MUST READ; Banking must be a public utility to solve the housing crisis

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Housing availability and affordability are in a crisis in New Zealand.

31 percent of households spent 30 percent or more of their income on housing costs. This number was only 11% in the late 1980s.

For renters, 28% spend 40% or more of income on housing. Average rents have increased from $400 to $580 a week since 2008.

Over the last decade, average housing costs increased by 43%. This was similar to the growth of average incomes but the poorest housing incomes only increased by 29%.

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The has been a decline in floating mortgage rates from 10% to 3% at the same time as median house prices have doubled.

Mortgage debt is now at $266 billion (May 2019) – up 38% in the last five years. Overall household debt has gone from the equivalent of 50% of GDP in the late 19780s to over 160% today. Household debt to income ratios is also extremely high and dangerous at 165% double the level of the mid-1990s.

Households with mortgages have on average three times their disposable income in debt. But 40% of recent borrowers have more than five times their income in debt.

The so-called housing market has very little to do with the laws around supply and demand. It is almost entirely a question of the banking system’s ability to create and sell mortgages and make enormous profits doing so.

A period of declining interest rates has allowed the New Zealand banks to seduce people into believing that this will remain the situation forever and all we have to worry about is servicing the debt not the amount of debt.

A significant economic shock, like we are currently experiencing, will put incomes at risk and interest rates could easily start moving up as a consequence of the increased risk attached to the borrowing.

This is perhaps easier to see when looking at bank lending in another entirely unrelated sphere – New York Taxi licenses. The city had a cap on licenses of around 13,500. The cap made the license a tradeable commodity that drivers, fleet owners and nowadays hedge funds can buy and sell.

A New York Times article headed ‘They Were Conned’: How reckless Loans Devastated a Generation of Taxi Drivers explains how banks predatory lending helped drive license prices up to $1 million each by 2014 and then the prices collapsed and hundreds of drivers were ruined and bankrupted.

This heartbreaking story is a real risk of being rerun in this country because of excessive bank lending in pursuit of profit. With land, there is always a limit to the amount available. Land can be left idle, but It also can also be used to earn income – from housing, agriculture, factories or warehouses. The banks job is to ensure that any increase in income or potential income over time gets capitalised in the price for that property that can then be demanded when sold. The bank’s job is to encourage a buyer to get a loan or mortgage that can be used to purchase that income stream. 

Mortgage debt has been encouraged for speculative purposes by even relatively modest income households because there few capital gain taxes and New Zealand hasn’t suffered a severe downturn in the property market within anyone’s living memory. It seems a “safe” investment. This also makes it politically difficult to impose capital gains taxes on homes. 

That is why wealth taxes are probably a better way to go to get at the accumulated wealth that has escaped the need to pay tax.

The escalating house prices have however made owning a home increasingly unattainable for many. Homeownership rates are now in a steady decline from 73.8% of homes in 1991 to 62% today.

The perfect storm of housing availability and affordability was compounded by the decline in statehouse building in recent decades.

A peak of 70,000 state homes existed in the early 1990s despite the neglect of the National governments which were in power for most of the period from 1950 to 1984. State housing ceased to be a right and was turned into something only suitable and available for the desperately poor or needy.

The number registered on the official Housing Register qualifying under the very high threshold demanded for access has leaped from 6000 to 15000 in the last two years. This was in part the result of real needs being better reflected when the new government stopped simply refusing to allow people to register. 

But the new government has only built 3300 public housing units with another 2500 planned to finish by the end of this year. 

There is a total of 67,253 total subsidised tenancies, up from 63,300 in 2017.

These are steps forward, but they are very tiny steps given the crisis level of the problem and urgent human need. 

There are another 3500 desperate people in emergency hotel stays.

While the government has only very modestly increased the number of state houses, they have allowed most of the land in the traditional state housing suburbs to be privatised. Each new development in a working-class suburb like Glenn Innes is handed over to private developers who can buy the land and put three homes on for each one being taken out. Only one of the three remains a state house. The others are to be sold privately (one possibly at a so-called “affordable” price).

