• The Real Reason for Housing Unaffordability

    The news that the number of houses being sold is falling and that prices are rising more slowly has been greeted in some quarters with responses that are – sadly – all too predictable.

    The consensus is that these shifts have been brought about by the Reserve Bank’s introduction of restraints on lending by the commercial banks.  The real estate agents have been the first to complain at this threat to their rising profits, but have no doubt been supported by all those others – speculators, landlords, banks – who have prospered by virtue of the crisis of affordability that has afflicted so many of our fellow-citizens.

    The Reserve Bank has been urged to relax the loan-to-value ratios that have restrained bank lending on mortgage and, as a result, have cooled the housing market – and even the government, in the person of the Prime Minister, has weighed in with advice that the Reserve Bank should back off a bit.

    This is a bit rich coming from politicians who have not themselves had the courage to do anything at all to grapple with unaffordability, and who – now that the Reserve Bank has at last taken a few first steps – choose to snipe from the sidelines when those steps prove effective.

    The critics have camouflaged their obvious self-interest in a housing market that continues to inflate – a self-interest, in the case of the property industry, in profits, and in the case of the government, in votes – by shedding crocodile tears for first-time buyers who find it difficult to raise the deposit that is now necessary.

    There may well be a case for relaxing the constraints specifically for first-time buyers trying to buy a (comparatively) inexpensive house in which they intend to live; but the case would be even stronger if the critics showed some awareness that the problems for first-time buyers – and for many others – have been caused by the very failure to act on excessive bank lending that has made it inevitable that housing prices would soar.

    A failure to act now – and, now that we can see how effective the Reserve Bank’s measures can be, to continue to act – can only mean that the housing market would become even more unbalanced and top-heavy, and future first-time buyers and others would be even more priced out of the housing market.

    We can at least celebrate one significant step forward.  The debate about what has really caused house prices to rise so fast can now be assessed in the light of these latest developments.  The conventional view, shared by opposition as well as government politicians, is that the problem is one of market failure – the failure of supply to keep pace with demand.

    But that is to ignore the fact that the housing market is not like other markets.  What makes it different is that, for as long as bank lending on mortgage is unconstrained and the banks can find people to lend to, there is virtually unlimited purchasing power in the hands of purchasers.

    It is that tidal wave of unlimited new money created by the banks washing into the housing market every day that makes it inevitable that house prices will rise and rise.  The only way of slowing it down is to restrict the amount of bank lending, and that is what the Reserve Bank has now done.

    It is to the credit of the Bank and its governor that they have acted on their understanding of what is really happening, and that they have been able, with the effectiveness of the measures they have introduced, to demonstrate the correctness of their analysis.

    But why should we continue to allow our politicians to disclaim rather than accept the responsibility that is truly theirs?  How refreshing and wonderful it would be if Labour’s new leader were to emulate the great Michael Joseph Savage who, in the late 1930s, used “quantitative easing” – not to bail out the banks – but to build thousands of new state houses.  He thereby not only created a long-term and income-producing asset for his government, but provided low-rent, good quality housing for young families.

    I know about this from first-hand experience.  My parents married as the Second World War was about to break out.  When I was born, they moved with their new baby from private rented accommodation into a new state house, which is where I grew up and enjoyed a happy and secure childhood – to which every child is surely entitled.

    Bryan Gould

    16 August 2017

  • The Real Reason for Housing Unaffordability

  • A Tale of Two Citizens

    This is a tale of two citizens.  The first, let us call him Citizen A, is a middle-aged pakeha male who has enjoyed a long career in politics and has, even from his younger days, clearly been destined for great things.  That promise was almost fulfilled when he became leader of his party at a relatively young age, but his bid to become Prime Minister at that point ended with a record general election defeat, and he was as a result replaced as leader.

    He recovered from that setback, however, and after patiently waiting for some years, regained the leadership of his party.  His patience was finally rewarded when he became Prime Minister last year, an office he still holds.

    His story is not one, however, that is unblemished.  In 2009, it was revealed that he had improperly claimed a housing allowance of $900 per week in respect of a house in Wellington that was owned by his family trust, and in which his family had lived for some time, while at the same time claiming that his principal residence was in Southland.  He repaid $32,000 that he should not have received.  The revelation did not, however, dissuade his colleagues from electing him a few years later to the party leadership.  The polls show that he continues to enjoy widespread support from the voters.

    The second of the two protagonists of our story – let us call her Citizen B – is a younger Maori woman who has also enjoyed a successful political career.  She was elected as co-leader of her party and has commanded widespread respect for the efforts she has made to draw attention to environmental and social issues that she thinks are important.

