NZ POLITICS DAILY: Politicians are failing on housing

POLITICAL ROUNDUP

Dr Bryce Edwards

It isn’t that often Prime Minister John Key is right on the housing affordability problem. In fact, his government have been on the wrong side of the housing issue all year. But Key was quite correct in saying this week that the housing affordability crisis started under the last Labour Government, and worsened more under Helen Clark than on his watch – see Newstalk ZB’s Key: House price rises the same under Helen Clark

The Prime Minister points to statistics on house prices that he says show that across the country house prices went up 102 per cent under the last government, but under Key they’ve risen less than half of that. Key’s attack on Labour and Helen Clark is in response to Labour’s housing spokesperson Phil Twyford demanding that the Government declare a “state of emergency” over the issue. Key’s response has been "If it was a state of emergency now, a crisis now, why wasn't it a state of emergency and a crisis then?" – see Dan Satherley’s John Key blames Helen Clark for housing crisis

Key also points to lower interest rates under National, and says that "If you have a $300,000 mortgage in Auckland, you compare it to when I first became Prime Minister, you're paying $16,000 a year less in interest."

Labour’s best rebuttal is that Key is using statistics for the whole country rather than for Auckland, where the problem is most acute, and that the stats relate to the less reliable QV Residential Price Index – see Greg Presland’s blog post, Key finally admits there is a housing crisis but says it is all Labour’s fault

Others on the left have ridiculed Key’s argument – see Martyn Bradbury’s blog post, John Key blaming Helen Clark for his Housing Crisis is like blaming John Campbell for the state of Journalism.

National’s weakness on housing
The fact that Key is correct about the last Labour Government’s failure to deal with out-of-control house price inflation obviously shouldn’t get his government off the hook. Fran O'Sullivan complains this week that National’s “moves to brake the market have been tentative” and that “a more activist approach… does not appear to be in its DNA” – see: Property prices – Canada acts, NZ waits. 

This could be a huge problem for National at the next election: “Affordable housing campaigner Hugh Pavletich has predicted house prices will be so high on the eve of the next election they will be ‘Key's Waterloo’.” – see Rob Stock’s Housing campaigner predicts spiralling house prices will be Key's 'Waterloo'. Pavletich is also quoted as saying: "These prices have to come back. We just haven't seen the prices top out yet because of the sheer sluggishness of the political response to the crisis”.

And plenty of other commentators have been critical of National for its lack of action. For example, here’s a recent column by Duncan Garner: Some home truths for a Government missing in action

Nick Smith’s fraught positions on housing affordability
The Housing Minister was interviewed by Patrick Gower in the weekend – see: Interview: Nick Smith – and was seen to espouse contradictory positions about housing affordability. Smith was lampooned by Hayden Donnell in his article, Nick Smith goes to war with Nick Smith over housing affordability. According to Donnell, “Nick Smith said he wants to make houses more affordable without actually making them cheaper”, and he creatively explains how the Minister can hold these different positions. 

The best analysis of this seemingly contradictory approach by the Government is Vernon Small’s column, Promises houses can be more expensive - and more affordable – do not compute, in which he concludes that “On a daily basis our MPs are promising to feed us affordable homes while pledging we can still gorge on house price inflation.”

Small’s key point is that National’s communications on the issue are becoming farcical: “Policy goal one is that house prices should not fall, but should rise by single digit percentages.  Policy goal two is that the ratio of house prices to income should fall from the current nine time (going on 12 times) to an average of four to five times across the country.  Policy goal three is that incomes should rise steadily, but not in a highly unsustainable or inflationary way. That will not, for yonks, deliver the $200,000-$250,000 a year household income needed to ensure the average $1 million Auckland home is around five times the average household income.”

But Small doesn’t let Labour off the hook either: “At the nub of the problem is most of our politicians' refusal to embrace even a slow deflation, let alone a bursting of the bubble… Labour MPs are hoist on a similar petard by refusing to publicly admit they would like to see a fall in prices.”

Nick Smith is also being challenged about how much pressure he’s actually putting on land bankers. Previously he had suggested he would be applying threats to the developers, but Matt Burrows reports that an Official Information Act request had revealed that the letters Smith wrote to property developers had only ‘strongly encouraged’ them to speed up the process” – see: No follow through on Nick Smith's land banking threat.

Labour’s grandstanding on housing
The Labour Party and Phil Twyford are now going strongly after National on the housing issue. For the latest attack see the Herald’s Phil Twyford demands state of emergency over housing crisis. Such demands certainly highlight National’s dithering on housing, but are these demands – as well as Andrew Little’s call for Smith’s resignation – somewhat hollow? Likewise, the so-called cross-party investigation into housing that is going around the country at the moment could be seen as electioneering and politicking on something they see National is weak on. 

