Property divide creates a new aristocracy.
The Government is expected to make an announcement about its ‘‘housing reset’’ soon. Anything short of extraordinary action will be too little and too late. Prime Minister Jacinda Ardern must take her share of responsibility for encouraging the property feeding frenzy of the past few months, which threatens to create a new and permanent class division in New Zealand society.
Ardern did not create the conditions for New Zealand’s housing crisis – blame for that falls mostly at the feet of Sir John Key, Helen Clark, and the Reserve Bank’s plummeting interest rates and removal of loan-tovalue ratios (LVRs) in response to Covid-19.
However, through her actions and her words, the prime minister has not just failed to dampen down, but has actually poured petrol on the pyrotechnic panic-buying that has seen prices spiral out of control.
Widely acclaimed as the world’s best political communicator, she cannot plead ignorance.
At the beginning of last year’s pandemic Ardern, establishing her credentials for cool-headed crisis management, addressed the nation to
tell them that there would be no shortage of toilet roll and hand sanitiser; the Government had worked with supermarkets to ensure supplies, and there was no need to panic-buy.
Despite queues, we never saw the ugly scenes of confrontation in the toilet roll aisle that the United States and even Australia did.
Amazingly, when it comes to housing, her approach has been the opposite.
In December, she gave her clearest commitment yet to seeking ‘‘sustainable’’ growth in house prices: ‘‘I think people expect you see that in the market,’’ she told Interest.co.nz by way of explanation. Throughout the election campaign she rejected the idea of trying to bring down house prices or even holding them steady , and ruled out new taxes which would redistribute some of housing’s windfall gains from the pandemic response.
This reassured homeowners. But the comments are extraordinary: the Government does not even currently guarantee savings that are deposited in Kiwibank in the event of a financial crisis (and which offers a 0.9 per cent interest rate on term deposits).
The flipside of the implied, but increasingly explicit, guarantee for housing is a signal that the Government will try to ensure housing only ever becomes more expensive, even if more slowly. That’s a red rag to investors who can leverage existing homes to borrow almost free money, and desperate first home buyers borrowing to the hilt.
It also ensures, as we are seeing now, record low levels of houses available to purchase. Why would you sell now if the prime minister has guaranteed that your house will be worth more next year and in fact, probably, next month?
People are responding, as ever, to Ardern’s leadership. Knowing there is no supply panacea, and no wealth or capital gains tax on the way, people are not trading houses – those who can afford to are hoarding them.
Just as the public (or at least those who can save, beg or borrow for housing) is responding to incentives offered by the Government, Ardern is responding to incentives of her own.
The obscene political calculus is that, while 64.1 per cent of people still live in owner-occupier households, if property prices were to double in the next three years Ardern’s party would probably be re-elected with an even larger majority than it currently has.
The result of pursuing these shortterm incentives is less palatable for the long-term legacy of a centre-left government. That is, overseeing the final seismic shift in house prices, out of the reach of all but existing homeowning families, that leads to not just widening but perhaps irreversible inequality.
It’s worth considering the scale of the disparities between two different New Zealands.
The idea that an Auckland home could earn more than an Auckland worker is no longer even shocking. But during the month of October alone, the value of a median-price Auckland house went up by $45,000.
Like any mass panic, it is contagious. Alert level 3 lockdown stopped the coronavirus spreading outside Auckland in the second half of last year, but it could not hold back Auckland investors from bidding up, then buying up, property throughout the regions, as has already happened in large parts of South Auckland.
Gisborne, on the East Coast, one of the regions the hardest hit by the early Covid disruptions and with a median household income roughly $23,000 less a year than Wellington’s, saw house prices increase by 43.8 per cent.
We have, in part at the Government’s urging, gone past a housing crisis, a mere shortage of homes, and into a frenzied carve-up of the country’s future wealth.
Whatever this month’s announcement, the bigger ‘‘reset’’ that is almost complete is a fundamental shift away from a society where social mobility is possible (however imperfectly) through education and work, towards one where property and even the trappings of a middle-class life are kept exclusively within one band of society. Haves and have-nots; the landed gentry and serfs.
We have, in part at the Government’s urging, gone past a housing crisis, a mere shortage of homes, and into a frenzied carveup of the country’s future wealth.
Ben Thomas is a former National Party press secretary, a political commentator and communications consultant.