Yes, house prices must fall

The political consensus that house prices must never fall needs to be shattered. If it isn’t, affordable housing will remain a mirage. When median house prices are approaching $1 million (as in Auckland), or even pacing past $600,000 (as in Wellington), there are only two ways to put houses within reach: vastly increase most people’s earnings – or engineer the conditions for prices to fall.

House prices ought to be about three or four times the average household income. This is not an impossible goal – it happens in cities overseas, in the US and in continental Europe.

It was how things were in New Zealand for much of the 20th century, when home ownership rates soared and most families could take on a mortgage with the wages of only one person.

To get there again, either families need to double or triple their incomes in short order, a ludicrous dream – or house prices must come down.

All of this is obvious. It is therefore absurd that politicians continue to insist that they care about the housing crisis – while insisting equally forcefully that they will do nothing at all to lower prices.

Prime Minister John Key’s commitment to the status quo is perhaps unsurprising. He has responded to extraordinary, socially-damaging house price rises in Auckland with boasts of the city’s success and a string of ineffectual, piecemeal policy responses.

Labour leader Andrew Little claims to offer something bolder – a state-led house-building scheme and stricter tax treatment of investment property – but he is equally unbending on the question of price.

His schemes include a certain proportion of houses with prices fixed at affordable levels - useful for those lucky enough to get them, but no replacement for cheaper housing across the board. If Little continues to defend absurd prices, no-one should be surprised if houses remain out of reach if he comes to power.

One lone voice, Green Party co-leader Metiria Turei, has cut admirably against the grain by calling for a substantial reduction in house prices – but even that call needs reinforcing: co-leader James Shaw declined to endorse the idea only weeks ago.

Outside of Parliament, support for action comes from all quarters. Former National leader Don Brash and top economist Arthur Grimes have both called for dramatic falls.

Of course, both major party leaders argue that New Zealanders’ savings will be put at risk if prices decline. But much of the current exorbitant value of houses has accumulated, especially in Auckland, in a wild four-year boom. If the clock is turned back, most homeowners will not feel substantial effects.

Those who have taken on mortgages very recently will suffer, certainly, but many might hold onto their houses after struggling through a period of negative equity. This would be painful and difficult, but far worse would be to damn a generation for the sake of preserving sky-high prices for a precious few.

In most spheres, for most people in New Zealand, life has got better in the past 40 years. Median wages are higher, many costs of living have fallen, and this is a more diverse, colourful, exciting country. But the cost of housing is the great exception and it is an outrage. The prices must come down.

Politicians who want to preserve sky-high prices are failing us.