In a piece titled The World’s Most Extreme Housing Boom Is Now Roiling an Entire Economy, global business news leader Bloomberg has analysed what’s happening here and what other countries can learn.Well, they're right about that last. But they're wrong about how we should react to the leaking of that housing bubble. Cambridge developer John Kenel makes the counter-argument:
The piece said New Zealand was once home to the “world’s biggest housing booms,” but is now in the grip of a prolonged downturn, “exposing how deeply the country’s economy depends on ever-rising home values.”
Prices down 16% from the peak. Wellington down 27%. The economy stuck in the mud.They are not wrong about the numbers.
But I think they have got the story wrong.
Bloomberg is treating falling house prices as the tragedy. I do not think that is the real tragedy. The real tragedy is what falling house prices revealed.
We did not just build a country with expensive houses. We built a country where housing became the economy. And councils worked that out pretty quickly.
Every new house became a chance to clip the ticket. Development contributions. Consent fees. Inspection fees. Infrastructure charges. Rates. More reports. More consultants. More delays.
Somewhere along the way, councils stopped seeing new housing as something to enable and started treating it like a funding machine. Not just for the direct cost of growth. For everything.
Then they act shocked that new homes cost too much.
You cannot load cost after cost after cost onto new housing, and then complain houses are unaffordable.
That is the bit nobody wants to say out loud.
And now politicians and commentators want to blame mum and dad investors for the mess. The couple who saved hard, took a risk, and bought 1 or 2 rentals.
Come on.
Blaming them for the housing crisis is like blaming punters at the pub for the price of beer.
They did not write the rules. They responded to the rules the system gave them. Just like everyone else.
We do not have a housing problem.
We have a country that decided housing was the economy.
A "country" that decided that? Or politicians who determined that, with planning and building rules restricting supply while central bankers gave us near-zero interest rates and pandemic-era stimulus.
So house prices have fallen. Good. But fallen only to what they were only a half-dozen years ago.
The fall is not the tragedy.
The fall is the correction.
Or (if supply is allowed to increase) perhaps the beginning of one.
1 comment:
I only regard something as a 'bubble' when prices rise well beyond what a rational calculation of the economic fundamentals justify. This happens, but there cannot really be a bubble in the long term. Reality ultimately reasserts itself. The long term average is always aligned with economic fundamentals. This applies to any product, not just housing. Prices will oscillate above or beyond the 'correct' price, mainly due to the human tendency to lurch from over-optimism to over-pessimism and back again. But they will on average always return to it, or thereabouts.
The fall in prices described here (which seems predominantly a North Island phenomena - it's certainly not happening in Central Otago, nor Christchurch, nor anywhere else in the South Island to my knowledge) is just part of that natural oscillation. It may even be an over-correction. The long term rise in the pricing of housing in this country the past few decades is driven by these fundamentals:
1. Inflation of the money supply (general inflation)
2. Increasing product quality, as standards and expectations have risen over time - both in regards to building (insulation, sound proofing, structural integrity, etc) and land development (underground power lines, flooding risk, liquefaction risk, etc)
3. Increasing building and compliance costs rort by government
4. Increasing land development and compliance costs rort by government
5. Increasing land shortages rort by government zoning and difficulty in getting it rezoned (more a factor in high demand areas like Auckland and Queenstown, less a factor with more developable land such as greater Christchurch).
Hugh Paveltich did some good many years work on highlighting (5), and there were numerous instances where this was the most important factor. But his analysis became less relevant when he failed to account for the other four factors (particularly in his home city of Christchurch), continuing to attribute everything to (5).
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