For the best verdict on Labour’s campaign, see Jenna Lynch’s blistering analysis: Labour 'state of emergency' call insensitive and idiotic. She outlines how the housing crisis simply doesn’t meet any sort of criteria for the type of official emergency response suggested by Labour. Therefore: “Unless Twyford is keen to ‘evacuate’ people from homes and put homeless in there I can't see what he is on about. To me, it seems Twyford has been deliberately hysterical to try and grab a headline on Sunday afternoon. Labour has National on the ropes over housing. An idiotic and insensitive call like this was not needed.”

Politicians who don’t want house prices to drop
A month ago Green co-leader Metiria Turei made the landmark call that house prices need to be brought down by 50 per cent. This was in sharp contrast to her previous announcement that Green policy wasn’t to reduce house prices – see the 2013 news report, Turei backtracks on housing 'mistake'

But Turei’s latest stance has sparked a debate about whether politicians should indeed be attempting to reduce house prices. And many commentators have sided with the Greens. Possibly the strongest support came from The Press editorial, Of course house prices must come down

One particular part of this is worth quoting at length: “All of this is obvious. It is therefore absurd that politicians continue to insist that they care about the housing crisis – while insisting equally forcefully that they will do nothing at all to lower prices.  Prime Minister John Key's commitment to the status quo is perhaps unsurprising. He has responded to extraordinary, socially-damaging house price rises in Auckland with boasts of the city's success and a string of ineffectual, piecemeal policy responses.  Labour leader Andrew Little claims to offer something bolder – a state-led house-building scheme and stricter tax treatment of investment property – but he is equally unbending on the question of price.  His schemes include a certain proportion of houses with prices fixed at affordable levels – useful for those lucky enough to get them, but no replacement for cheaper housing across the board. If Little continues to defend absurd prices, no-one should be surprised if houses remain out of reach if he comes to power.”

Other editorial writers have agreed. This week the Sunday Star-Times’ Jonathan Milne says There's only one answer to the housing bubble – gently deflate it. He points out that “as the big old parties encourage their middle New Zealand voters to roll about like Scrooge McDuck in their delusional wealth, there are voices on the fringes of politics that are starting to speak in unison.” He refers to Don Brash and former Reserve Bank chairman Arthur Grimes both proposing the need for prices to drop significantly. 

There’s a public willingness for proper action on housing affordability, according to Dita De Boni, but the politicians aren’t willing to take action – see her column, Admission: I'd be happy if the value of my house dropped. She says cites UMR research showing that “60 per cent of Aucklanders (55 per cent of home owners) would prefer a drop in house prices over the year”. 

Similarly, another poll shows that 84 per cent of Aucklanders believe – unlike the National Government – that we are in the midst of a “housing crisis” – see Toby Manhire’s One in three Aucklanders has recently considered quitting Auckland because of house prices – poll

It appears that public sentiment has well and truly turned on the housing issue – and this is a point made by Frances Cook in her column, Voters refuse to be soothed by National's stock lines on housing

The problem with politics and politicians
“Which politicians will be brave and honest enough to propose taxes to stop land banking?” – that’s the question asked by Bernard Hickey in his column, Land is for living, not savings. He recommends numerous tax and rate changes. 

Economist Geoff Simmons also challenges the idea that politicians can’t have much impact on the affordability of houses: “The fact is that the government, and even Auckland’s mayoral candidates have powers that they could use to reduce land banking, if they chose to use them” – see: Nick Smith says he can do no more on land banking. Hogwash, nonsense and baloney. For example is backs up another economist, Arthur Grimes, who “has recommended using the Public Works Act to acquire land for housing development”. Simmons says: “We use compulsory land acquisition for key infrastructure like roading, so why not housing?” And he points to a proposal from Auckland mayor candidate Chlöe Swarbrick who says she would shift “the rates calculation formula entirely over to land value. This would mean that a patch of empty land would pay the same rates as the house next door, providing a strong incentive to develop the land.”

So why aren’t politicians acting? Partly because grandstanding and electioneering take priority for politicians. As Massey University political scientist Dr Grant Duncan said on TVNZ’s Q+A programme in the weekend, this is holding back solutions to the housing crisis – watch: TVNZ: Housing crisis – panel

Economist Brian Easton says “We have got into this muddle because there has not been the political foresight to see it coming or to take action to prevent it. As too often it has been ‘full speed ahead and damn the torpedoes’.” – see: Will Housing Prices Crash?

The problem is a lack of courage amongst politicians, says Bernard Hickey in his column, Shooting for the housing moon. He says that “the building of 422,000 new houses in an expanded Auckland” would cost at least $65b. According to Hickey, “Politicians often steer clear of the ‘big hairy targets’ because they are risky and open up the targeters to attack.”