    In a perhaps misguided attempt to highlight one such issue – the struggle for those dependent on benefits to provide (especially for families with young children) food on the table – she revealed that she had more than a decade ago (and as a solo mum) lied to the authorities so as to claim a larger benefit (larger by $50 per week) than she was entitled to.

    This revelation created a storm of protest – from the media, from the public, from fellow politicians and even from her own party colleagues, some of whom declared that – as a matter of principle – they could not continue to represent their party while she remained as co-leader.  She eventually felt obliged, as her revelation (and the storm that followed it) seemed to have provoked a sharp fall in her party’s poll ratings, to resign as co-leader of her party.  Her transgression – and her decision to confess to it – may well have put an end to her political career.

    The two protagonists have, in other words, both behaved in a way that is inappropriate for those seeking the trust and support of their fellow citizens.  But one has been made to pay a heavy price; the other has emerged unscathed and continues to enjoy public esteem.

    Citizen A, of course, committed his error while already in a position of responsibility, and earning a good salary; Citizen B, on the other hand, did so when she was yet to seek any public role.  Citizen A apparently enjoyed the financial support of a family trust, while Citizen B was a penniless solo mum.  Citizen A gained, by virtue of his failure to abide by the rules, a useful, substantial (and no doubt enjoyable) addition to his purchasing power; Citizen B gained a much smaller sum which she applied to buying food for her child.

    Citizen B confessed her mistake and was willing, for the sake of those she was trying to help, to endure the opprobrium that she knew would come her way, while Citizen A’s error was disclosed only when official scrutiny revealed a breach of the rules.

    Citizen A continues to enjoy the prestige, esteem, salary and support from colleagues to which a Prime Minister is entitled.  Citizen B has, as the consequence of an unrelenting media campaign and her abandonment by her colleagues, been hounded out of her wish to continue serving the public because she is apparently unfit to seek their support.

    Charles Dickens himself could not have invented a more inventive and bizarre story line.  It is truly a tale of two citizens, and of how differently fate – and we –have treated them.

    Bryan Gould

    10 August 2017



  • What Stops Us from Housing the Homeless?

    What is your reaction when you read or hear about families (especially those with young children) sleeping in cars or in garages or simply on the streets in this cold weather?

    Do you, as I think many do, feel a brief flicker of concern but reassure yourself that the adults who find themselves in such a plight have to be feckless or inadequate or irresponsible, and therefore deserve no better?  Do you say to yourself that anyone who cannot organise their lives to provide a roof over their heads cannot expect others (and particularly the taxpayer) to bail them out?  And do you stick to that view, even while reluctantly agreeing that it is a little rough to make children pay the price for their parents’ assumed deficiencies?

    If your answer to any of these questions is ‘yes’, then you are in good company – because that is broadly the government’s answer too.  But then, are you happy with a government and a Prime Minister who could, with the stroke of a pen, authorise the expenditure that would get these families and children off the streets, and into safe, warm and healthy accommodation, but refuses to do so?  Are you happy to stick to what might loosely be called your principles and to let the dice lie where they fall, come what may  – even if the dice are the only cover that some of your fellow citizens might have available?

    Is there no room in politics for a simple human reaction to the plight of another – for a simple act of compassion and kindness?  What is it that makes us think that governments cannot, and should not, be expected to behave as any ordinary decent human being would do?

    And what conclusion would you reach if, after a moment’s thought, you realised that these benighted homeless families were not actually the authors of their own misfortunes but were in fact the victims of forces over which they have no control – that they were paying the price for the unceasing quest for ever higher profits by banks, landlords, developers, all of whom have played a significant part in ratcheting up  purchase prices and rents to levels that cannot be afforded?

    Do you think that you have any power to hold the government that we elected to account, presiding as it does over the disposition of the billions we provide to them as taxpayers, for their failure in a wealthy country to ensure that some small part of our riches is devoted to ensuring that children have somewhere warm and safe to sleep at night?

    Have you imagined what it would be like to have nowhere to lay your head, on the coldest nights of the year?

    What is to stop a Prime Minister from saying to himself, if not to others, that it is an affront to live in a society that pretends it cannot afford to provide a simple roof over the heads of our most vulnerable?  Why does he not listen to his conscience and instruct his ministers and civil servants that an immediate solution must be found today, and that a long-term solution must planned for and financed tomorrow?

