Interest rates rising

07/10/2021

The cost of borrowing is going up:

The Monetary Policy Committee agreed to increase the Official Cash Rate (OCR) to 0.50 per cent. Consistent with their assessment at the time of the August Statement, it is appropriate to continue reducing the level of monetary stimulus so as to maintain low inflation and support maximum sustainable employment.

The level of global economic activity has continued to recover, supported by accommodative monetary and fiscal settings, and rising vaccination rates enabling a relaxation of mobility restrictions. While economic uncertainty remains elevated due to the prevalent impact of COVID-19, cost pressures are becoming more persistent and some central banks have started the process of reducing monetary policy stimulus. . .

This is a response to a steep increase in inflation:

Headline CPI inflation is expected to increase above 4 percent in the near term before returning towards the 2 percent midpoint over the medium term. The near-term rise in inflation is accentuated by higher oil prices, rising transport costs and the impact of supply shortfalls. These immediate relative price shocks risk leading to more generalised price rises. At this time, measures of core inflation and medium-term inflation expectations remain close to 2 percent.

The Committee noted that further removal of monetary policy stimulus is expected over time, with future moves contingent on the medium-term outlook for inflation and employment. . . 

The Taxpayers’ Union lays the blame for the increase at the government’s door:

“Today’s OCR hike – which will see households squeezed with hire mortgage payments, is a direct result of the Government’s reckless spending over the last 18 months. Even worse, with COVID’s economic shock now coming, it comes at the very worst time for households.”

“The Government needs to do all it can to focus on quality, not quantity, of spending. Its programme of money-printing and borrowing for political purposes has pumped up inflation to unacceptable levels and left future generations of taxpayers with a debt monster. Higher interest rates will increase the financial pain caused by that debt.”

It’s a risky move:

Today’s move by the RBNZ to raise the Official Cash Rate by 0.25 per cent to 0.5 per cent shows the bank has been forced to make the risky move despite two major New Zealand cities still being locked down, says National’s Shadow Treasurer Andrew Bayley.

“The Government’s failure to rollout the vaccine and prepare our Covid defences has resulted in the Reserve Bank having to make this decision in the middle of lockdown, which is incredibly risky for the economy.

“Obviously, the Reserve Bank has seen that the cost of living is rising too quickly, and its hand has been forced. This has been exacerbated by huge amounts of wasteful, untargeted spending from the Government on matters entirely unrelated to the Covid response.

“As a result of the Government’s lack of fiscal discipline and failure to prepare for another Covid outbreak, mortgage-holders and businesses are now set to face rising interest costs at a time they can least afford it.

“The Government should now take a cue from the Reserve Bank and rein in its wasteful spending and focus unrelentingly on its Covid response, and ensuring businesses survive the current extended lockdown.” . . 

The announcement has already led to an increase in interest rates:

It took just a few minutes for ANZ to announce it was increasing its floating and flexi rates by 0.15 percent. . . 

No doubt other banks will follow.

It’s a small increase on what was a historically low rate and is unlikely to bring much cheer to savers.

But it could bring woe to some borrowers.

A small increase on a big amount, which many who have bought into the overheated housing market have borrowed, could be more than some can afford.

The younger ones among them might not have seen interest rates in double digits and will have no memory of the 1980s when inflation and interest rates were raging.

Like most conventional sheep and beef farmers then, most of our income came in a couple of big chunks when we sold our lambs and wool. That was always several months after our major costs had to be paid so we survived on seasonal finance and at the peak we were paying around 26% for everything we bought for the farm and household.

Thanks to the “failed” policies of the 80s and 90s, such eyewatering interest rates should be consigned to history.

That won’t be of any comfort to home and business owners whose finances are already stretched and for whom even a very small increase in interest could stretch them too far.


Good intentions but

02/09/2021

Who or what does this remind you of?:

Intention these days is nine-tenths of virtue, and intention is measured mainly by what people say that their intentions are. 

The words are Theodore Dalrymple’s and he was writing about urban environmentalists and their belief in the green credentials of electric cars but it immediately made me think of our government.

Many of its intentions are good.

Who could argue against solving the housing crisis, reducing poverty or keeping us all safe from Covid-19?

But intentions are not achievements and time and time again the government’s good intentions have got very little, if any, further than their announcements.

