Increasing the supply of housing is only part of the solution. Demand needs to be shored up. That means changing incentives so that wage earners can compete with investors.

When run down villas in Sandringham are fetching up to a $1 million, the average family can't afford to buy the average house.

 Here are two things that the problem of affordability isn't:

It's not a problem of not enough houses being built in the wops. People want to live where they work and play. 

It's not a problem of urban density. Planners have a habit of solving the problem of where they want families to live, instead of solving the problem of helping families live where they want to live. I've tried to raise a family in an apartment, and let me assure you, the suburban back yard is an easier place to hone youthful football skills.

Building on new land and promoting urban density might assist affordability a bit, but they're not really the core problem: average families are being priced out of the market by people who are buying houses as an investment instead of as a place to live.

Those investors and speculators are paying house prices that the rental yield can't justify. They are driving up prices in anticipation that prices will keep rising. The more people believe prices will keep rising, the more the asset prices will rise, leading more people to believe they will keep on rising. And so on. In a long recession, where interest rates are low because the economy is not growing, asset price bubbles grow faster - yes really; a couple of the stock market's record years were during the Great Depression.

Investors are capitalising tax free future income to bid against people who pay mortgages out of their tax paid income. Wage earners can't possibly win.

If you have a lot of capital wealth then you will be able to pay more today in expectation of your future capital gain than a person who has to borrow most of their deposit. You might leverage 100% of the cost of your fifth house, or even 120%, if you own the first four outright and you think the value will rise 30% in the next couple of years. But good luck getting a bank to lend to you 100% of the purchase price if you don't already own dirt.

A capital gains tax that restrained investment housing would help. It's not enough on its own. 

We need to do more to help people who don't have lots of savings and give them a leg up compared to people who already have their own substantial savings.

We also need to see a stronger relationship between incomes and the cost of living. This means ordinary incomes need to be high enough to afford ordinary homes - and high enough is a relative term relative not just to house prices today but to the wealth of investors they are bidding against. When a few people own most of the wealth, most people won't be able to afford a house.

For the last five years (actually for nearly thirty years, except for a gap when Michael Cullen was finance minister) the share of national income going to people who earn wages has been falling. Therefore, the cost of buying a home for people who earn wages has been becoming more unaffordable. Unaffordable housing and a low wage economy are the same thing.

If you're for a unequal New Zealand, for massive wealth disparities, and against a capital gains tax, then you are also against helping young families achieve a home of their own. If the idea that the average family can't afford a home of their own makes you uncomfortable, then you need to follow the logic through the tax system and higher wages.

The government's tweaking round the edges of the RMA might speed up building consents, but will do little to make sure those nice new houses are affordable for the families who earn wages if their wages are falling as a share of national income.

 

 

Comments (11)

by stuart munro on May 12, 2013
stuart munro

Yes, quite good. There are a couple of things though, mean employment length and mortgage term. As the NZ work force has been eroded and casualised, job security and period have declined as well as real wages. If you have to take on a steep mortgage for 25 years,and the 25 years is for real, the modern 2-3 year job term almost rules you out. Six months out of work, or a forced relocation will kill your purchase decision and force you to sell, and forced sales are lucky to break even. A mathematician can probably tell you a few things working from median wages and employment terms. Next, apartments. NZ needs to learn how to do them. They can be cheap, practical, and a pleasure to live in. Most NZ attempts have been none of those things.

Government inaction was partly based on the comforting income stream derived from inflation of rateable value. Complacent. It needs an assertive strategy to reestablish a sane position for housing in the local economy, and since massive value shifts are to be avoided it will require a complex integrated package of policies to reign in runaway real estate inflation. Just make it clear to the Gnats that if they queer the incremental adjustments, simpler but more intrusive interventions are much easier to do.

by Nick Gibbs on May 12, 2013
Nick Gibbs

The problem here is one of expectations. Not only do you expect to live in central Auckland you also expect to have a large backyard. There isn't enough land in that tiny litte isthmus for that to happen. Hence demand now exceeds supply and the price rockets up. And that's exactly what has happened. If you want to open up the central suburbs to all, then build apartments. If you want a large section go to the outer burbs. Everything else is just pointless wishful thinking..

by Tim Watkin on May 13, 2013
Tim Watkin

You're right Nick. Although it's not just houses v apartments. We can have terraced houses and other forms of smaller homes that aren't six-storey high blocks. And it's not just yards v apartments either. We build some of the biggest houses by sq foot in the world. We need to accept smaller homes, especially as first homes. Not that we necessarily want to swing the whole way, but new UK homes are on average a little over a third of the size of new homes here.