When these orginal state house suburbs were created those of us who grew up in them were proud to say we live in a state house. It meant a home of good quality with a flush toilet and a gas stove. These were working-class suburbs with nearly everyone having a job and active union, sport and social activities. You had tenancies for life and could apply to move from one city or suburb to another into another state house that became available.

The first Labour government built 30,000 between 1936 and 1949 as well as fighting in a world war for five years. When they left office there were 40,000 people on the waiting list and the intention was just to keep building until everyone who wanted one could have one. 

This is actually what was achieved in Sweden under their Social Democratic Party government. 

Sweden’s Social Democrats, in government from 1932 to 1976, did not favour “social” housing directed specifically towards those in need, but universal public housing, via tenant-owned co-operatives, municipal-owned building companies, and rigorous rent control, under a specialised housing department.

The Spinoff has a good article that is headed Good housing is considered a privilege in New Zealand. In Sweden, it’s a human right. It explains that 15% of Swedes live in municipally owned social housing with tenant unions that collectively bargain with the state and private owners.

The housing crisis in New Zealand has also been compounded by the creation of a landlord subsidy in the form of the accommodation supplement. By making it easier for low-income people to access a benefit that could only be received if you proved you had high rent then the inevitable happened. Landlords increased rents to suck up the full value. The increased guaranteed income stream is also then inevitable capitalised into higher house prices by the banking system. This is no different than higher dairy prices getting capitalised into higher dairy farm prices.

This level of banking debt can become a problem with an economic shock. This is what the International Monetary Fund told the government in 2017. As Thomas Coughlan reported in Newsroom May 9, 2017:

In March, after one of its regular visits to New Zealand, an IMF mission concluded while the immediate outlook for the New Zealand economy was good, housing affordability and the stress this placed on the banking system was a problem. If there was a significant global shock, they warned, the high levels of household debt held by New Zealanders (an astronomical 168 percent of disposable income) risked destabilising the economy should a global shock lead to conditions that made it difficult for New Zealanders to repay their mortgages.

The banking system is based on maximising the creation of debt to enable profits in the form of interest. The profits of the top four banks in New Zealand have doubled in the last decade and between them make around $6 billion in profits a year. The return on equity is one of the highest levels for any similar banking system in the world. Banking profits alone dwarf the combined profits of almost every other publicly listed company in New Zealand. The ANZ made more than Fonterra, Spark, Fletcher Building, The Warehouse, Air NZ and the major supermarkets combined in 2017 for example. These banks’ profits are equivalent to 2.5% on New Zealand’s entire GDP compared to only 2% in Australia – their home country for all four. 

Their greed knows no limit and extends to cheating the taxman through elaborately designed tax avoidance schemes

The entire banking system should be taken over as a public service. The big four actually have their presence in New Zealand through taking over previously publicly or community-owned banks during the privatisation mania that swept the country in the 1980s and 1990s and wreaked so much economic havoc. The BNZ used to be state-owned. The ANZ took over the old Post Office Savings Bank before it was privatised. The ASB used to be owned by a Community Trust that paid returns to the community. 

The creation of money, in all its forms, should be a publicly controlled process without capitalist greed periodically putting entire financial systems at risk and that we end up having to bail them out because of their greed and that they are “too big to fail”.  This is effectively what happened in Irealand, the UK and US after the 2008 crisis and we should make sure we do not repeat this time as we face the economic dangers ahead.

As part of a Green New Deal to deal with the crisis we should

  • Nationalise the Big Four banks without compensation for their crimes against the taxpayer and working people of New Zealand.
  • Start a massive state house building programme of 10,000 a year until everyone who needs a home has.
  • All rents should be no more than 12 hours of a person’s income
  • Empty homes to be made available to rent.
  • Tenants should be empowered to create a union to represent them. This should begin to everyone in social housing.
  • All wealth over $5 million should be subject to an annual 1% wealth tax. This could increase to 2% for wealth above $50 million and 3% for wealth above $1 billion.
  • All income up to a living wage a year should be tax-free and new higher tax bands estalished on income over $150,000 a year with a 100 percent tax on incomesover $250,000 a year.

32 COMMENTS

  1. When a political party is strong enough has has the guts too act on the new green deal, implement it and stand up too the onslaught and fury they will get my vote.

    • The housing they are just describing is Kiwibuild. The lefties didn’t notice it was privatisation because it was Labour and Greens and they put “kiwi” in front of it.

