Leadership is a tricky thing. Like pornography, it is hard to describe but we all know it when we see it. Being a leader is not the same, however, as being at the front of a herd.
Kiwis have an unhealthy fascination with property. It is the single path to financial security for most of us and the obsession weakens our capital markets. The recent rise in property values may be a bubble that, if it bursts, will leave many families trapped by negative equity and leave our financial institutions vulnerable.
This is not news to anyone who is financially literate and that includes our leader, Prime Minister John Key. More importantly, the housing crisis is a phantom.
Data collected by Infometrics, a Wellington consulting firm, shows Auckland rental inflation running at just 3 per cent in the 12 months to June; in real terms, zero. A recent Treasury paper on housing affordability reported the proportion of household income spent on rent has remained static since 1996. For poor households, it actually fell from 51 per cent in 1998 to 40 per cent in 2010. Housing, in fact, has become more affordable for those renting.
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Returns on real estate in Auckland are mostly driven by property gains, which may or may not be sustainable, but gross yields in the city continue to fall. There is a political problem as the middle class feels priced out of owning a Mt Eden villa, or worse, suffering angst at missing out on the recent property boom. Either way, homelessness and a lack of affordable housing is not a significant problem.
Renting is not akin to poverty and property ownership brings its own burdens. The economics of home ownership are tricky. Certainly, many people have done well from the recent rise in prices but past gains are no indicator of future returns. Home owners can become trapped by their investments, unable to follow employment opportunities or move to the regions where housing is cheap and plentiful.
The policy which Key announced creates an incentive for low-income earners to spend their KiwiSaver investments, something that pays them a return, for a house deposit that does not. At the same time as announcing this policy the same Government is unveiling plans to fast-track land development in an attempt to bring down house prices.
If effective in both policies, Key will have trapped thousands of low-income earners into a mortgage they cannot afford on a property that is losing value.
Swapping your KiwiSaver investment for a life-time of debt on an asset of uncertain value is not good economics, but it is good politics.
The only housing crisis Key seems concerned with is the one surrounding Vogel House.