So we have to compromise.

by Josie Pagani on May 13, 2013
Josie Pagani

But simply focusing on supply isn't going to solve the core problem - which is affordability. Doesn't matter if its apartments or new homes in the suburbs. The demand is there, true, but its impotent. Until the average family can't afford the average house we will continue to have a housing problem. 

by Kaila Pettigrove on May 13, 2013
Kaila Pettigrove

Thank you, Josie.  You've expressed the frustration my family has experienced  for our last five years in Auckland.  I understand that we cannot own a lifestyle block in the middle of Auckland; but in order to find something affordable for us, my husband would need to move so far away that we'd have to commute three hours a day (total round trip via train) to get to his professional job.  I say professional because our combined income is currently higher than it's been in our twenty years of marriage.  We are frugal people who do not live a lavish lifestyle.  I don't subscribe to Sky TV and we don't take expensive family vacations.  We own one VERY OLD car.

 We're not opposed to a smaller home.  Our family of five is currently squeezed into a three-bedroom rental home with a living room not large enough to accomodate a traditional "lounge suite." We cannot afford to buy a home that is equivalent to the one we rent (with no garden).   I'm just not sure where else to compromise...

by Josie Pagani on May 13, 2013
Josie Pagani

Exactly Kaila. You and your family - and thousands of others like you - have been priced out of the market. That shouldn't happen in New Zealand. What else can you do? You're both working. You're not extravagent. If your family can't afford to buy a house, then who can? Thanks so much for commenting Kaila. We need to keep the focus on affordability.

by DeepRed on May 13, 2013
DeepRed

The hypocrisy of the current lot in power knows no bounds. Weaken the RMA - unless of course, Manhattanisation/Vancouverism happens to be involved. It's really about preserving an effectively cartelised housing market no matter what the cost.

And has anyone revisited regional development to take the pressure off Auckland? Tim Shadbolt was on NatRad not too long ago saying it'd counterproductive to have 42% of the country living in Auckland, while the rest of NZ empties out.

by Mikaere Curtis on May 14, 2013
Mikaere Curtis

The elephant in the room, of course, is the fact that we encourage immigration to Auckland.  Auckland is full.  One option would be to contract new immigrants to move into the regions, there are plenty of awesome places to live that are not Auckland.

Other things we could do include:

  • Disallow non-residents from ever purchasing real estate.  If they want to buy real estate, the can come and live here.  If not, then they can rent like everyone else.
  • Enact a capital gains tax on non-family homes. 
  • Regulate loan-to-value ratios and reserve ratios to ensure banks do not encourage a housing bubble.

We could do the above in addition to initiatives to improve wages, and more quickly with a greater certainty of success.  All we need is a Labour/Greens government. 

 

by Matthew Morgan on May 16, 2013
Matthew Morgan

Another aspect to this debate -- what if you CAN afford to buy but then think that maybe having a $700,000 mortgage is a hiddeous thought?

That's the position I'm in.

My partner and I have a fairly good combined income.

We both work in Auckland's CBD.

We have a lot of savings.

Some moron at the bank said they would lend us $800,000 (minimum).

Who to the what now?

With that kind of glue we could easily buy.

But we're on a good rent.

And as I like to say to people, if cheeseburgers in this city cost $1,500 you wouldn't see me buying a lot of those either, even if they did appreciate.

We're just hoping there is a market correction and so we can smash distressed vendors.

Alternatively, we could do what most people do and move to another country where the real economy is actually deep and dynamic and people don't have to just invest in property to make money.

Alternatively again, I could just say forget it and chase the Kiwi dream of becoming an Avondale slum lord.

Oh, the options....

by danniel on January 03, 2014
danniel

So what could the government do to help the average family? Except increased taxes for the investors, there's little they could do. I think the builders should also be encouraged to sell the houses to these families, some tax deductions for them would also help.  I've managed to get one of the Cal Am houses so I don't plan to buy a new home anytime soon, but I still relate to what the young homeless families are going through.

 

by rickk on June 13, 2014
rickk

We will always talk about inequality when it comes to housing and that's because we don't live in an ideal world. All I can hope for as a citizen is to afford to get the home that I want. I even saw something I really like at Vistancia and I am making plans for that aquisition. As I understand this is a good time to buy.

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