Housing prices have escalated so that even outside the big cities they’re selling for far too many times the average wage. That has made anyone who doesn’t own their own home poorer and worsened conditions for people already struggling to pay the rent and power and feed their families.

The government won a few skirmishes against Covid-19 last year but the war continues and we’re all having to fight the latest battle because the intention to keep the disease out hasn’t been matched by learning from past mistakes and ensuring they’re not repeated.

Then there’s Afghanistan.

No doubt the government intended to rescue all New Zealand citizens and the locals who had helped our army but again it’s fallen well short in delivering, leaving behind an estimated 375 New Zealand citizens, visa holders, and Afghan allies.

New Zealand isn’t alone in the botched withdrawal but that doesn’t make our government any less culpable for letting those people down and making the chances of getting them out successfully much, much poorer.

The proverb tells us the road to hell is paved with good intentions.

It is too big a stretch to say the government is taking us to hell, but its repeated failure to deliver on its good intentions certainly aren’t helping New Zealand feel like paradise.


When it’s other people’s money

30/04/2021

Housing the homeless in motels is costing $millions:

New figures show the multi-million dollars being netted by top-earning emergency motels with the Government expecting this to continue for at least the next few years, National’s Housing spokesperson Nicola Willis says.

“Emergency Housing should be about getting people back on their feet and into stable housing as soon as possible. Instead, these figures show that it’s become a get-rich-quick scheme for motel owners.” . . 

“In total more than half a billion dollars has been spent on housing people in emergency accommodation since Labour came to office,’ Ms Willis says.

“The Government needs to create a plan to end long-stay emergency housing. A National Government would work with community organisations to create more stable, secure homes, instead of continually padding the bank balances of motel owners.

“But there’s no end in sight as the Government acknowledges it expects the number of emergency housing grants to peak at 170,000 for each of the next two years. That’s a dramatic increase compared to 2017, when that number was 35,994.

“What’s worse is that the Government can’t confirm the safety of people living in emergency housing as it’s not monitoring the conditions in these motels.

“It isn’t getting value for the huge cheques it’s writing, with motel owners charging more than $440 a night for rooms that don’t even have to meet quality standards. People are living like this for longer and longer, with the average stay now more than three months.

“Labour came to office saying $90,000 a day was too much to be spending on motels, but it’s now more than ten times that with no end in sight.

“This is a shocking policy failure with frightening consequences for the thousands of children who are now being raised in motels.

“Moteliers aren’t social workers and the stories we are hearing about the dangerous conditions in emergency motels are just heart breaking. The Government must achieve more with the extraordinary amounts of money it is spending. 

“The millions being spent on emergency housing would be better placed in the hands of community housing organisations who can provide wrap around support to help people get back on their feet and into stable accommodation.

“The Government needs to stop putting emergency housing in the ‘too hard basket’ and end the current arrangement as soon as possible.”

This is a ridiculous amount of money to spend on what amounts to band-aids – covering the homeless sore while the bleeding housing shortage continues.

On top of the money spent on accommodation, is the unknown cost of damage:

Unknown sums of money are being handed over to moteliers to cover damages caused by emergency housing clients – officials aren’t keeping track of what’s being spent and can’t put a total figure on it.

That’s “not ideal”, admits Minister of Social Development Carmel Sepuloni, who wants a system that can better monitor those costs and the damage being caused.

Not ideal?

This is the 21st century, we’re not still using parchment to record information and carrier pigeons to deliver it. It wouldn’t be hard to develop and use a system that keeps account of these costs.

That no-one has been and all the Minister in charge can say is that it’s less than ideal is an appalling reflection on the government’s approach to other people’s money.

It’s a lack of accountability and respect shared by too many recipients of it, a point Lindsay Mitchel makes:

. .  But some (often blameless beneficiaries) who live in or near emergency housing feel very unsafe. The protestors doubtless sleep all day and come out at night to wreak havoc; do drugs, do violence and do damage. These aren’t working people who have to get a decent night’s sleep.

They are anti-social miscreants who arc between apathy and aggression and wear their alienation as a badge of honour.

Instead of a system that refuses to tolerate their destructiveness, we get a system which rewards them with no-strings-attached cash and plenty of excuses for their defection from the rest of society.

Nobody has explained to them that the social security system was born out of shared values, shared compassion for genuine need, and shared commitment to fund it.

Certainly Sepuloni hasn’t bothered. And it is highly unlikely that the new compulsory history curriculum will cover what Mickey Savage envisaged when he created it over eighty years ago.

