Allow the Facts to Get in the Way of the Neolib Stories

By   /   November 18, 2014  /   11 Comments

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One of the weaknesses of the political left in New Zealand over the last 30 years has been to allow the neoliberal storytellers to get away with lots of fibs and half-fibs.

neo_liberalism

One of the weaknesses of the political left in New Zealand over the last 30 years has been to allow the neoliberal storytellers to get away with lots of fibs and half-fibs.

On TVNZ’s Q+A on 16 November, in a panel discussion on housing policy, Richard Shaw, a Massey University political scientist started his commentary with this gratuitous comment: “When Muldoon was Prime Minister and Minister of Finance, we had a Margarine Act which regulated the price of margarine”. The context was Bernard Hickey having made comments about speculation on housing in Auckland that Matthew Hooton was over-reacting to.

 

Margarine and Muldoon

The claim about Robert Muldoon regulating the purchase of margarine has been bandied around in a loose fashion by neoliberals for many years, for example by Richard Prebble. (This 29 July 2013 letter to the editor of The Dominion-Post When margarine became available sums it up.) We might note that, in politics, the reason given for a measure (in this case, “health”) is not necessarily the only reason, and indeed may not be the main reason. The restriction on margarine had been a protectionist measure, and Muldoon was a trade liberaliser, albeit ‘softly, softly’ given the might of the farmer lobby.

The fact is that the restriction on margarine began in 1908 (not 1980!), and was effectively lifted in 1972 when Muldoon was Minister of Finance. (See Dairy Products from Te Ara.) Statistics New Zealand has this to say: Margarine use spreads at butter’s expense. “Margarine was added to the CPI basket in 1975 … In February 1975, butter was less than half the price of margarine … In 1984, margarine was still more expensive than butter, but the gap had narrowed. Butter was about $1.05 per 500g in February 1984 and margarine averaged $1.20 per 500g”. No sign that Muldoon, still PM, had passed a law virtually banning margarine. Indeed I did my OE from 1974-78. I recall margarine being easily available in NZ on my return. It certainly wasn’t in the shops in the 1960s.

While the Margarine Act stayed on the books, untouched by Roger Douglas, until repealed by David Caygill in 1989, the important date of liberalisation was 1972.

The truth of the Muldoon era was that of a slow but steady economic liberalisation (but not neoliberalisation!) with a backdrop of rapid global economic change that was highly disruptive to New Zealand. An important part of this liberalisation was the phasing out of import controls in favour of tariffs, a mechanism of protection that uses rather than opposes the price mechanism. The whole neoliberal project depended on the neolibs painting of the New Zealand economy under Muldoon as akin to a Stalinist gulag (see this discussion); hence other farcical references likening New Zealand pre-1984 to Albania and to a Polish shipyard. The truth was very different.

 

Housing Supply

The neoliberal land-supply lobby in New Zealand is relentless. The hapless Auckland Council is allegedly to blame for not releasing enough land on the city outskirts to land-bankers and property developers.

It is most likely residential real estate prices in Auckland have been going up for the same reasons as in other world cities. It is quite misleading to suppose that land-supply factors specific to Auckland are to blame. As in other world cities, real estate in the Auckland isthmus is first and foremost a financial asset – like Google shares or Goldie paintings – where prices are driven up mostly by the expectation of capital gain (and undented by capital gains tax). The rental yield appears to be, at best, incidental.

What is happening to the supply of bedrooms in Auckland? This is the question raised by Laila Harre on Q+A? Unfortunately she didn’t follow up. Rather she allowed herself to be painted as an advocate of forced sales of large underoccupied houses in the central suburbs. She needed to direct the discussion to incentives, not controls. Maybe the margarine comment was aimed at her?

(The supply of bedrooms, not the supply of land, is the critical housing issue that policymakers should be grappling with. While getting people onto the speculative property ladder is not nearly as important as addressing the issue of secure rental housing, the more general idea of widespread property ownership does have merit. The unpropertied could be encouraged to buy properties they can afford and become good landlords in other towns and suburbs, while renting their own homes near to their places of employment.)

It’s a tricky question because different things are happening in different types of households and different types of suburb. Houses in the poor parts of Mt Roskill are becoming over-crowded. Other houses in Auckland are fully occupied because so many 20-somethings still “live at home” with their parent or parents. It’s so hard for young Aucklanders to become economically autonomous without leaving Auckland.

The most important part of the bedroom question is what is happening to the supply of bedrooms in houses recently purchased (in the last three years, say) by ‘investors’; ‘investors’ defined as any purchasers who are not owner-occupiers. The presumption in what passes for debate on housing is that the bedrooms in these houses are additions to the rental stock. We presume that most of these houses are let to tenants.But how many are not? We do not gather facts about what too many of us would rather not know.

