The current house price situation is a bit of a fairy tale for property owners although, unlike the three little pigs where the home owners end up safe and the wolf stews in the pot, I think most practical analysts know that this is one tale that won’t have a happy ending.
When the wolf, disguised as a money lender comes blowing, even the brick house won’t have the equity to withstand the winds of change sweeping through the high towers.
We’ve heard a lot lately about the “housing crisis”, the need to adequately house the less fortunate amongst us, and calls for changes to help ease pressure on the property market as prices continue to climb.
The Government has made a lot of noise about the issue, but just last month simply turned out a reheated housing announcement and some lukewarm signals on housing policies to come.
Meanwhile, banks such as Westpac have taken forecast rate cuts off the table and are now expecting house price inflation to peak at 20% this year.
Some other money wonk says house prices double every seven years — you get the picture.
While the Reserve Bank sits on its hands lest it might have to actually do something, New Zealand housing in its entirety is expected to top $1.5 trillion in value this month, reflecting a 10-year run that has added about $900 billion to the value of all housing stock, according to the Bank’s own data; a 144% increase over the decade.
Could this bull run now be described as some sort of hyperinflation?
I well remember passing through Zimbabwe in the early 1980s. It was not a great place to be, but if you wanted to get to the barrels at Jeffreys Bay that was what you had to do.
The squalor, the dirt and the fear there (and south of the border) stay with me to this day.
The inflation rate under the newly minted ZANU-PF party of the increasingly rabid Robert Mugabe sat around the 20% mark — bad but not terminal.
On a subsequent visit, the squalor and fear had all ratcheted up a notch, and inflation was running at around 600%.
If you wanted a loaf of bread you took a wheelbarrow full of cash down to the shop. The next day it was two wheelbarrows for the same loaf.
The local building sites took to chaining their wheelbarrows inside sheds surrounded by guard dogs who had caught their rabies off Bob.
I mention this because while the property prices may not be classified as hyperinflation on the Zimbabwe/Weimar Republic level, it does point to an uncomfortable truth about where we are headed, and the actual value of our economy, our currency and our assets.
A predetermined rate of inflation as dictated by our Reserve Bank through its machinations may be a wonderful thing for some, but the corollary of galloping property values and a government caught like a deer in the headlights mean a continuance of the bumpy ride after getting over the deer.
Labour got back into power on the back of an empathetic leader with a good line in “kindness” and a scientific approach to a pandemic built on the back of our island isolation.
Along the way, for whatever reason, it has fallen into a trough of inertia on its stated key agenda of climate change, child poverty and housing.
No amount of prevarication and new “plans” from our rangatira nui will change that.
The Government made a “rehash” announcement concerning some 8000 units of “public and transitional housing”. The issue of course is the same old Kiwibuild one: how?
Independent economist Tony Alexander’s first business survey for 2021 including comments from hundreds of business operators show good demand across many sectors, but some worsening issues with pricing implications.
He points to an extremely strong demand for new residential properties, sections, house and land packages, and townhouses, but with skilled staff in short supply, and materials and supplies erratic and becoming more expensive.
Builders apparently anticipate being very busy, including commercial construction businesses which are facing the same issues, though perhaps not quite the same demand.
They are competing for labour against residential builders and those operating in the civil construction and infrastructure sector where there are concerns about the pipeline of jobs and the ability of public servants to manage contracting processes.
While high level announcements will be made about the Resource Management Act, and Prime Minister Jacinda Ardern says the May Budget would have a specific focus around “supply-side issues”, detail and reality still seem as far off as ever.
And like the leader before her, prognostications of the “over my dead body”-type on issues such as tax-based solutions are hindering progress.
Builders can’t go any faster — they have limited human resources and are captivated by the numerous health and safety and regulatory boxes to tick.
Bringing in workers from offshore — that’s really not a good look in a pandemic, and replete with problems.
So, property prices continue to escalate unabated. Media lap this up with rhetoric and emotive language catching the eye, but not helping the situation.
While this correspondent is an assiduous user of metaphor and simile, words like buoyant, sizzling, booming, rampant, frenzy and crisis in business columns expounding on the property market merely exacerbate the situation.