Green associate housing Minister Marama Davidson is appalled. The situation is unacceptable she says. Yet this is a leading proponent of an anything-goes benefit regime. Is she really surprised at what such a mushy modus operandi results in?

A much harder line must be taken with offenders. They will be breaking multiple laws and for the sake of those in closest proximity – those in genuine, unavoidable need – the very least that should happen is a threat to immediately end their benefit entitlement. Whatever ensues, we have a police force to deal with.

Someone needs to get – and someone needs to give – the correct message: you can’t keep biting the hand that feeds you.

Don’t hold your breath for that someone to be the person in charge though.

Some people require permanent assistance through circumstances beyond their control such as ill health or disability.

Others need temporary help and then are able to find work and support themselves.

Then there’s the people who use and abuse the system and keep doing it with no sanctions.

It would be bad enough if their anti-social lives were self-funded. When it’s other people’s money, and borrowed money at that, their disregard for other people, their properties and the law makes it far worse.

It’s not just the money, making other people’s lives a misery compounds the wrong-doing.

If they aren’t willing to fulfill their part of the social contract that comes with receiving a benefit, they must face appropriate consequences.


When lawmakers abuse the law

21/04/2021

Governments are supposed to make laws not abuse them:

The Auditor-General has confirmed the Labour Government unlawfully used millions of taxpayer dollars to settle the Ihumātao land dispute.

In response to a letter from National’s Housing spokesperson Nicola Willis, written in March, the Auditor-General has confirmed today that the $30 million deal to buy the disputed land from Fletchers was not done by the book.

“The Auditor-General’s report uncovers extremely dodgy behaviour from Labour Government Ministers as they tried to justify this spending,” Ms Willis says.

The Auditor-General’s inquiries have revealed that after Treasury officials refused to let the Government use money from the Land for Housing programme to make the Ihumātao payment, Ministers invented a completely new spending category: ‘Te Puke Tāpapatanga a Hape (Ihumātao)’ within Vote Housing and Urban Development in the Budget.

“They did this on February 9 but tried to keep it secret,” Ms Willis says. “The Auditor-General raised serious concerns about the way this was done, saying ‘the payment of $29.9 million was incurred without the proper authority’.

Tried to keep it secret? What happened to the most open and transparent government?

According to the Auditor-General, the Ministry did not seek the correct approvals for money in the Budget to be used in this way, making the payment unlawful until validated by Parliament as part of an Appropriation (Confirmation and Validation) Act, Ms Willis says.

“This is a disgraceful abuse of the law. Ministers are not a law unto themselves with authority to write cheques whenever they wish. They need to get the approval of Parliament first.

“But when it came to Ihumātao, the Labour Government decided the usual rules need not apply.”

The Auditor-General says the Housing Minister will now be required to explain the matter to the House of Representatives and seek validation of the expenditure from Parliament through legislation.

National’s Finance spokesperson Michael Woodhouse says this is a shocking abuse of privilege and of taxpayer funds by the Labour Government.

“We warned the Government all along that its treatment of the dispute was leading to awkward precedents, and here is the proof.

“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.

“The Prime Minister should never have involved herself in the Ihumātao dispute and stopped 480 much-needed houses from being built.

“National would protect the land owner’s property rights and ensure full and final treaty settlements are just that – full and final.”

You can read the Auditor General’s reply to Nicola Willis here.

He is quite clear that the payment was unlawful:

. . .In our view, the intent of the Ministry of Housing and Urban Development, and the intent of Ministers, was to establish a new appropriation that would provide authority for the purchase of the land at Ihumātao. However, because the Ministry did not seek the correct approvals, the expenditure was incurred without appropriation and without authority to use Imprest Supply. For these reasons, the payment is unlawful until validated by Parliament. . .

This started when the Prime Minister interfered in an illegal occupation with a total disregard for property rights and the urgent need for more houses.

As a result of her interference the occupation was prolonged, houses weren’t built and the taxpayer ended up with a $30m bill that the government paid unlawfully.

This wasn’t accidental or carelessness. It was deliberate and compounding the wrongdoing was using money set aside to build houses to stop houses being built.

What happens when lawmakers abuse the law in this way?

They will retrospectively approve the payment to validate it.

That will sort the legal issue and the government will ride out any political damage it’s inflicted on itself.