Felix Marwick suggests the problem is bigger – politicians are too driven by the wrong motivations: “You see, we've all got high on our burgeoning property prices and no politician and no Prime Minister will likely have the courage to take our fix, and our paper wealth, away. Labour abandoned its capital gains tax because it wasn't a vote winner and National's efforts on a foreign resident land tax, if it eventuates, is likely to be piecemeal and ineffective.  Because in a political system that's driven by what's popular rather then what is right, no-one in power is prepared to dispenses the tough medicine” – see: Politicians lack will to deliver tough medicine on housing

Ultimately, there seems to be a lot of self-interest in politicians only tinkering with the current crisis rather than taking big, bold measures – as explained by Sam Sachdeva – see: Why MPs may want house prices in New Zealand to keep rising

Finally, here’s the political analysis of a child: “Even if a brake is put on Auckland house prices, without them actually dropping, a large proportion of people will still never be able to afford to buy and no amount of faffing about round the edges by politicians pretending to fix it will fix it” – see Andrew Gunn’s Housing prices explained by a 3 year old

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There are two important points to consider why they will not do anything about housing. A large number of MP's have rental housing as personal investments therefore why would they do anything to destroy their personal wealth. Secondly they always worry about not being reelected therefore they will not do anything that upsets voters ,many of whom own houses.

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The Government needs to guarantee Prop up the declining IPO market so investors safely invest in new NZ companies on the failing NZAX.

People invest in property because Shares decline and Mum and Dad lose their savings.

If Property declines you can rent it out for the next cycle.

Shares decline and lose investor sentiment.

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I bought a house under Labour government and max price rise was 100% before market crashed.
I also bought house under current National government after selling previous house and rise I got till todate is 120% which means National has done nothing for controlling house price. In reality they raise house price rise as a main election agenda and said that they will fix the issue if won the election.
Looking at the scenario National government is a complete failure and people of New Zealand made a huge mistake by electing them in 2008 because they didn't do anything to keep house price rise in control even after ruling 8 years which was their promise when won the election in 2008.

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The government National and Labour have made it easy for Kiwis to buy a house at record low 3.75% mortgages.

Maths at school is relevant today but common sense is missing. Just work it out children.

2007 mortgage at 10.5%.
2016 mortgage at 3.75%

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What we have got by changing government in 2008, nothing.
Because National has done nothing better for housing.
I can show the clear proof that house price rise is 120% under National government.
If anybody say that there was 100% property price increase under Labour government then it means the situation was not good at that time but on top of that 100% further increase of 120% is definetly disaster and worst than previous 100% rise.
So if you really want to compare than it is crystal clear that 100% rise is better performace than 120% rise on top of 100%.

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My earlier comments are 100% truth and if truth not get presented then no meaning of having these sites.

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Wow, persuasive

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1. Disappointing lack of insightful commentary on the supply side - just a bash at land bankers and using compulsory acquisition to increase supply.

Land is only banked in expectation of future price rises which are in excess of next best options for the holding/opportunity cost of the land.

Land is not rushed into development because of the colossal mountain and cash expense of regulatory and consenting to even get a proposal to the bankers and the market.

The baseline systemic constraint on supply caused by the metro urban limit, district plans, RMA etc is at the heart of the supply and demand mismatch and therefore at the heart of price rises, Grimes pointed this out years ago.

The systemic problem solving way is to change the incentives of land banking by substantially increasing the availability of new land and dealing decisively with the impediments to efficient and profitable development for all land, both so-called banked and new.

2. Politicians are smart when it comes to certain things - this is why neither National nor Labour want to face the electoral impact of being held responsible for crashing property prices through capricious state action.

But when prices crash/correct as the normal part of property boom/busts everyone accepts that even if not happy.

The reason why what looks like typical top-of-cycle price overreach is not correcting/ crashing of its own accord is that Auckland population growth demand has a life of its own and the normal correcting influence of relative supply is deemed out of order by incumbent policies and therefore top of cycle never reached.

What's so hard about this from a cause and effect point of view?

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National deserve no credit - rather they deserve ridicule - for resorting to "She did it too!"

Key's campaigned on this issue in 2007. He promised action and results.

If he can't take responsibility for his own completely inept handling of this issue having had a full EIGHT years in power, he deserves to be pilloried.

If a CEO asks for the job of turning around a company, then eight years later can do nothing but say "By some measures it used to be worst" despite having improved things not at all, does he get to stay? Of course not! He's regarded as a failure.

Key is a failure, and his resort to blaming everything on Labour after eight years in power is childish and absurd.

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I agree but Labour lack credibility on this given their past record and the fact they too don't seem to want to take strong action (merely declaring a state of emergency is not strong action).

I have it on good authority that Jim Anderton tried to get a capital gains tax introduced back in the early 2000s but it was shot down by Clark and Cullen. Of course we now know we need a land tax rather than a capital gains tax to have a material effect on housing prices. Why aren't Labour advocating for that?

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