Left parties should support a big drop in house prices

By
Keith Locke
-
37
1

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Labour and the Greens should not be scared to support economist Arthur Grimes’ call for policies to bring down Auckland house prices by 40%. We don’t need to support all his policy suggestions. But let’s recognise that a 40% drop would only bring the Auckland median house price (now around $820,000) down to what it was four years ago ($495,000). Why not aim for that?

Politicians lose trust when they complain about a rapid rise in house prices and then are too scared to publicly support them coming down a lot.

In any case, most New Zealanders support a big fall in Auckland house prices. Most Kiwis have Auckland friends and relatives who are paying high rents and can’t see how they will ever get on the housing ladder, with median house prices now nine times the median annual income.  Most Kiwis know that a drop in  Auckland house prices  would be beneficial to their Auckland-based friends and family members.

It’s true that a small percentage of Aucklanders who bought between 2012 and 2016 would lose money.

For the 40% of those who are investors it would be a gamble they lost. In the investment game, be it the property market or the share market, there are always winners and losers.

Those who already had an Auckland home and traded it for another between 2012 and 2016 wouldn’t have lost much. They would have been selling and buying in the same market.

The big losers would be those first home buyers who purchased their property near the price peak.

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For more stable Auckland homeowners, still living in the same property now as they were four years ago, a 40% drop in house prices would be of little real consequence. On paper they might have gained and lost money over the four years but in practice nothing has changed in their residential life. I am in that category myself. I might be technically richer now, but I can’t sell up and move to a “better” place in Auckland because prices have gone up across the city.

Labour is getting some good housing policies, and the Green ones are even better: they include a much needed capital gains tax. But the housing policies of both parties would gain more credibility if they said openly that their aim was to substantially reduce median house prices, particularly in Auckland.

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37 COMMENTS

  1. I’ll just give you this to chew on. If house prices stalled now, and earnings overall were to rise 3% per annum it would take about 50 years for that 3 times annual earnings ratio to return. 2 generations! Given that 3% overall wage rises have been practically unheard of, reality is it would likely take 75 years!!
    For once, I think we have to agree with Don Brash (how’s that for a 180deg turnaround?

  2. The country is in bad economic shape, collapsing the economy is not the answer. Deflating the bubble as opposed to popping it is the best course of action to take, and house prices will fall.

    Stop National’s state housing sell off, that frees up thousands of state homes for people to move into, and a squeeze on speculators which, without saying it out loud, would include landlords, and coupled with Labour’s huge building plan, will not only drive down house prices, it will drive down rents as well.

    • The country is in bad economic shape, collapsing the economy is not the answer.

      Actually, the economy’s fine but the finances are fucked. That’s what happens when you disassociate the finances from reality.

      • Actually, the economy’s fine but the finances are fucked.

        I disagree. The underlying economy is in terrible shape. The almost total disembowelment of the country’s manufacturing base is an obvious indicator and one of the reasons we now rely on the FIRE economy.

    • One of the advantages that capitalism and market exchange has over collective / central panned systems are the purges of misdirected investment. It is brutal but absolutely necessary if the investment cycles are to delver value.

  3. I would prefer to have a big increase in wages! It is not just housing that is currently unaffordable, it is power, utilities, transport and insurances. Have a look around especially these school holidays and imagine you had a family. Start calculating how much taking your children to a holiday park experience, renting a bach or even taking a camping trip. All these things are not affordable on average wages. Then if you take out those who are above average wages and therefore do not get working for families, community services card and so forth you can see why the ‘middle class’ are getting tired of the cost of living vs wages.

    One of the biggest problems with the left is that they do often put forward simple solutions that do not compute with what is really going on. The current housing crisis has been bought about by record immigration. But last election it was never mentioned by the left. The double standard of caning locals and MIMBYS for the housing crisis while going on about how great migration was and celebrating diversity in every leaflet and promotion for Labour made them look completely out of touch with middle NZ. Likewise capital gains taxes that taxed the seller (i.e. the Kiwi) rather than the buyer. Do you think that capital gains taxes helped the Londoners who now can’t afford to live in their capital city?

    Is the left vision of NZ is to bankrupt Kiwi families and leave them tenants by collapsing house prices and leaving them with negative equity, increasing our population 1.5% each year, keeping wages static and then turning our cities and greenfield into a Hong Kong Thai slum box, full of motorways and extra road taxes (which the rich in Herne Bay and Hong Kong can escape) with all the xtra houses to house the new migrants, who are able to borrow significantly cheaper money, earn real money overseas and escape their taxation responsibilities with quasi-legal accounting.