But it won’t build any houses and it won’t do anything to remedy the undermining of the principle that Treaty settlements are full and final.


Addressing supply deficit

15/04/2021

National has a policy that will address the root cause of the housing crisis – the supply deficit:

National is proposing an alternative solution to the housing shortage that will urgently address the country’s land supply problem and help councils fund supporting infrastructure.

  • Judith Collins’ Emergency Response (Urgent Measures) Member’s Bill will put in place emergency powers similar to those used to speed up house building in Canterbury following the 2010 and 2011 earthquakes.
  • The new law would require all urban councils to immediately zone more land for housing – enough for at least 30 years of expected growth.
  • Resource Management Act (RMA) appeals process would be limited to ensure these new district plans can be completed and put in place rapidly.
  • $50,000 infrastructure grant would be provided to all local authorities (urban and rural) for every new dwelling they consent above their five-year historical average.

Across our country, a toxic mix of land use restrictions and consenting requirements severely limit the new land available for housing and how intensively existing residential zones can be developed. The result is that developers have limited options for where they can build new houses and face extensive costs, delays and legal hurdles when they embark on a new housing development.

Judith Collins has drafted a Member’s Bill that will go into the ballot this week. The draft legislation will effectively put in place emergency powers similar to those used to ramp up house building in Canterbury following the 2010 and 2011 earthquakes.

The law change would also incentivise councils to lift their game by providing a grant of $50,000-per-house for every new dwelling consented over and above a historical average.

This streamlined mechanism for allocating the Government’s $3.8 billion Housing Acceleration Fund would provide councils a simple tool for funding the infrastructure needed to support new housing, such as pipes, roads and public transport stops.

The time has come for an extraordinary solution to this unfolding emergency. We need to short circuit the faltering RMA to get more houses built. National acknowledges that under the current law even if councils want to make more space available for housing, they face multiple handbrakes. The RMA ties them into a knot of consultation requirements and infrastructure costs loom as a heavy burden.

Our Emergency Response (Urgent Measures) Bill gives councils permission – in fact it requires them – to say ‘yes’ to housing development and to get as much new housing built as they can as soon as is possible.

These RMA changes will expire after four years, reflecting the fact they are a temporary solution while more fundamental changes are made to New Zealand’s planning laws. Rural councils would not be compelled to rezone but could utilise the new powers if they wished.

National’s approach has a proven track record of success in Christchurch where the resulting surge in housing supply after the earthquakes saw affordability improve while it was deteriorating across the rest of the country.

House prices rose by 7.4 per cent annually across New Zealand from July 2014 to March 2019, but only rose by 2.9 per cent annually in Christchurch during that time.

Swift action is needed to help first-home buyers, with New Zealand’s housing market now the least affordable in the OECD.

Despite Labour’s big promises prior to the 2017 election, the median house price jumped from $530,000 to $780,000 between October 2017 and February 2021, a 47 per cent increase in just over three years.

National is the party of home ownership. We are committed to sensible solutions that will get more New Zealanders into their own home without hitting them with more taxes.

Judith Collins will be writing to all Members of Parliament to seek their support for her Emergency Response (Urgent Measures) Bill to go straight on to the Order Paper, rather than into the Member’s Ballot.

Prime Minister Jacinda Ardern could also do the right thing by New Zealanders by adopting this Member’s Bill as government legislation to help it become law faster.

The government has been tinkering with policies that try to restrict demand. They might raise a bit more money from taxes, but they won’t build more houses.

National’s policy isn’t tinkering. It’s addressing the shortage of supply by making building easier.

It worked in Christchurch, it would work again everywhere else if the government could get over its reluctance to accept good advice because it came from National.

This is too important an issue to put politics before people and the practical solution that will help house them.

You can read the whole Bill here.


Complicating tax won’t build houses

13/04/2021

Norman Gemmell writes that New Zealand’s new housing policy is really just a new tax package:

Economists like to talk about “optimal policy instruments” – essentially, policies that achieve their objectives more effectively or efficiently than the alternatives, and have minimal unintended consequences.

Judged by those criteria, the New Zealand government’s recently announced package of housing policy instruments is a long way from optimal. You might even call it a shambles. . . 

The aim of the policy is fine, but like so many of this government’s policies, it has several unintended consequences which will almost certainly make matters worse.

