Housing — again – Dennis Dorney
News and views from New Zealand
In my NZ articles over a long period, a major theme has been a) the rapidly rising price of housing in NZ, in particular Auckland, which holds about 32% of the nations population, and b) the failure of every attempt by the government to resolve the problem. My most recent comments had indicated that a Reserve Bank cap of the ratio of debt to income appeared to have caused a pause in house prices. That has proved short lived and prices are bounding ahead faster, if anything, than before.
Nationally average house prices have risen over 12% in the last year to an average of $578,000, led by Auckland with prices of $956.000 (over 15%). Queenstown, fuelled by a tourism boom now has an $875,000 average at an incredible 22% increase.
Inaction … and consequences
A proposed solution is to raise the ratio further, which will squeeze out the last of the first-home buyers. There is probably no short term solution, since the problem is mainly an acute shortage of affordable State housing, which cant be resolved quickly. Matters are not helped by the fact that young first-home buyers are typically among the 1 million people who don’t vote at all, whereas the speculators, who are making a killing, most probably do vote for the government, so the will to fix the problem is lacking.
However, the problem has become so acute that the main-stream media can no longer ignore it. An analysis by Radio New Zealand, on 16th May said that “the government can’t continue to ignore the growing numbers of people forced to live in cars, and in shipping containers and garages”.
The Salvation Army estimated that in most streets 10% of South Auckland garages were being lived in and in some streets all the garages were occupied, sometimes shared between two families. Many were simply not making enough to survive, because minimum wage and benefits were not enough to pay the cost of rising rents. The maximum entitlement is $200 a week, but rent is typically $500 or $600.
Apparently those seeking emergency shelter are being pressured by WINZ (Work and Income NZ) to take out loans so that they can rent temporary accommodation. One family was being put up in a $190-a-night motel. The loans must be repaid of course…. with interest.
It was claimed that HNZ (Housing New Zealand) was not building anywhere near the 1000 new State houses a year that the city desperately needed.
Meanwhile the government demands a dividend from its State housing stock- an estimated $118 million this financial year. It would be hard to think of anything more cynical. It would make more sense to re-invest the money into new homes.
Migration: Coming home to roost
Increase in demand, due to immigration, is also an issue. After the last economic crisis many Kiwis migrated to Australia, where opportunities for work were better and wages higher. This led to a net emigration from New Zealand over that period.
This was a God-send for the incoming Government because unemployment figures would otherwise have been much higher. As readers will know, that era is now over and Kiwis in Australia who have become unemployed now find that they cannot get unemployment benefits there.
So they have come home – but not alone. Since the world economy shows no sign of improvement, nor wars of abating, migrants and refugees see New Zealand as a safe haven. In the last year net migration to New Zealand rose to 67000, of which about a fifth are New Zealanders coming home. The rest comprise mainly those with work or student visas, and tourists.
For the government this is good news. These immigrants will come with money in their pockets, which will boost the economy. The income derived from servicing this migration is now the strongest performing sector of our economy. These people will need accommodation and are pushing up the total demand, and hence price, of housing.
Those who hold working visas are also competing for non-existing jobs in a tough market. This will reduce wages. The bad news, then, is for house buyers and workers. Again the government will be in no hurry to do anything about a situation that is amicable to many of its supporters.
However the immigration and tourist boom could be transient. When the Australian economy recovers, those itinerant Kiwis will be off across the ditch again, or if the NZ Dollar rises or the price of oil rises to its proper level (the present low price is as much due to politic considerations as to market forces) the tourism industry will diminish.
The government has a costly habit of missing the overall picture. A report from the Morgan Foundation on April 18 showed where such myopia can lead.
To meet our carbon emission obligations under the Kyoto agreement, our government purchased large quantities of cheap Emission Reduction Units (a type of Kyoto carbon credit) from the Ukraine and Russia even though it knew that the credits were fraudulent and had never represented any real emissions.
Although we are a small nation, we bought many more per capita than any other nation, reducing the value of these credits to almost nothing, effectively destroying the Credits market.
One of our major export earners is forestry, which is only marginally profitable at present, so the very real carbon emissions absorbed by forests is an important benefit accrued through that industry, so the Government’s devious game has made forestry less viable.
During the dairy bubble, which the government was actively encouraging, it would have been tempting to convert a logged out forestry area to dairy, rather than replant. The dairy bubble has now burst, leaving that industry in disarray, and many of the farmers, who had made the switch from forestry, feeling twice bitten.
Currently the largest contributor to our economy is through migration and tourism, both of which our government is also actively encouraging. Given the Governments track record, if I owned a small hotel in Queenstown, I would sell now.
Dennis Dorney is an ERA member and a regular contributor, and lives in New Zealand