    If you want to lose the election this is the way to go. think about what you are saying here, does this sound electable? Telling middle NZ you want to collapse property prices 40%, celebrate migrants in their current form, get rid of clean NZ and forcibly have a whole lot of massive McMansions and slums coming up to house more low skilled workers and property investors coming in, and add on new transport taxes to get to work? Sounds more like a great way to help a 4th term National government.

    • I would prefer to have a big increase in wages!

      I wouldn’t as it’s entirely possible that, in the real world, we can’t actually afford the wages that we have.

      That said, we should probably look to raising lower wages while decreasing the top end.

      The current housing crisis has been bought about by record immigration.

      That is certainly part of the problem but it’s not the only driver. 30,000 empty houses also add to the problem, speculators buying and selling adds to it and offshore buyers do as well and, of course, those with excessive income.

      • Strangely enough, inflating our way out of the crisis might be the gentlest resolution to the problem.

        Normally a bubble like this would burst and prices would plummet to less than half what they are now but we’re a very small country and it wouldn’t take much interest from the outside world to maintain current prices.

        If that’s the case there’s a generation of young people that will soon insist on crashing the prices anyway so it’s somewhat inevitable as far as I can see.

  4. If the accepted price for a home is three times median income, and they are now nine times median income, then surely prices need to fall by 66.67%.
    Where is this 40% number plucked from (apart from Grimes). Brash was much closer to the mark.

    • We may see that they will not really “crash” much after all the house prices, no matter what housing policy the government or an alternative Labour government will follow.

      We are stuck with high prices for years to come, only if a wider economic crisis occurs will we see a crash, e.g. due to high unemployment, a recession and people not being able to keep up with paying debt.

      That will hurt the banks, same as a housing crash will, and we may face low economic activity for years, unless we have a government then take action and pump money into the economy, to further diversify it and to create a smarter economy, so we can produce things and services that earn us a living, not based on buying homes from each other and pumping endless containers full of milk powder into the world market.

      But even if Labour will do what it plans, when in government with the Greens, at best prices will only stabilise and drop slightly over years, so no real crash.

    • Ummm…National is the current government, not Labour.

      So you post should have read

      Until NATIONAL tackle the unethical practice of houses being used by the population and investors as tradable commodities, nothing will change.

    • Please bear in mind that both the PM and the Minister of Finance in the last Labour government were both landlords owning several properties each.

      Don’t you just love the Left’s hypocrisy?

      • Please bear in mind that Adrian’s comment was a critique of Labour.

        “Until Labour tackle the unethical practice of houses being used by the population and investors as tradable commodities, nothing will change.”

        Where is this hypocrisy you’re imagining?
        Sharpen up Andrew, you’re boring us.

  6. It’s amazing how the housing crisis has worsened under this government. Really, can National do any worse? I suspect not.

  7. Yes, and this is the problem with Labour’s housing ‘solutions’. There’s no way Labour will drop housing prices by 40%.

    The Greens and Mana have more realistic solutions

  8. Prices must fall if homes are to be affordable. But many will be harmed.

    All those who have increased their mortgages as their home value rose will find themselves stuck in debt. For some it will be the consequences for spending beyond their means. For others, not so much. Many will vote accordingly. The political consequences are as harsh as the consequences for those locked out of the market. National and Labour are both to blame for letting it go on too long.

    By all means enact a capital gains tax for speculators and ban foreign ownership. Build more state housing, increase urban density and even increase wages. Tax the rich and eliminate the GST. Nice ideas, much needed; but will Kiwis suddenly face up to facts?

      • Having observed the trends in citizens’ behaviour, including home owners, business people and workers, Kiwis have an obsession with getting their own home, as they see it as offering the best security for long term investments. Only those that cannot afford their own homes for a start, and those few that are so mobile that they would not commit to long term home ownership, would not try and get their own home.

        And like with small to medium businesses, home owners tend to jump onto the band wagon, when a perceived “boom” happens, they are like gold rush treasure hunters, all then trying to get rich quick.

        I see this also with tradies, when there is a shortage of them, they charge a fortune just for simple jobs to be done, when they can get away with it.

        There is a strong underlying greed mentality here, and it shows in times as the one we have now. Kiwis may put up with hardship for a while, but once the going gets good, they all try to rake in as much and as quickly as possible, to make up for earlier stagnation or losses, but by going over the top, they create massive “booms” that then are followed with rather harsh busts.

        Look at dairy, look at housing now, look at other trends, like the share-market craze in the late 1980s and also early 2000s, after which we also had a massive housing boom until about 2007.

        I fear nothing much will ever change, until there is a serious reflection on the underlying problem based on the predominant mentality and gold rush idiocy we get again and again. We need more balanced economic and with that business and also social management, stability for once.

