister has shown concern and said prices can’t keep going up at the rate they have been but her concern hasn’t translated into any practical solution to the problem/

Covid-19 is the big driver of the current economic recession, but the government’s policy response isn’t helping.

By continuing to invoke lockdowns at the drop of a hat, mandating big minimum wage and public sector pay increases, pursuing the adoption of the so-called living wage, increasing holiday pay and pushing myriad other anti-employment measures, there is no doubt that the economy will respond with more sluggish employment growth than would otherwise be the case.

In turn monetary policy has more work to do to maintain progress towards the full employment goal. Say hello to even lower interest rates for longer; and ever more nonsensical asset prices, especially houses.

It is a big irony that government policies that often seek to boost the fortunes of the low paid end up helping to trap them in a hand to mouth existence, with no way to break the cycle and get on the home ownership ladder. . . 

Worse, higher house prices lead to higher rents which makes it harder for low income renters to make ends meet and for higher income renters to save for a deposit to buy a home.

The simple fact is that under current policy settings, micro-economic policies that attempt to artificially boost incomes beyond what businesses and the economy can afford will simply end up driving a bigger wedge between the haves and the have nots in terms of asset prices and wealth, through the mechanism of ever lower interest rates. We are chasing our tails.

Anything which increases the supply of money and lowers the cost of borrowing without increasing the supply of houses will drive up prices.

The Reserve Bank is trying to stimulate the economy by encouraging businesses to invest and expand but government-mandated increase in wages and sick leave have the opposite affect.

And any positive impact from the lower OCR is more than outweighed by the inflationary pressure low interest rates are putting on house prices.

The house we looked at on Waiheke Island would be selling for far more than $500,000 now. The farm we bought has increased in value too but it’s a productive asset supporting jobs and earning export income.

A house provides a home but it produces nothing and the rampant price increases of owning one is producing misery.


It’s not all bad

25/03/2020

The tourism slump could provide an opportunity for would-be renters:

Property investors are pulling properties from Airbnb to offer as long-term rentals instead.

New Zealand’s tourism industry has come to a standstill as the country responds to the spread of coronavirus.

A spokeswoman for Trade Me said usually 6 per cent of Trade Me rental listings were offered furnished. But since March 14, when the self-isolation rules were first announced, that number had increased to 11 per cent.

“This puts the total number of fully furnished rental listings at double what they were at the time last year,” she said. . . 

Economist Benje Patterson said huge number of Airbnb units had been put back into the rental market in Queenstown in particular. . . 

One reason for a shortage of rentals and homes to buy has been the number of properties being used for holiday rentals.

Landlords have been able to make more money with fewer hassles using the likes of Airbnb than they could with renting longer term.

“There are also large numbers of houses becoming available as people who have lost their jobs have moved out of rentals or have left New Zealand to head back to their home countries. I have seen reports of landlords throwing their hands up in the air and letting people break leases, rather than being stuck with someone who can’t pay rent. In other cases, there is evidence that tenants have done a runner.”

He said it was worrying because a big drop in yields for investors would push some to sell.

“A flood of forced sales, at a time when confidence to purchase a home is low, could cause severe instability to pricing. There is likely to be moves by the government over the next week or two to implement mortgage relief in order to prevent such forced sales. The last thing the government wants is for a mass rush to the exit push other homeowners into negative equity and compromise financial stability in anyway.” 

There probably wouldn’t be a lot of argument against mortgage relief for homeowners.

There might be more argument if it is extended to property investors especially when so much has been said about escalating property prices and the difficulty people have buying their first homes.


Why not more of what works?

24/02/2020

Leilani Farha, UN Special Rapporteur on the right to housing, visited New Zealand and left us with several recommendations including a rent freeze and capital gains tax.