Do we face a contraction of housing supply in the city isthmus, as formerly occupied dwellings become unoccupied or underoccupied landbanks? Is the increase in new-builds on the distant city outskirts merely a compensation for lost housing supply closer in? We do not know. So we have endless debates quite devoid of the necessary factual information. There would appear to be a lot of non-factual (or semi-factual) information bandied about by parties with interests to protect.

In the absence of facts that suggest Auckland’s property bubble is different from those in London, Sydney or Melbourne, we should be looking for solutions that address inappropriate speculative house buying. It can do no harm to create incentives for owners of homes that are not required for their own residential needs to become landlords, and good landlords at that. Auckland needs quality and affordable rental housing.

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11 Comments

  1. kevin says:

    It’s simple. The National Government are being allowed by the Lame Street Media (only lacking thbeir National Party Tee shirts and Baseball caps) to get away with misinformation.
    IF the answer is as simple as a supply issues, that National are opining, THEN OBVIOUSLY we need to limit demand until supply catches up (unless 100,000 houses can be built overnight……..Christchurch will confirm that’s not possible !!)……the obvious follow up question that the ‘National party SHILLS’ masquerading as reporters-commentators, conveniently don’t ask (!!!) is …………….If building supply is Nationals answer, then immigration MUST BE STOPPED (or reduced DRAMATICALLY) until supply has found an equilibrium with demand.
    The fact that National AREN’T doing this, proves to any half decent neutral thinking person, that they WANT prices to keep rising (pick the many probable reasons why) and they need a compliant Lame Street Media to help them confuse the hobbits accordingly.

    • Korakys says:

      The main stream media organisations are required to seek profits.

      The MSM’s primary customers are advertisers.

  2. Korakys says:

    There is one major problem causing high house prices; land prices are too high where the jobs are. That’s it. All the other contributors are minor by comparison.

    Councils’ development fees, lack of residentially zoned land, immigration and increased building regulations are minor issues.

    While a capital-gains tax on non-owner-occupied properties, a tax on unoccupied buildings/apartments, building high-rises instead of houses and building more state houses could all be a great help they aren’t really ultimate solutions.

    Changing banks’ capital adequacy ratios (Basel III) so that mortgage lending isn’t favoured over other types is another thing that could help, but again isn’t an ultimate solution.

    Perhaps councils could buy up a lot of the land and then sell long-term leases (that cant be on-traded) for the rights to build on that land. Lease-holders would hold all rights to the improvements. Maybe that would take some air out of the bubbling land prices.

    Jobs, and consequently people, moving to cities is a 10,000 year trend that will not be easily turned around. If it could be then that might well be the trick that does it for house prices, but don’t hold your breath.

    It may be that there is no single solution.

    One thing is for sure though, it is not primarily a matter of supply and demand, it is a matter of speculation on land.

    Real estate is a strange one; no matter how many times the bubble bursts enough soap is always found to make a new bubble there.

  3. Greg C says:

    Hi,

    We have two seperate issues being conflated here – housing prices and accomodation supply. House prices are going to keep rising in Auckland as long as the government refuses to address the actual problem. And despite all the words, the problem is not simply supply. It is as every economist in the world will tell you, supply and demand. You cannot solve this problem purely by addressing supply – not when demand is constantly growing. You have to address demand issues. That’s where a capital gains tax is so vital.

    With 40% of the housing market in Auckland going to speculators and investors as was on the news recently, how can you possibly expect house proces not to rise? Every single kiwi who can afford a second investment property will be putting his cash into an investment property instead of business investments like companies, stocks and shares. The returns are simply too good. A capital gains tax will curb this. And it will have other effects on housing availability.

    Take the investors out of the market and let housing prices settle a little, and slowly the trend towards investment properties which are high end and have fewer bedrooms will die as well. More family homes will be built because a greater proportion of the market with the cash to buy, will be demanding that sort of home.

    With more investment capital going into businesses instead of bricks and mortar, the economy will pick up. And hopefully with the extra income that brings in the government will have the cash and the will to invest in better public transport. Public transport links allow building of houses further afield, increasing the housing supply.

    And if they have the good sense to invest in telecomunications as well, and more people can telecommute / work from home via their PC’s, further pressure on land / house prices in the cities will be eased.

    The thing that I don’t get is that a capital gains tax is or should be a part of the neoliberal agenda. Neoliberals are about freedom of choice. The only thing they demand is that those choices should be free. Having a tax free essentially, investment choice essentially distorts the entire market, and denies many the choice to invest in businesses. All I can think is that too many have their snouts in the trough of rising house prices to kill the golden egg laying goose.

