Housing: It’s basically unintended consequences all the way down

With house-price inflation in Auckland fast approaching 10% per year nobody, not even the Prime Minister now, denies there is a housing crisis. But few agree on an effective solution.

“It’s a supply issue!” says government. And, yes it is, but what’ s happening to remedy that is still too little too late.

“It’s a demand issue!, says the government’s critics. And, yes, it is that too – supply and demand being two blades of a pair of scissors, with both blades doing the cutting .

But is the Reserve Bank’s latest move to remedy that going to remedy anything?

This latest remedy (30% LVRs for Auckland investors) is intended to remedy the most recent remedy (20% LVRs for all home-buyers) which was intended to remedy the previous remedy (who the hell can remember that remedy?) and so on, and so on.

And he’s already signalled that the next remedy to fix this one (which will reward foreign investors who can borrow elsewhere) will be some method by which to punish those nasty foreign buyers -- which has already led to loud applause from the antediluvian end of the commentariat (because as everyone knows anecdotal evidence is almost always sufficient when it comes to politicking against dirty foreigners).

So it’s basically unintended consequences all the way down.

Property investor Olly Newland has already pointed out the latest spatchcocked remedy has more loopholes than a politician's promise – more fingers in more dykes will still be needed very, very soon if something more fundamental isn’t done.

Fundamentally, demand is desire backed by wherewithal. And where do you think most of the wherewithal comes to buy a house? I’ll give you a clue: we have a system in which debt is organised into currency. A system run by the Reserve Bank. So while the Reserve Bank looks around all wide-eyed blaming others for “the demand problem,” currency is being borrowed into existence at breakneck pace (the latest figure shows broad money being inflated at a rate of 7.7% per annum), a very, very large proportion of which is going into New Zealand housing

So, fundamentally, if we don’t want remedy after remedy we might being to admit there’s a problem with the system. With the system in which money is simply borrowed into existence. And the system in which property rights are ignored by planners.

Or would we just rather just punish foreigners, renters and would-be home-owners just for the sake of it.