Dec 14, 2021 • 23M

PM ties herself in a housing affordability knot

PM again says 'we' can't afford a 'housing crash,' but says she'd be ok if house prices came back to year-ago levels, which would be a 22% fall; PM also refuses again to set affordability targets

Bernard Hickey
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Bernard Hickey and friends explore the political economy together.
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TLDR & TLDL: How can Aotearoa-NZ improve housing and rental affordability any time soon without house prices and rents falling? The short answer is it can’t without politicians from both sides agreeing they want that, and they currently won’t (in the hope not enough people notice or are concerned enough about it to vote differently).

It’s the Catch 22 that Jacinda Ardern and the Opposition are now stuck in: they can’t improve affordability much within the next 10-20 years unless they allow a slump in prices. Prices have risen so much and so fast that simply holding them steady and waiting for incomes to catch up is not enough.

But any engineered or tolerated housing market slump would wipe out the deposits of the most recent first home buyers, and drag down the leveraged equity that other home owners have come to depend on to support their small businesses, their retirements, and to help their kids get into houses.

At yesterday’s post-Cabinet press conference, Ardern continued being very careful not to specify what sort of home affordability levels the Government wants, or how fast it wants to get there. Photo: Lynn Grieveson/TheKaka

So what should PM Jacinda Ardern and new Opposition Leader Christopher Luxon do to get out of the corner they and their voters have painted themselves into? In my view, they could and should allow house prices to fall 30-50% to create the improvement desperately needed by a generation of renters and aspiring buyers who have been hit hardest by the Covid ‘Rekovery’. Despite what most believe, our banking system and economy can handle it, and the alternative is dire for child poverty, productivity and social cohesion for decades to come.

But what are they saying and actually doing, rather than what they could or should be doing? Both say they don’t want prices to fall much, or at all, and both are persisting with the magical thinking simply trying to improve housing supply will improve affordability. It won’t, and it’s why both are being careful not to specify what sort of affordability levels they want, or how fast they want to get there. That allows them to persist with the magical thinking and performative politics that appears to show they are ‘doing something’ and ‘they care’ about affordability, but they’re actually doing neither.

Ultimately, because older home owners represent just over 60% of the population and vote at higher rates than younger renters, both major parties are putting the interests of home owners ahead of the longer-term future of society as a whole, and the wellbeing now of over a million people stuck in working and rental property, along with over 200,000 of their children growing up in poverty.

Jacinda Ardern’s effective govt guarantee for home owners

See more below the paywall fold on Ardern’s latest comments effectively locking in the last ratchet higher in housing prices, and her refusal to acknowledge the horse has bolted and she is now resigned to another generation of housing unaffordability. Under the pressure of this Catch 22, she also tied herself in knots last night trying to reconcile the two aims: to make housing affordable without hurting home owning voters.

She said she would be ok if house prices ‘came away’ from current higher levels and back to the levels of a year ago, but also said she did not want prices to crash because it represented New Zealand families’ major investment. Which is it? They can’t both be true.

A fall back to year-ago levels would represent a 22% fall, which would be twice a big a fall as seen in 2008 and seem to most owners like a crash. See more below the paywall fold on exactly what she said, why a crash is both necessary and able to be handled by the economy and banking system, and why her latest comments are in effect a fresh underwrite for home owners at the expense of renters now and future generations of renters who want to buy.

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