    In short they are neoliberal when it suits them.

    Cheers, Greg.

  4. Draco T Bastard says:

    the more general idea of widespread property ownership does have merit.

    None that I can think of. You want long term residents then you ensure lifetime leases are available. Best way to do that is through government ownership of the property and house. Government ownership of the land and house also helps ensure equality of opportunity for everyone as a few people don’t start out life with a free-hold house while most people don’t.

    The unpropertied could be encouraged to buy properties they can afford and become good landlords

    We need to be getting rid of landlords as they’re a blight upon society. This has been known for millennia.

  5. Thomas Kaminski says:

    Any article addressing neoliberal lies falls short if not focussing on the most damaging and fundamental deceptions of neoliberal thought, the ‘trickle down’. Providing good logical and factual research and proving that, even during brilliant economic performances, wealth solely ‘trickles up’ from the poorest to the richest members of society will provide more substance than fibs about the regulation of margarine prices early last century…

  6. Gosman says:

    “Trickle down” is not a neo-liberal term and neither is the concept behind ir one which sensible people who support neo-liberal policies use to promote them.

    • Of course it isn’t, Gosman. Yeah, right.

      Because it’s been a spectacular failure, it’s not a term that the New Right want to associate with or own.

      However, I happened to live through the Rogernomics “reforms” in the late ’80s and 1990s, and I can tell you that your attempt to re-write history is pathetic. I thought you righties were big on taking responsibility?!

      So take responsibility for owning the “trickle down” dogma. It’s all yours.

      • Gosman says:

        Provide me some evidence of Right wing people promoting the term “Trickle down economics” then.

        Here is the reference from Wikipedia. Please note that it states no economist has ever formally advocated such a policy and it was first used in relation to the New Deal policies of FDR back in the 1930’s

        http://en.wikipedia.org/wiki/Trickle-down_economics#History_and_usage_of_the_term

        • Gosman, as usual, your predilection to side-issues seems to be the means by which you deflect from the real issue. Whether the term “trickle down economics” was first coined/promoted by “Right Wing people” or Left Wing People or Martians is utterly beside the point.

          What is at the heart is that the core ideology behind the term has indeed been promoted by “Right Wing People”.

          For example, and I quote from ACT,

          “This reduction in the Company Tax rate will have further revenue effects as the economy grows faster. Ideally the top income tax rate, the trust rate and the Company Tax rate should be the same but the advantages to the country of a competitive Company Tax rate outweigh any tax revenue effectiveness of having the tax rates the same. This single measure will do more to create jobs, growth and wealth than any measure announced by any other party in this year’s election. “

          Source

          The term, as the ACT quote above describes, is that lower taxes, higher profits, and higher incomes trickles down “to create jobs, growth and wealth”.

          You can argue till the cows come home about the provence of the term – but it arose during the right wing Rogernomics “reforms” of the late 1980s, and was in common usage to describe Douglas’s rationale for cutting taxes. It is now more a pejorative term – and hence your curious determination to disown it.

          This is fine by me.

          By rejecting the term “trickle down economics”, you may be on the road to realisation that free market economics is as much a bogus ideology as the now-defunct Soviet system. (It took billions of tax-dollars, injected into various US, British, and other nations’ corporations, in 2008, to avert the collapse of the capitalist system.)

          Quite simply, “trickle down” is a sham. Lower taxes and higher profits/income/dividends results in the rich getting richer; the Middle Classes stagnating (and falling further into debt); and the poor getting poorer.

          No wonder you don’t like the term. It is the ‘chink’ in the dogma of the Right.

  7. High Tory says:

    Muldoons first term as Minister of Finance from 67 to 72 saw substantial liberalisation with growing links to the world economy and later CER combined with social, licensing and censorship reforms that made NZ a better place.
    Douglas in 84-85 with abolition of import licensing low tarrifs and the end of farming support saw great medium term change, much of it ignored with a virtual civil war in the countryside as the cheaper farms collapsed and were brough out and the middle class largely deserted the provincial cities, Invercargill in 85-9 the most dramatic example as the result of the end of state and post office jobs along with the impact of main frame compurisation on local government, banking and insurance. Most of these things would probably have gradually happened anyway without Douglas and the economy may well also have collapsed under dept with the IMF having to be brought in about 1986.
    Auckland house prices are high due to speculation and excessive immigration as a result of govt policy for good relations with asia and china and to excessively inflate housing prices to artificially protect Auckland incomes and the conservative life