Arguably, the primary target of this policy package is stopping the inexorable upward march of (mainly Auckland) house prices. Failing to achieve that would simply put it among a long line of attempts by previous governments (National and Labour) over the past 20 years at least.

In all cases, the biggest problem has been insufficient political commitment to boosting housing supply. . . 

And in spite of its supposed focus on wellbeing, reducing poverty and solving the housing crisis, this government is not tackling the root causes of too few new builds.

All taxes cause “distortions”, mostly unintended, which need to be mitigated. Furthermore, policies that have conflicting objectives are “incoherent” and typically among the most distorting. This applies to the housing package’s removal of interest deductibility. . . 

That wasn’t, as the government claimed, closing a loophole. It was treating landlords differently from every other business which can claim interest as a tax deductible expense.

Making matters worse is extending the bright line test to 10 years.

It would be rare to find a liability based on transactions and timing among the principles of a good tax policy. But the bright-line test manages both – it incentivises delaying property sales to avoid the tax even when selling would otherwise be in the taxpayer’s best interest.

It was originally introduced in 2010 with a two-year threshold, without supporting evidence, supposedly to stop so-called speculators from flipping properties for quick profits. A 10-year threshold cannot be branded an anti-speculation policy, it is simply a back-door CGT.

As with most back-door policies, this CGT is inevitably less transparent and coherent than a policy designed to tackle the problem head-on would be. . .

It might, as taxes can, contribute more to the government’s coffers but it won’t build more houses.

If there are better alternatives, they do not lie in even more ad hoc fiddling with a coherent tax regime.

Instead, like the famous real estate mantra of “location, location, location”, the mantra for New Zealand housing policy should be “supply, supply, supply”. Specifically, supply in Auckland.

Successive governments have aimed policies nationwide when rapid house price inflation is almost exclusively urban and essentially an Auckland phenomenon.

Without policies that reform construction sector regulations and open up more land for urban housing, there is little prospect of Auckland house prices stabilising while current demand-driven trends persist. To make matters worse, the government’s first-home buyer schemes will merely raise demand without incentivising supply.

With too many objectives and the probability of numerous unintended consequences, the government’s housing policies risk being seriously incoherent.

What would help are policies which make it easier, less expensive, and less time consuming for new builds.

Complicating the tax system won’t do that but it will  increase rents thus making life even harder for the poor and those already struggling to save enough for a deposit to buy their own homes.


National helps govt with numbers

30/03/2021

A misdirected email from the Prime Minister’s office sought information on rent rises.

The response was probably not what they wanted:

In the spirit of bipartisanship, National has helped the Prime Minister prepare for her post-Cabinet press conference today by collating the data she requested on rent increases – although she might want to think carefully before drawing public attention to it, Leader of the Opposition Judith Collins says.

“Unfortunately for the Prime Minister, recent trends in house price growth, rental hikes and wage growth don’t make good reading for her Labour Government.

“Jacinda Ardern has unleashed a raft of changes on rental properties: two extensions to the bright-line test, banning letting fees, and major amendments to the Residential Tenancies Act. All the way through, officials told her that rents would increase but her Government maintained a view that the officials were wrong.

“The Government’s policies have seen weekly rental costs shoot up a massive $120 in just over three years. This is a record increase and a clear sign these policies are failing.

“Rents have increased by 8 per cent per year under Labour, compared to 3 per cent per year under the previous National Government. The median house price has also spiralled out of control on Jacinda Ardern’s watch, jumping 12 per cent per year compared to the 5 per cent per year increase under National.

“Neither of these increases under Labour have been in step with wage growth. The median weekly income increased by 2.7 per cent per year under the previous National Government and has only increased by 2.1 per cent per year under the current Government.

“The sad reality is, renters have been thrown under the bus by this Labour Government.

“As was the case with its changes to rental standards last term, Labour has failed to grasp that forcing more costs onto landlords will ultimately reduce the number of rentals on the market, making renting more unaffordable and exacerbating homelessness.

“This is why Finance Minister Grant Robertson is now on the verge of dictating terms to landlords even further by introducing a cap on how much rent they can charge.

“This policy-on-the-fly approach is eroding the confidence of property investors and, ultimately, discouraging them from building more houses, which is exactly what needs to happen to solve New Zealand’s housing shortage.

“But at least now the Prime Minister will be fully informed when she addresses the media today. I hope she has some decent answers for the many New Zealanders who will be worse off because of her Government’s housing policies.”

