Blurry facts fanning housing hysteria
Politicians, bankers and media adding to misinformation doing the rounds
‘There are three kinds of lies: lies; damned lies, and, statistics” — and this week: politicians, bankers (and media) have arguably crossed the line as they contributed to a great deal of the misinformation which is now being pedalled about the true state of the New Zealand housing market.
A disclosure here. It was former British Minister Benjamin Disraeli who coined the “lies” phrase which was then popularised in the United States by Mark Twain.
But at Budget time it is worth reflecting on Disraeli’s lesson.
Let’s start with Cabinet Minister Amy Adams’ announcement of a Crown land and building programme that will see “34,000 new houses built in Auckland”.
Most of the initial news headlines focused on the 34,000 new homes figure. But the reality is that the net addition to the housing pool is just short of 26,000 homes (25,936). Adams’ press statement did mention that 8300 existing homes will be demolished to make way for the new build. The Herald’s Corazon Miller unpacked the numbers to focus on the net increase, as did some of the more skeptical editorialists.
But many did not. They simply reprised Adams’ press statement and burnished an image of government largesse which does not exist.
Adams went on to say the houses would be for NZ’s most vulnerable families, first-home buyers and the wider market. “$650,000” is affordable, she said. (I know what Disraeli would have said to that!) I’m not picking on Adams. However, it is obvious that funding another 26,000 homes in Auckland over a 10-year period won’t even meet the housing needs sparked by the record annual migration growth the city is experiencing, let alone deal with the shortfall.
Adams says phase one of the Auckland Housing Programme, which covers the next four years, will cost $2.23 billion and will be funded through Housing NZ’s balance sheet and new borrowing of $1.1b that the Government has approved as part of the business case. Phase two in the latter years will be funded through the market housing development part of the programme and rental returns. That seems relatively clear and is an indication that the Government is prepared to use its own lazy balance sheet to fund housing infrastructure.
There will be opportunities for private participation as the scheme evolves.
But there are construction constraints in Auckland which have to be addressed.
The upshot is the PR massaging should not obscure the fact that Auckland still faces a humongous supply problem on the housing front. Housing deserves to be the number one election issue and solutions found for what is a big national issue.
Adams is not the only politician to benefit from massaged press statements.
In the run-up to the forthcoming Budget there have been any number of announcements, such as the increase in the Government-funded infrastructure spend. Problem is some of these announcements lull journalists into overstating the net expenditure increase. That’s because they focus on multi-year periods (in some cases blurring the fact that there have already been spending pledges for some of that period) and blur the net increase in new spending. It’s not just National that does this. Politicians on both sides of Parliament have played this game far too often and far too cavalierly — particularly at Budget time.
Their press secretaries would be doing their bosses and the nation a favour if they focused on the net increases which have been made to fund policy programmes in particular votes, rather than try to gild the lily.
Investment banker Goldman Sachs also set the hares running with its warning that there is a 40 per cent chance of a housing “bust” in New Zealand over the next two years.
To most people (and I include myself in this bracket), a “bust” is more akin to a “crash” or “collapse” — not simply a drop in house prices of 5 per cent or more after adjusting for inflation. The right term for that is “correction”.
Bloomberg’s initial report said the bank had warned New Zealand’s housing market is at the highest risk of a correction among the G10 economies, along with Sweden.
By using the word “bust” Goldman Sachs assured it would make the headlines and get its brand out there in today’s crowded media world.
Frankly for an investment bank which played a huge role in the subprime disaster that sparked the Global Financial Crisis, this takes prudence to a novel extreme.
It was the investment giant (after all) that in April 2016 agreed to a “list of facts” — as well as paying US$5.1b to settle a lawsuit in respect of how it handled its mortgage-backed securities leading up to the crisis.
The US Department of Justice said the settlement stemmed from the firm’s conduct in packaging, securitisation, markets and the sale of residential mortgage-backed securities between 2005-2007. Investors suffered billions in losses.
While Auckland prices have flattened it is obvious that there are still not sufficient houses being built to meet demand. Net migration is still increasing and Adams’ measures will not make a huge difference in the next two years.
A market “stall”, “correction” or a “crash”? Time for Goldman Sachs to do some more homework before focusing on “bust”.