      If the left care about society and community, they need to actually develop critical thinking in more commentators and not just agree with whoever the idiot was (Thatcher) that dreamed it up first.

      Seriously COL have to work out that they need local policies for things to work in NZ – our political elite/advisors/woke are so bovine, uncreative and lacking of any intellectual rigour they just re-gurgitate foreign election policies (aka period poverty) and can’t work out quite a lot of international election/social policy will not work in NZ as we have different conditions here.

      Simon Bridges scrap the regulations is another International policy that our political elite (sarcasm) are re-gurgitating.

      If anyone bothered to come up with something local that works they might actually win the election, instead of turning people off voting as all policies seem somewhat missing the mark and out of touch or impractical.

  2. It would be difficult to take over the Australian owned banks without paying compensation, and paying for them may well prove too expensive. A better course would be to create one or more state owned banks – perhaps re-nationalize the BNZ – but stipulate that only state owned banks have the right to create money.

  3. Yes sadly banks are in it to just make more dosh, most of going off shore.

    The government should be plonking much more money into our bank Kiwibank to get to compete with the big boys.

    Of course we need a wealth tax.
    A tax on empty houses – 40,000 of them in Dorkland.

    But they are gutless, ooooooh might we have a run on capital leaving the country, well the owners of this capital can sod off as far as I am concerned.

    If you haven’t seen
    Hunt for the Bunker People, it is well worth watching. All those ridiculous houses empty! One of which belongs to Thiel of course. I cannot understand why his citizenship has not been revoked by Labour… it should have been. I don’t want these wealthy dudes in our country once they have bought their way in.
    https://www.youtube.com/watch?v=Dh1JZVjKUAo

  4. “The banking system is based on maximising the creation of debt to enable profits in the form of interest.”
    I just had a birthday. What a gift your post is @ Mike Treen.
    Have I not been alleging similar? Have I not? Have I not?
    Yes. I have. Go me, right? I’m as dumb as a plug of clay and even I managed to work the above out.
    And go you @ MT.
    @ Isabel H. You write “Common Sense”
    It’s said that common sense is the least common of all the senses.
    Now? Lets pause for a moment and ponder john key? ANZ key. Yankee doodle psycho jonky-stien, the hair tugging narcissist and cheap little egomaniacal crim who bullshitted even the cleverest of us. Except me and thee of course.
    Was his mandate to destroy our confidence in our own sovereignty to enable his zionist cronies to come here and take our country off us without one shot being fired?
    They impregnated our economy by using trojan horse tactics built within their banking systems.
    I bet that’s what’s happened/happening.
    As you write and I paraphrase ; “You can’t build more land.” So, that means you have to take someone else’s off them, right?
    Making a few dollars off us as rorted interest rates after we became hypnotised by our own msm, the one they’ve taken over thereby enslaving us to instant gratification is small change, spending money. It’s that loose change in the ash tray that you use to pay parking or buy an ice cream with. 6 Billion kiwi dollars is, to ‘Them’, chump change and yet we must pay it to ‘Them’ to enable ‘Them’ to take control of our country for resettlement. I think that’s called a win-win situation.
    And then what becomes of us mere 5 million?
    What does your common sense tell you about that particular scenario?
    Global climate change, what I’m certain will be ever more pandemic viral outbreaks, poverty, starvation, disease and war.
    Of all the countries on our biosphere, where would you choose to be?

    • The profit for banks is only enhanced by interest. The basic profit is gathered by the creation of new money when a loan is struck.
      New money becomes money for banks as loans are repaid This is a racket the public are confused about.
      Mortgages over the last few years amount to at least many tens of billions most of which is new money for banksters wealth.
      A strong state bank is needed.

  5. Thank you, Mike Treen.

    This is one of those rare posts that I’d like to see forwarded to at least half a dozen relevant Government Ministers and to their Departments.

  6. when you read the New Green deal a shudder would appear to most people who are in the real World.These were what I heard in UK from those that supported Corbyn. It is a worry that someone who thinks this way is at the negotiation table.