One of this government’s priorities was reducing poverty.

Rising house prices and rising rents have done far more harm than any good any other policies might have done.

While we’re on the topic of housing.

How much confidence does this give you that the government has what it needs to tackle the crisis?


Broken promises and bromide

24/03/2021

Yesterday’s announcement on housing was mere tinkering.

It broke the promise of Grant Robertson that there would be no changes to the bright line test and Jacinda Ardern’s promise there would be no capital gains tax while she was leader.

What makes it worse is that the broken promises will do nothing to solve the housing crisis. It could well decrease the supply of rental accommodation and will lead to increased rents.

That pressure on rents will be compounded by the decision to single property owners out by ending their ability to claim the cost of interest against their income for tax purposes.

This is not as the government asserts, and some in the media parrot, closing a loophole, it’s a change to tax law that has until now applied to every business.

Higher costs for landlords will inevitably be passed on to their tenants.

Increasing income caps and house prices for First Home Grants is a token gesture when house prices are so high and if it does anything it will add fuel to the fire. Anything which makes it easier for people to buy a house without increasing the supply will push up prices.

At first glance the infrastructure accelerator looks good, but will it be effective?

. . .However, Kiwibank chief economist Jarrod Kerr said the policy changes simply “tinkered at the edges”, and were not enough to address the systemic supply issues that have caused New Zealand’s house prices to soar beyond the reach of many.

“It was pretty disappointing to be honest. Some of the ideas are good, but the size is pathetic. It’s a drop in the bucket and it’s a leaky bucket at that.”

Kerr said the tool with the most potential was the $3.8b infrastructure accelerator, which is intended to help local councils create the necessary services infrastructure – plumbing, roads, power – to unlock remote land for property development.

“I think the idea is great; we need to get funding into councils to sort out woeful infrastructure and get it to areas that need to be developed. But the fact that it only got $3.8b means that it’s going to be ineffective – $3.8billion spread across all our councils is a rounding error.” . . 

The whole package is underwhelming, it’s just broken promises and bromide that ignore the root cause of the crisis – a lack of supply and the foundation for that is an unwillingness to cut the red tape that holds back development.

 


Identity politics matters more than issue

22/03/2021

This is what happens when identity politics matters more to a Minister than the issue:

A tweet by Greens co-leader Marama Davidson, accusing National MP Nicola Willis of using “racist and classist undertones” when discussing emergency accommodation, led to a showdown in Parliament. 

It began with Willis asking Davidson about the Government’s Homelessness Action Plan and how she aimed to reduce the ballooning use of emergency accommodation such as motels, as Associate Housing Minister responsible for homelessness.  . . 

Willis asked Davidson if she was accusing New Zealanders who raise concerns about their safety in relation to increased numbers of people in emergency accommodation as being racist. 

“I am accusing a member, a National member of this House, of attempting to stigmatise a group of people with little access to power and resourcing, of attempting to whip up stigmatising and dehumanising narratives around groups of people who need our support, around groups of people who need us to address the systemic causes of crime,” Davidson responded. 

“Yes, I am accusing a National member of raising that dehumanising narrative.” . . 

The only one to mention race or class was Davidson who in doing so let her focus on identity politics blind her to the issue – that central Wellington streets are not safe and that the use of motels for emergency accommodation is part of the problem.

And it’s a multi-million dollar problem.’

Newshub can reveal the multimillion-dollar extent of the Government’s emergency motel bill and just how much Kiwis are forking out to some of the top earners.  

One motel made $6 million off the Government last year, charging much more for rooms than it normally would. 

In the three months to December 2017, the Government spent $6.6 million on motels. By the following year it more than tripled and just keeps growing.  . . 

A problem that ought to be Davidson’s focus, instead of which she’s doing what?

Sepuloni could ask the Associate Minister of Housing with responsibility for homelessness, Green Party co-leader Marama Davidson, to shoulder the load. 

But in the five months that she’s been a minister, Davidson hasn’t taken a paper to Cabinet committee or issued a press release. 

“Not yet,” she said, adding that she’s been engaging with the community. 

Newshub checked Davidson’s latest ministerial diary. In January there were just two housing entries – a couple of interviews. 

She walked away when pressed on what work she’s been doing in housing. 

If she stopped blinding herself width identity politics she might be able to see, and do something about the real and related issues of unsafe streets and homelessness.


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.


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