I have yet to see or hear what the visit cost us, but the government that invited her, could have saved all that by asking Steven Joyce who has much better recommendations

. . . Before we embark on another “housing crisis” complete with politically partisan policy ideas that turn out to be mirages (come on down Kiwibuild), let’s have a look at all the housing policy changes that have occurred over the last decade and assess what practical lessons they provide about the New Zealand housing market.

The first is that land supply is hugely important if you want to build more houses.  . .

The price of houses is a reflection of demand outstripping supply and one of the reasons for that is restrictions on where people can build and the cost of developing new areas for housing.

The premier case study on land availability is post-earthquake Christchurch. Pre-earthquake the local councils developed a “smart growth” plan where they agreed what land around the city would be released for housing progressively over the next thirty years. Then, alongside the lives tragically lost in the earthquakes, massive numbers of houses were made uninhabitable virtually overnight.

After the quakes, amid dire predictions of skyrocketing house prices, Gerry Brownlee took the radical decision to release the whole thirty years of land at once. There was much sucking of teeth at local and central government, but it was the right call.

As the result of competition amongst developers tens of thousands of Christchurch families were able to use their insurance payouts and reasonably priced new home and land packages to successfully re-establish themselves. Christchurch house prices have since been some of the most reasonable in New Zealand. 

The second lesson is about the availability of finance. The Global Financial Crisis dried up bank finance and laid waste to non-bank lenders. The lack of finance for new builds crippled the building market and it took years to recover. That’s a cautionary tale for the Reserve Bank, whose heroic new bank capital ratios will reduce available bank finance, albeit more gradually than previously proposed.

The more banks have to hold, the less they will have to lend and the more expensive the lending will be.

The third, and arguably biggest lesson from the last decade is the now obvious role low interest rates play in driving high house prices, and indeed all asset prices. Every time interest rates have got ridiculously low, house prices have shot through the roof as people bid up prices to the limits of the mortgage they can now afford. This price inflation seems fine if you already own a house, but it perpetuates the wealth gap between those that own houses and those that don’t.

Lower interest rates allow people to afford bigger mortgages, that enables them to pay more for houses and that feeds price increases.

Ultra-low interest rates are driven by governments worldwide contracting out wider economic management to central banks, which then have to compensate for poor microeconomic policies flattening growth. You might not think an oil and gas exploration ban, poor quality government spending, and backward-looking employment policies lead to ever higher house prices, but indirectly they do.

There are lessons out of the rental housing and social housing markets. It is crazy to persist with a single monopoly state housing provider when it has never in its history managed to successfully meet the demand for social housing. It’s also not sensible to let one person have the same state house for life irrespective of changes in their family and personal circumstances. The rapidly growing social housing waiting lists compared to two years ago provide the evidence there. . . 

How can a government that cares let a couple or single person occupy a house with multiple bedrooms while families with several children are homeless?

Then there’s the added compliance requirements and accompanying costs that lead to fewer rentals.

That’s not to say never change anything about residential tenancies, but perhaps don’t whack landlords with a dozen negative changes over, say, three years.

To make housing more affordable, the last decade’s experiences tell us to greatly increase land supply, ensure a ready supply of build finance, put less pressure on the Reserve Bank to lower interest rates to keep the economy going, enlist community and NGO help in supplying social housing, and stop treating the vast bulk of residential landlords like they are pariahs. Oh, and forget a more punitive capital gains tax – countries with one of those have the same skyrocketing house prices as we’ve had.

There are valid arguments for a capital gains tax but reining in house prices isn’t one of them.

If CGTs haven’t worked anywhere else, there is no reason to expect they’d work here.

The high cost of housing is a major factor in poverty and all the problems that stem from that.

Why did the government waste money on the UN expert whose recommendations wouldn’t work, when a local one has a much better recipe that would work?


Govt shouldn’t be competing with private sector

18/02/2020

Attempts to get onto the property ladder are being made more difficult by a government agency:

A first-home buyer has been left disappointed after Housing New Zealand, now called Kāinga Ora, bought out the apartment development she was purchasing a unit in.