    • Corbyn was attacked by the Zionist lobby screaming “antisemitism” to confuse the public.
      The Zionist controlled MSM did their nasty work thoroughly so Corbyn who is a Jew had an antisemitism label stuck to him.
      How ridiculous.
      His real “crime” was to give more to the people that was and is theirs.

  7. Who can I vote for that will do this? Looks like the Green Party is the most likely option right now. Of course nationalising the banks will probably damage our “special” relationship with Australia and cause even more Kiwis to be deported back here, making the housing crisis even worse. To resolve that problem the Green/Treen government should nationalise all empty “Ghost” houses under the public works act, and begin a programme of nationalising the entire for-profit rental market. Only nonprofits like the Salvation Army will be allowed to provide social housing in future.

    And while we’re on a socialism spree, let’s take over the insurance and real estate “markets” as well. ACC is more than capable of expanding into other forms of insurance. Real estate agencies are leeches. Also capital gains taxes should be 80%. Housing is a human necessity not an investment vehicle.

  8. Sorry Mike but you seem to have forgotten to post the rest of your argument, the bit that explains why those with any means won’t just leave NZ and in doing so take all the taxes and fees with them leaving only those who pay fuck all, if any at all.

    Idealism is great but sadly only seems to have one side.

    • That is the myth of the rich, that they are wealth creators, when in fact they sit around collecting rent from all the real workers, and avoid paying their fair share of tax by tricky schemes that average workers don’t have access to. Don’t let the door hit you in the arse on the way out.

      • Wealth owns MSM and that is certainly used to instruct the people how to think along with what suits the wealthy and the sacrosanct bakers whom are seldom discussed.
        That is the discussion.

    • Peter I think you underestimate the enormous number of people who like living in these islands. Oh yes they will have less play money but frankly they will still be able to live a good life with trimmings.

      • Absolutely Michal, 250k is a very tidy sum indeed. But 250K is chump change in rich prick world and in the world of most very senior management in most of NZ’s bigger and to a shit load of smaller business owners. I’d like to hear from Mike why he thinks all those people, and there are a lot of them, won’t take actions to circumvent his suggestion. Also how he thinks the MP’s who need to make this change will vote to harm themselves. Pieces like Mikes are good and often interesting but sadly they do tend to only look at one side of the equation while ignoring often very important aspects.

    • Peter your friends who you say will be leaving are, in the majority, the ones who pay damn all tax. So they wont be missed.

  9. Why does it take SOOO LOONNNG for comments to be approved on this site.. way to ignore the community. (I made a few comments from my iPad earlier today and they are stuck in a spam trap or something)

    • Just makes it difficult to string together long as reams of irrelevant trolling and forces people to be a bit more thoughtful in there comments if they know they’ve only got one or two shots at it. People who can’t handle it, Yknow can’t handle being a bit more thoughtfull with their comments usually end up at the standard virtue signalling about the days woke agenda.

  10. A Public Bank could end once and for all lending to property speculators for capital gain which is a parasitic curse on our society plus a c.g.t imposed by a socialist government of 80%. Family homes excluded of course. Also we can issue our own credit, no need to borrow from foreign bank leeches. We could make this a country for all the people and not just for the ” I’m alright Bruces ” Any interest earned would go to the public purse not to Australian bank profits while they dump their Australian misfits onto our shores. Neoliberalism: extract profit deny and shift off costs to another.
    Basically a house is a home not a get rich casino chip.

    • Taxes levied on a regular basis, such as a land tax or a property tax similar to rates, would probably be more effective in influencing house prices than would capital gains taxes. Such taxes add to a property owner’s annual (property) outgoings, outgoings is something an owner needs to take into account when deciding to purchase a property, and will therefore influence the price he is prepared to pay for that property.

    • The Radical Imagination | Imagining How the World of Finance Really Works
      Host Jim Vrettos interviews Professor Michael Hudson, Economist, Wall St. Analyst, Political Consultant, Commentator and Journalist; who offers his views in the way finance works and how debt is actually a tool for oppression.
      https://www.youtube.com/watch?v=dnHJBUczgE0

  11. Another reason for the housing crisis, we can’t build quality buildings and remedial work and legal costs in NZ is encouraged and astronomical!

    Construction Quality is a BIG issue as is PRICE GOUGING and constant delays and legal action (NZ has 25% more lawyers operating per capita than the UK so everything).