Housing equity in New Zealand accounts for two-thirds of households’ net wealth — an investment guaranteed to produce better profit than the most risk-centric investment portfolio.
No wonder investors are muddying the housing waters, now buying at higher rates than first home buyers coming into the market.
As reported recently by Radio NZ, data from the central credit reporting agency Centrix shows there are now 15,000 mortgages in arrears, up 2000 from September.
When the pandemic first struck, concessions were made to allow retail banks to defer mortgage payments for customers in hardship, although interest still accrued on the balance.
Of those who took up the deferral option, 80% had come off. However, Reserve Bank data showed $2.6 billion worth of loans remained deferred. If that’s not a red flag, it’s certainly not bull.
The effects of a hyperinflated property market are stark, according to one commentator.
“Housing shortages and high resulting housing costs undermine social cohesion. Families are forced to live in less pleasant and overcrowded dwellings, leading to deprivation, adverse health and social outcomes, and unstable environments for young children to grow and learn.” The flames of revolt start from the smallest spark.
Compounding the situation, ASB senior economist Mike Jones has reported that steep house prices are turning off some buyers.
“There’s too much demand for quite a restricted supply and there are a number of factors out there, be it lower mortgage rates or certain other policy stimulus that are boosting demand at the moment.”
More than two-thirds of New Zealanders think the housing market will keep booming during the next year, according to the ASB Bank’s own housing confidence barometer for October last year.
Before the election, Treasury was forecasting a brief dip in house prices. Having had its face rubbed in a dirty bucket of reality, it’s now expecting rampant house price growth over the next five years.
Prices are now expected to grow four times faster than wages and five times faster than the economy as a whole, rising 8.5%.
As with most issues, the housing affordability problem is global.
According to the latest OECD report, well over half of the OECD population, on average, reports that they are dissatisfied with the availability of good, affordable housing in their city or the area where they live.
In fact, housing has become unaffordable for many households in the OECD area, pushing the issue to the forefront of the policy debate.
Over the past two decades, as housing prices have risen in most OECD countries, households are, on average, spending a large and increasing share of their budget on housing.
Vulnerable households continue to struggle
The report notes: “While households across the income distribution, particularly the middle class, increasingly face challenges to pay for high housing costs, low-income and vulnerable households have long faced obstacles in the housing market and continue to struggle.”
So, it looks like the middle classes may be joining that revolution too.
No solution to the problem of housing shortage and property prices is going to be easy. But there are some basic foundations that could be applied.
Such as building more houses more quickly by making better use of advanced manufacturing techniques and freeing up supply chains, including the better use of local resources (I wonder how many softwood growers and processors are sitting around boardroom tables and gnashing their teeth as I write?).
Cutting the crap out of the front end
Builders will want to see more of the crap cut at the front end (consenting, box ticking twaddle) while the new owners want to avoid being bilked by bureaucratic ticket punchers who see them as cash cows.
The restrictions on development of the past have resulted in a construction sector inhibited by poorly conceived rules and regulations on the amount and types of building possible, rather than what might be demanded by a growing, ever-changing population.
Judith Collins, the current leader of one of the country’s four minor parties, has flagged some sort of detente cordiale on the issue of housing in a recent speech.
She said the situation was “spiralling out of control”, and emergency powers were needed while the Government worked on its Resource Management Act reforms, which aren’t expected to be enacted until at least 2022.
Ardern seemed less than willing to put her hand in the gin trap and find out if bipartisanship could really work.
Politicians endeavouring to operate within the boundaries of their perceived mandate merely undermine the flaws in our democratic systems: bereft of the ability to act like anything other than that headlit deer.
The ritual of the three year (or otherwise) electoral cycle can create varying degrees of headlit inertia.
When the very voters that mandated your governance see the growing value of their primary asset (their home) slowing or disappearing altogether, they will surely be showing their displeasure at the ballot box.
The Government is happily riding the wave of the pandemic at the moment. The question is, do they have an eye for the next set looming on the horizon.
As with those barrelling right handers at Jeffreys Bay, sooner or later all waves come crashing to shore.