        • We need more balanced economic and with that business and also social management, stability for once.

          Yep and to achieve that we need the government to become the sole source of money in our economy. The private banks being able to create money and unregulated inflows and outflows of financial capital all add to the instability and, especially, house price inflation.

          Make our financial system stable and the rest falls into place.

  9. If the left were to support a policy that collapsed house prices then they would not be elected, which would be bad because the left has something to offer

      • I lived in Toronto when the 1992 crash came and dropped property prices over two years by 30% and the bank took our home, and today Toronto property rises are again at a run-away pace again annual increases from a sombre 5% rate has now this year been red hot up to 16% increase now and heading again for another blowout in 2017 after the 1992 bubble burst it took over twenty years for prices to take off again. so will we see this here? yes we will and many bank repos will occur, as it’s just a matter of time.

        http://www.theglobeandmail.com/real-estate/the-market/toronto-home-prices-surge-10-as-sales-activity-heats-up/article23819264/

        The price of a detached home in the city jumped nearly 16 per cent to $1,042,405 as the market shifted toward sales of higher-end homes, Jason Mercer, the board’s director of market analysis, said in a statement. In the suburbs, the average price of detached home rose 10 per cent to $709,116.

        • so will we see this here? yes we will and many bank repos will occur, as it’s just a matter of time.

          Yep, bubbles always burst. It’s not a question of if we see house prices drop but when, how much and how many people will be bankrupted by it.

          The other option is that we let the bubble down slowly and that seems to be the idea behind Labour’s plan. Let the bubble down slowly over time. But, IMO, all they’ll achieve with their plan is a slight slowing of the house price inflation and, of course, wages still won’t keep up.

          The reason for this is because they’ll still be letting foreign owners in when we need a complete ban on foreign ownership. NZers simply cannot compete with the wealthy in the rest of the world.

  11. Indeed, Keith, you are right, no matter what we do now, there will be some people getting hurt and having to suffer one way or another, as the housing market in Auckland is out of control. It is absurd to talk about a true market, as the market we have left only caters for those who can somehow earn so much, that they can pay for a home close to a million dollars in say 20 to 25 years.

    Even high earners are struggling.

    But in order to look after the banks and the ones that bought in this overheated market, a tiny minority of society, and some of them, the larger investors and speculators, who are a mere small percentage of the population, the government dares not crash the market.

    The banks are scared, many with vested interests are scared of a crash, but a correction is necessary, or we can as well forget affordable housing altogether in this city.

    And to be honest, we must totally ban overseas buyers, all speculators within and without, and hammer them with taxes to stop landbanking and the likes. Housing New Zealand should be getting a massive investment boost, to build affordable, warm and decent homes for a large number of people presently totally shut out of the market.

    A market that only caters for millionaires and for high earners is not a fair and inclusive market, it is like a market for luxury goods, for diamonds, for gold bars and the likes, not a market delivering affordable homes.

    Those that even may have some savings here, they cannot get in:
    http://www.radionz.co.nz/national/programmes/checkpoint/audio/201808144/affordable-housing-developers-hard-to-contact

    I go further than John Campbell, and do not just ask questions, I dare say, we have now massive corruption going on, behind the scenes, where developers in Special Housing Areas make special deals for those desperate to get an “affordable home”, possibly having to pay “extra” to the developer, to even get a foot in the door.

    We do not need a market where only Merc, Porsche and Ferrari drivers can buy stuff, we need a market for the ordinary folk, which we no longer have.

    Whatever will be done, some will go bust, but many will suddenly find, they can after all get some decent home, that is if we address supply AND also stop high immigration gains for a while at least.

    And homes do not need to be high rises, just two to four level intensification in the right areas can add a lot of housing to Auckland, done in the right way by the right builders.

    I hate to think of it though, given shortage of tradies and builders, and a duopoly of material supplies, we may actually after all involve some overseas construction company and temporary construction workers to assist in it all, as I cannot see supply catching up soon enough for a few years to come.

  13. House prices coming down means not much when folks do not have the jobs and the money to even cover a down payment let alone an ongoing mortgage.

    Wage increases ; encouraging manufacturing to grow ; more jobs ; higher interest rates ; stop printing money ; cutting off these banks that encourage debt ; getting rid of crooked lying politicians ; legalizing Industrial Hemp for manufacturing hundreds of great products and producing thousands of jobs – ( yes – that’s right ) ; listening to Max Keiser and refocusing our priorities on the well-being of the people and the environment and not on making the upper 1 % wealthier is a good start.

    Tons of greedy ; living offshore ; foreign speculative home and land investors are one of the major problems that needs some serious and immediate attention. Natz are useless. Hoping for a better future with — Labour/Greens/NZ First.

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