    Even worse apartments, (which in NZ we seem to unable to build to last) seems to be the apparent solution but we still can’t build them without big remedial costs!

    Former National MP Aaron Gilmore in dispute with St Pauls Apartment Body Corporate over legal fees
    https://www.stuff.co.nz/business/property/120228206/former-national-mp-aaron-gilmore-is-in-dispute-with-the-st-pauls-apartment-body-corporate-over-legal-fees

    Concrete safety investigator ‘surprised nobody had been killed’
    https://www.rnz.co.nz/news/national/402908/concrete-safety-investigator-surprised-nobody-had-been-killed

    Multi-storey building flaws ‘almost the norm’
    https://www.rnz.co.nz/news/national/340396/multi-storey-building-flaws-almost-the-norm

    Apartment complex hit with $32.8m repair bill
    https://www.rnz.co.nz/news/national/331505/apartment-complex-hit-with-32-point-8m-repair-bill

    Council unable to identify possible defective buildings in capital
    https://www.rnz.co.nz/news/national/403417/council-unable-to-identify-possible-defective-buildings-in-capital

    https://www.stuff.co.nz/national/the-detail/117617601/the-detail-new-zealands-leaky-homes-saga-is-a-long-way-from-sorted

    Now apparently ACC is expected to pay out for cash construction workers while building bosses are committing visa frauds! It’s crazy.

    Family of migrant worker who died on the job seeks compensation
    https://www.stuff.co.nz/business/118004926/family-of-migrant-worker-who-died-on-the-job-seeks-compensation

    Auckland building boss charged with fraud after investigation into illegal labour
    https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12005146

  12. Copied and pasted reminder via Facebook.

    NZ Observer.

    January 25
    ·
    ”During the John Key years, the auction rooms of Auckland’s real estate companies were full of Chinese and Indian investors ( yes I know I cant say this as David Seymour who is part-funded by the Chinese govt will call me racist) as they looked to take advantage of the massive house price inflation that was taking place due to Key’s immigration policy and the tax-free gains due to a lack of CGT. Just ask any Auckland real estate agent.
    A lot of money was pouring in from China as very shrewd and very clever Chinese investors took advantage of one of the most insane commodity markets ( Auckland homes) in the world.
    There are lots of cases where Chinese middlemen were buying properties on behalf of mainland investors. Auckland property developments were advertised in Singapore and Chinese newspapers.
    John Key REFUSED to keep any sort of tally of foreign buyers as he was up to his neck in all of this on many fronts, politically and personally.
    So now we have this situation.
    We have young Kiwi first-home buyers paying record amounts of money for homes in NZ, especially Auckland, making them not only the most indebted Kiwis in our history but on an income to debt ratio some of the most indebted people in the world! ( This statistic is truly staggering)
    The ramifications for this debt are going to be huge for our economy, welfare system and society. It cannot be understated how the effects of this enormous debt will impact our economy.
    But for me, the worst of it all is that foreign house speculators have come to NZ, made huge capital gains on their house flips, ( off the back of young Kiwi first home buyers) and have then repatriated that capital gain back to their homeland while that debt will strangle the youth of NZ for decades and force many to the wall when we get a shift in interest rates.”

    * House prices in Auckland under John Key’s government increased 91% according to REINZ figures, driven by Key’s immigration policy.
    * Total mortgage debt under John Key’s government went from around $130 Billion ( 2008) to over $250 Billion (2017)

    • I just sold a house for 476K more than I paid for it 5 years ago.
      While that house was in my name JK was PM for 1 year, JA was PM for going on 3 years.

      So would that make JA more shit than JK or just equally as shit?

  13. Chch memorial now cancelled, with just 24hrs to spare, PM will be privately gutted and in tears about cancelling her world stage moment and missing out on massive ego stroking, but being a politician no doubt the rhetoric will be she did it for the NZ public safety/health….pfffft!

    • Im right,

      You’ve found a replacement platform to spew out your misogynistic bile now the sewer of cowards otherwise known as the Trade Me message board was shut down. Maggots like you offer absolutely zero to any topic. It’s just used as an excuse to hate on Ardern you brave wee thing. .

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