When it comes to housing supply, New Zealand could be about to go from famine to feast. By Jane Clifton.
Our politics has never seen anything quite like it before: local politicians waging a
propaganda war against central politicians by way of technical drawings.
It's not quite up there with the Charlie Hebdo cartoon set-to, but Auckland Council's forensic portrayals of the joint Labour-National housing intensification policy are state-of-the-art agitprop.
Call them rabbit hutches or battery-chook cages, the council's visual interpretations of the new density policy are caricatures that make living in one's car seem the preferable option.
The Government has naturally retaliated with its own draughtspeople's depictions of roomier digs. Still, adding a few centimetres and some shrubs, joggers, cyclists and cavoodles to an architectural drawing doesn't disguise the central reality of density: it means less space for everybody.
This may be necessary, but it may not be much fun. Having supported the densification push in a historic joint agreement with the Government – aimed at defusing the combustible politics of centralised planning – National MPs are now facing angry constituents and further caucus ructions.
In any case, the Nimbys may be worrying needlessly. Analysts say the rabbit hutches are unlikely to proliferate in those backyards because the land in much of Auckland, in particular, is too expensive to support them.
This means only cheaper, distant, low-decile areas will be prone to high density – and to devolving into slums, at least according to Auckland Mayor Phil Goff, although his beef may be more with the greater expense to the council of having to provide further-flung infrastructure.
Only one thing is for certain: the current labour and materials shortages mean all new builds are going to become increasingly expensive for the foreseeable future – with "help" from rising interest rates. It's not impossible that new building could grind to a shuddering halt.
But here's the crowning perversity: there are now portents that New Zealand is heading for an oversupply of housing. Talk about being careful in what one wishes for. Economists warn the surge of new builds already coming to market, combined with near-static migration thanks to the pandemic, means this country may soon have a different problem: enough housing, perhaps even too much, but still too few houses that people can afford.
Predicting what the housing market might do is a mug's game, for all the signs that price growth is cooling in some provincial areas. New Zealanders are so heavily invested in residential property that capital appreciation has consistently defied economic orthodoxy.
No gain, just pain
For those who take the religious view that a lack of capital gains tax here constitutes the Original Sin, it must be frustrating to observe similar runaway affordability issues in Australia, Britain and other countries that do have stiff capital gains and inheritance imposts, as well as stamp duties, bright-line tests and other asset curbs.
New Zealanders' long habit of self-flagellation about housing is especially pointless in the global context. A new report by economic consultants McKinsey has found that the rest of the developed world has the same overinvestment in bricks and mortar, for exactly the same reasons: low interest rates and low perceived risk, increased capital mobility among foreign investors, overregulation of residential building and the inability of tax and regulation to curb speculation.
When even such a command economy as China's is struggling with affordable housing, it seems a bit feeble to keep blaming the boomers, greedy flippers and The Block.
McKinsey's survey of the wealthiest 10 economies' balance sheets – worth 60% of the world's economy – shows net worth has risen sharply in 20 years, but chiefly from tangible assets, namely property. The balance-sheet appreciation has far outpaced underlying economic growth – to the detriment of investment in potentially productive assets such as technology. Only about 20% of wealth is held in productive assets and only 4% in the highly speculative but potentially bonanza-making category of intangible assets.
It all sounds depressingly familiar.
On the one hand, that's two decades of behaving rationally and getting it right, when you consider that the surveyed countries' net worth more than trebled. On the other hand, for every $1 that has yielded $4 in those decades, the countries have accrued $2 in debt. It has been a blast, but not a sustainable one.
McKinsey's helicopter seems to support gloomy portents of a rerun of 1970s-style stagflation, or a slump from Klondike to ghost town, as happened most famously in the United States and Ireland as a result of the 2008-09 global financial crisis, where much house borrowing slipped into negative equity and some housing was literally abandoned.
The only hope, McKinsey reckons, is to ramp up economic growth, in the hope of rebalancing the books. It urges – and we've heard this before, too – that governments and financial institutions find new ways to redirect investment into productive areas. The massive state spend-ups occasioned by Covid should provide just the reboot opportunity political leaders need, says the report.
Here, we know the ripostes to that: either, "But what about my house value!" or "But what about my ability to buy the house I can't yet afford?"
Perhaps most depressingly, news of developers here invoking sunset clauses to break contracts with off-the-plan buyers shows house-price expectations are still voracious. Either through brute opportunism, or simply to recoup their investment given ever-rising costs, developers are increasingly finding ways to nullify existing contracts so as to get a higher final price. Theoretically, they can't do this indefinitely, but for the foreseeable future this is just one more gross inequity in the housing market.
Some might relish this pending roil of economic forces huffing and puffing to blow down the house market. But a painful bottoming-out would hurt the poor and the lower- to middle-income strugglers most, because it would knock the stuffing out of the whole economy.
There is a surprisingly comforting aspect to the McKinsey report. Not only does it make it seem absolutely futile to blame the several New Zealand Governments and housing and finance ministers under which the roofs over our heads became so absurdly inflated, but it has a striking omission. It appears the authors have never even heard of the person regarded here as Most Wanted for Crimes Against Housing. Phil Twyford doesn't even get a mention in the index.