The woman, who did not want to be identified, signed an agreement to buy a one-bedroom apartment in the Onehunga Bay Terrace Development, being built by Avanda.

She paid a 10 per cent deposit, of $54,200, at the start of August last year.

But in November she was told by real estate agents selling the development that the developer had entered into a conditional agreement with Kāinga Ora for it to buy the unsold units in the development. 

She said she was told if that happened she would be given the chance to cancel. She said she requested more information through her lawyer but was told there was no requirement to tell her anything further.

On January 16, she was sent a deed of cancellation by the developer, cancelling her agreement. She was told she would get her deposit back, plus the expenses she incurred in the deal, such as legal fees and the cost of a valuation. . . 

Housing is supposed to be one of the government’s priorities.

It won’t solve the shortage if its own agency is shutting out private buyers.

That’s unfair competition which does nothing to solve the problem of over demand and under supply.

The government should not be competing with the private sector in the housing market.

It should address the underlying reasons for the housing shortage, chief of which is the difficult and expense consent process.

 


Rural round-up

02/01/2020

Henry’s letter proves a hit – Murray Robertson:

YOUNG Tairawhiti farmer Henry Gaddum penned an open letter through The Herald in mid-November that has gone ballistic as readers nationally picked up on his concerns around the theme of Carbon Credits and Pine Trees.

It has been viewed more than 14,800 times on The Herald website since publication, and has been shared widely on Facebook and Twitter.

In it, Henry voiced his deep concerns, and the concerns of others, about the future of the region when it comes to land use and he wants to do something about it. . .

Year in Review: Hawke’s Bay farmer’s heartfelt Facebook post goes viral :

Year in Review: This heartfelt social media post from Hawke’s Bay farmer Sam Stoddart went viral in September. In it he pointed out the strong connections New Zealand farmers have with the communities around them. It was one of The Country’s most popular reads of 2019.

In September Stoddart told The Country he was surprised by the strong reaction to his post, which at that point had nearly 6000 reactions and nearly 3000 shares.

“For a vent to mates out of frustration on Facebook it certainly has gained some momentum.

I can’t believe the positive feedback though. For over 700 comments only about five are negative. Maybe the rural urban divide isn’t as big as we think. . .

Central housing demand prices worry fruit growers – Tess Brunton:

Central Otago fruit growers say housing could come under more pressure as their industry expands.

A recent Southern DHB report found a lack of housing availability was driving up housing prices in Central Otago, forcing some to live in crowded homes or even sleep rough.

While many orchards have staff accommodation available, some businesses say they’re losing good staff who can’t find a permanent place to live.

Sarita Orchard manager Matthew Blanch said he was not sure how fruit growers would find enough staff if big orchard proposals went ahead. . .

Reflecting on our rural past and building for the future – Nikki Verbeet:

Hope. It’s fundamental to our psychology to have something to look forward to, writes Nikki Verbeet.

It would be fair to say that hope hasn’t been in abundance in our rural sector of late.

There is no doubt the sector is experiencing rising costs, environmental pressures, public perception issues, shrinking price margins, cash flow challenges and pressure to meet compliance obligations – all of which impact confidence.

Research around mental health indicates that to have hope we need three things: . . 

Rodeo ‘great thing for the community’ – Hamish MacLean:

After more than three decades in Omarama, rodeo is alive an well in the Waitaki Valley town.

Under sunny skies, the 33rd annual Omarama Rodeo drew hundreds to Buscot Station for the penultimate Christmas series rodeo on Saturday.

“You can see by the crowd — people still enjoy it,’’ Omarama Rodeo Club president Jamie Brice said.

“And this is a great thing for the community. It brings money into the wee town.” . .

High country cattle grazing by Victorian family – Stephen Burns:

Grazing cattle in the Victorian high country has been a practice extending over 150 years, but very few families now take advantage of the summer pastures on the Alpine plains.

