Of charities and homes
Dennis Dorney
For a very long time my articles have been dominated by the increasingly unstable NZ housing market, partly because it is one of the main determinants of the health of our economy and partly because I believe that the bubble must burst soon.
In all that time I have assumed that the Australian housing market has been comparatively rational, however an article that I have just read by Lindsay David [1] shows that the situation in both countries is almost identical.
I ought not to have been surprised because the economies of both countries are dependent on the same four banks, but it does affect possible consequences.
Nearly all housing booms end in a spectacular bust – soft landings are just wishful thinking. To my mind, a housing bust in NZ could be easily managed without affecting the Australian economy because the NZ economy is relatively small. No doubt Kiwis would get their fingers burnt but the economy would bounce back after a few years.
But what would happen if the Australian boom burst first? Wouldn’t the Australian banks, to save themselves, withdraw all the assets they could from NZ leaving us at the wrong end of a train wreck? Would the NZ banks be allowed to fail and could they be treated as legally separate from their Australian counterparts?
In the last couple of months several events in NZ have pushed the housing bubble closer to the brink. It would be of concern if the Australian economy looks no better.
My previous article mentioned that the Government, which has done virtually nothing about building enough houses, has staked everything on selling off its stock of State housing. How this would improve matters without building more houses was never stated, but to present the plan in a better light it was claimed that charities would be involved in the purchase and administration of some of the stock.
On Mar 23rd the Salvation Army declined to participate in the plan, saying that they did not have the time, the expertise, nor capital resources to carry out their expected function. Damagingly, they added that the state of the housing stock was in poor repair, and they had felt pressured by the Government to take part. On March 27th the Methodist Mission also declined, saying it “does not believe that the government’s proposal to sell state housing to the social sector is in the best interest of communities where housing is desperately needed.”
It is true that Maori Kiwi, who are cashed up with compensation from claims for past injustices, have expressed an interest, but since that money came from taxpayers it would cause a political storm if Maori had first refusal of housing stock that the average Kiwi can no longer afford to buy.
So that leaves just the speculators. If the housing stock is offered to them, we have an old-fashioned assets sale. That will need political goodwill, yet suddenly this government looks fragile.
That may come as a surprise to Australian readers. The Government has won two elections in a row, with apparent ease but the National Party itself holds only 60 out of 121 seats. The support needed for National to govern comes from a motley assortment of pseudo-parties which between them have 4 seats despite voter support of hardly 3% in all.
The National coalition has ruled for six years only by maintaining strict discipline. A by election on 28 March has radically changed the arithmetic, by converting a National majority of 9000 votes at the previous election to a 4000 votes victory for New Zealand First, a minor party. That victory was achieved by the Opposition parties, in a rare co- operative mood, voting strategically.
This means that National now looks very vulnerable in parliament and the motley crew are starting to feel their power.
The immediate consequence is that National may not be able to get all of its Bills through parliament. The first casualty may well be modifications to the Resource Management Act, which were touted as being necessary to speed housing approvals through Local Councils, thereby reducing attendant costs. In practice, apart from shifting the blame for the housing debacle from the Government to the Local Councils, the proposed alterations were intended to weaken the environmental safeguards contained in the Act – a touchy point for some, so National no longer has the necessary numbers to force the alterations through.
It does not help the National coalition that a HomeStart program which the Government introduced during the 2014 election, purely as a vote winner, commenced appropriately on April 1st. The carrot was that first home buyers would be given substantial subsidies, and allowed to access their super funds, to help meet their housing deposit. My view was that shovelling more money into an overheated market can only increase house prices while there is an acute housing shortage.
Apparently the Reserve Bank, the Treasury and the Green Party agree with that view.
And it’s not as though the market needs the encouragement; the $675,000 median house price in Auckland in March was 14 per cent higher than a year ago. While the futile schemes of a Government, philosophically opposed to building State houses, fall over one by one, and its support base in parliament shrinks, those who can see the folly of their economic ignorance, can only wait and pray.
Dennis Dorney is an ERA member living in New Zealand