    And why do we not stop to question a system that leaves the vulnerable defenceless against the depredations of the greedy?  Why do we not say that this is not the New Zealand we wish to live in or thought  we lived in?  Why do we not make sure that our political leaders understand that we elect them to do our bidding, and that our bidding is that decent housing is the minimum that every child has a right to expect and that it must be made available?

    Or would you prefer to find refuge in the thought that the homeless do not deserve to be helped, that it would cost too much to do so, that they should learn to help themselves, that they would waste any opportunity given to them, that the government cannot afford it and needs to protect its own surplus, and that you would in any case prefer to enjoy some tax cuts?

    Solving the homelessness crisis is a matter of political will.  Do you have that will?   And will you make sure that your will prevails?

    Bryan Gould

    17 July 2017

  • Who Is Responsible for Housing Affordability?

    The solution to Auckland’s twin housing problems of homelessness and unaffordability seems as far away as ever, despite the much-trumpeted Housing Accord signed by the Auckland Council and the government.

    I say “seems” since it appears that no one has the information that allows us to make an accurate judgment.  Under the Accord, which was approved in September 2013, ten per cent of the new homes built in Special Housing Areas have to be affordable housing – that is, houses that could be purchased by a first-home buyer on a modest income.

    It is now clear that, such is the lack of seriousness with which these issues are being tackled, neither of the signatories has bothered to keep a reliable (or any) record of how many affordable homes have actually been produced and what proportion they represent of the new houses that have been built.

    In the meantime, the median house price in Auckland has risen to over $860,000 – hardly most people’s definition of “affordable” – and the average price is higher still.  The Housing Minister, Nick Smith, tried to deflect criticism when questioned by asserting that it is not the government’s responsibility to see that the promised affordable houses are produced – even though it is his signature that commits the government to achieving the targets identified by the Accord.

    He concedes that the government has failed to check that private developers meet their obligation to declare formally that 10% of the new houses built are affordable; he argues instead that the much delayed pick-up in new housing consents will eventually help, as and when the houses are built, to restrain the rise in house prices, even as they continue to rise, albeit a little more slowly.  He thereby by implication consigns the 10% affordable houses target to the scrap heap.

    This is, of course, entirely predictable and in line with the government’s conviction that the private market can be trusted to solve the affordability problem.  Why should we even bother, the government says, to make sure that the government’s friends in the development industry keep their word on affordability when increased supply alone will do the trick?

    So wedded are the government to this view that we can now, it seems, treat the Housing Accord, and the commitments required of developers, as just so much waste paper – a perception reinforced by this week’s news that more than half of the Special Housing Areas have been scrapped.  Nick Smith’s signature seems to mean nothing.

    What this debacle reveals is a complete failure to identify the true causes of the problem.  Ministers and others cannot seem to get their heads around a very simple proposition.  If you have an asset (like land and, by extension, housing) that is in limited supply, but you have a virtually unlimited supply of purchasing power chasing that asset, the inevitable consequence is that the price of that asset will rise and will go on rising inexorably.

    Even if (with or without a meaningful Housing Accord) you manage to increase the supply a little at the margin, but do nothing to restrain the volume of demand for the asset (or the purchasing power available to purchase it), the only outcome will be – as mortgage lending increases to match the increased supply – higher prices (and profits) across the greater volume of the asset.  And that is even more likely if you take no steps to enforce any commitment agreed with those controlling the asset whereby they undertake to provide certain classes of the asset on favourable terms.

    The proposition that increased supply will resolve the unaffordability problem is, even assuming that Nick Smith actually believes it, nothing more than a con trick – a trick designed to benefit private developers, but destined to betray those who have been priced out of the housing market.  And so, prices go on rising, even if marginally more slowly.

    Ministers have no excuse for adhering to such evidently mistaken nostrums.  They need only look to the analysis developed by the Reserve Bank.  The central bank has demonstrated, through its introduction of loan-to-value ratios and debt-to-income ratios, its understanding that only the restriction of the otherwise unlimited power of the banks to create money by making loans on mortgage will succeed in restraining the rise in housing prices – and such fall as there has been in the rate of increase is clearly attributable to the introduction of these measures.

    But rather than concede and act further on this simple point, Nick Smith prefers to inflate the developers’ profits, disappoint those who cannot afford to buy their own home, and disclaim all responsibility for his own signature.

    And if he really believes that it is exclusively supply, rather than demand, that is the problem, why does he not, rather than sub-contract it to developers, take that problem on himself – by tasking the government to build the affordable houses that are needed?

    Bryan Gould

    6 July 2017