But the McCormack family from Mansfield, Victoria proudly continue the timeless trek taking three days to drove their Angus cows with calves slowly along the Buttercup Road over Mountain Number Three to the flats alongside the headwaters of the King River. 

Other Mansfield district families have long had an association with the High Country and include the Lovicks, Stoney’s and Purcell’s. . .

 


Labour pains, National delivers

18/12/2019

National promised eight policy papers this year and they’ve delivered.

The government promised this year would be their year of delivery and they haven’t.

You’ll find National discussion documents here.

You’ll find the government’s broken promises here.

They include: child poverty heading in the wrong direction, the level of homelessness is appalling, elective surgery numbers have dropped, economic growth has dropped from 4% under National to 2.1%; job growth has fallen from 10,000 a month under National to just 3,000 under Labour; per capita growth is only 0.5 per cent a year compared with average of 1.7% a year during the last five years under National; the number of people on the dole is up by 22,000, the number of New Zealanders heading overseas has increased by 10,000 a year, the billion trees promise isn’t being delivered and won’t be, not a single cent of the the $100 million Green Investment Fund that was supposed to kick-start $1 billion of investment in ‘low carbon’ industries has been invested, the  commitment this year to making the entire Government fleet emissions-free by mid-2025 was dropped, the government hasn’t been able to find a credible way to introduce a royalty on bottled water exports without trampling all over trade and other agreements with countries New Zealand does business with, yet another working group was set up to address waste minimisation but hasn’t come up with anything yet, the bold goals for housing have been dropped, The 4000 new apprentices target has been quietly dropped. Only 417 have started the Mana in Mahi programme and 32% of them dropped out . . .

Rodney Hide sums it up saying the year of delivery got lost in the post:

This was supposed to be the turnaround year. Prime Minister Jacinda Ardern declared 2019 her Year of Delivery. Nothing has been delivered. Her promise has proved, like her government, empty and meaningless. 

The tragedy is that we accept it. It’s enough that politicians feel and emote; there’s no need to do or achieve anything. We should perhaps rename the country New Feel-Land. . . 

That’s the Year of Delivery done and dusted.

But there’s always next year. The prime minister has plastics again in her sights. She says it’s what children write to her about most. There are news reports she’s planning on banning plastic stickers on fruit.

I scoffed when we had government by focus group. We now have government by school project. . . 

Garrick Tremain sums it up:

What’s all that hot air doing to our emissions profile?

Reducing those is another failure, in spite of the commitment to reducing them being the PM’s nuclear-free moment, they’re increasing and will continue to for the next five years.

A new government ill-prepared for the role might have been excused a first year finding its feet but there’s no excuse for failing so badly to deliver in on its promises in what was supposed to be its year of delivery.


Home and away

04/11/2019

More than a third of New Zealanders think the Prime Minister is too focused on overseas.

The latest Newshub-Reid Research Poll asked New Zealanders: “Is the Prime Minister too focused overseas?”

    • Most said no: 55.3 percent
    • But more than a third think Ardern is too overseas-focused: 35.9 percent
    • Even some Labour voters agree: 14.3 percent. . .

One of a PM’s roles is international relationships and overseas travel is part of that.

My criticism isn’t the time she spends away and her international focus per se, it’s that there are too many problems at home on which she doesn’t appear to be focused and which she either isn’t addressing or is addressing poorly.

Here’s just one example:

All her year of delivery is delivering is disappointment.


Red tape rules

18/10/2019

Louis Houlbrooke tweets:

 

Anyone seeking causes for New Zealand’s poor productivity, housing shortage and high cost of building should start here.


Making more houses more expensive

16/10/2019

Retirement Commissioner Peter Cordtz is suggesting people could be allowed to withdraw KiwiSaver funds to buy investment properties:

Home ownership has been declining for the past 30 years, from a high of about 78% in the 1980s, to about 55% today.

Māori and Pasifika have fared the worst – today only 35% of Māori and 20% of Pasifika own their own homes.

About 12% of New Zealanders aged 65-plus are renting, making them eligible to apply for the Accommodation Supplement if they are struggling. The cost to taxpayers of the accommodation supplement paid to people 65+ has already increased 92% in the past six years, from $88 million in 2013 to $170 million in the year ended March 2019.

This is on top of the cost of NZ Super, currently $39 million a day and forecast to rise to $120 million a day in 20 years due to the ageing population.

“Super wasn’t designed to cover rent – it currently pays $411 for a single person; $632 for a couple. At that rate, it assumes you have housing sorted,” says Cordtz.

“The cost of declining home ownership is a problem that affects all of us, and we need a circuit breaker,” says Cordtz. “If we can get more people on the property ladder earlier, there may be less liability to taxpayers later.”

One idea open to public submissions is to loosen the KiwiSaver rules related to withdrawing savings for a deposit on a first home. Currently, the KiwiSaver member has to live in that property, but high house prices in cities like Auckland, Wellington and Tauranga mean it is difficult for members who work in those cities to purchase a home there to live in.

“If they could buy a property in a more affordable part of the country, they could use it as an investment to progress on the property ladder or simply to retire to one day,” says Cordtz.

He says the idea originally came from a Māori mortgage broker who was trying to help clients buy property near whānau in areas other than where they worked.

“We see this as an idea that could help a lot of New Zealanders get on the property ladder and create a long-term investment to aid retirement,” says Cordtz. . . 

I see this as an idea that could make it harder for a lot of other New Zealanders get on the property ladder.

High prices in several places is a problem for people wanting to buy their first home or upgrade an existing one, and not just the cities mentioned. Wanaka and Queenstown are at least as expensive.

The root cause is one of supply and demand.

Allowing people to use KiwSaver funds to buy investment properties will give people a bit more to spend but do nothing to increase the number of properties available.

Won’t that spread the problem of rising prices fueled by demand outpacing supply to other places, many of which have lower wages than in the places where people are already struggling to buy a first home?

The last thing would-be home owners in smaller towns and less densely populated cities need is buyers from other places competing with them and spreading the problem of property inflation wider.


Property rights matter to all

24/09/2019

Who’s standing up for property rights?

The Government’s handling of Ihumātao has shown it has no respect for property rights, Leader of the Opposition Simon Bridges says. 

“It’s been eight weeks since the Prime Minister told Fletcher Buildings it had to stop developing much needed houses on land that it owns. Since then, Fletchers has not been invited to be part of negotiations. It’s had to sit on the side-line as others have tried to take away its rights.

“It has set an appalling precedent for a Prime Minister to insert herself into the business of a private company and prevent it from building 480 much needed houses.

Does the Prime Minister even have the right to tell a company it can’t go about its lawful business on its own land?

“No wonder business confidence has plummeted when the Prime Minister shows such blatant disregard for businesses and property rights.

“It doesn’t matter where in the world the Prime Minister is, it’s time for her to set the record straight. She needs to tell the protestors to go home, make it clear that the Government won’t be spending taxpayers’ dollars on buying the land and rule out any sort of deal.

“This matter doesn’t concern her. It’s time to butt out and give Fletchers back the land they legally own.”

Jacinda Ardern’s interference has done nothing to solve the problem. It’s made it worse.

If the government gives, or loans, the Iwi anything at all towards purchasing the land, it will open up the opportunity for every other iwi to renegotiate what were supposed to be full and final Treaty settlements.

Worse than that, it has sent a very clear message it doesn’t respect property rights which are a fundamental building block of democracy.

Private property was exempt from treaty settlements for a very good reason. The wrongs treaty settlements were to compensate for were started when Maori property rights were ignored in the past and could not be righted by infringing other people’s, including those of Maori, in the present and future.

Property rights matter for everyone and it is well past the time when the Prime Minister’s interference in Fletchers’ right to exercise theirs must stop.


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