ISSUES WITH BALLS
ASHLEY BALLS EXAMINES THE INTERCONNECTEDNESS OF NEW ZEALAND’S HOUSING BUBBLE, HOUSING SHORTAGE AND POPULATION DRIFT, AND ITS IMPACT ON THE COUNTRY’S GROWTH AND WELL- BEING.
WHEN I BEGAN to source data for this article, it was going to be about one thing – the tyranny of private landlords. However, the subject has since broadened and now covers the potential housing bubble bursting in New Zealand, the housing shortage, even Auckland’s gridlock and population drift as they are all interconnected.
I started with the decline in New Zealand’s homeowner occupation rates – now at the lowest level in generations and wanted to know why, and whether it is a good or bad thing. This, in turn, led me to the proportion of income people are paying in accommodation costs – whether for mortgage or rent – and the results are disturbing.
New Zealand has high mortgage rates compared with virtually everywhere (currently they are around 1.75 percent in Europe, after the first year at one percent or lower). Notwithstanding New Zealand banks’ inability to explain/ justify their rates, the proportion of income devoted to mortgage and rent has never been higher. Why?
Property prices are fast becoming unaffordable and it is leading to a social cost and growing inequality. New Zealand now tops the OECD inequality rankings as the country with the fastest-growing inequality. This is a competition you don’t want to win as the social consequences are dire. On the accommodation cost issue I won’t bore you with rows of statistics, but offer a link to an article in The Guardian in the UK where the problems are very similar. 1 When growing numbers of the population have to spend more and more on accommodation they have less for the real and productive part of the economy, and over time if the trend is not arrested growth is stifled.
It has already happened in the UK as they will be in recession when this article is published (though to be fair, three years of the Brexit distraction hasn’t helped).
The problem in New Zealand is equally acute and growth is being strangled as growing numbers struggle to pay rent or make mortgage payments. It’s all very well having well-being measures in budgets but…
I was fascinated by Bernard Hickey’s thoughts on the so-called housing bubble in New Zealand and have nothing but respect for him. I’m a major fan but fundamentally disagree with his recent assessment that the bubble won’t burst. 2
Two overpowering issues are at work – affordability and the fiction that New Zealand is short of more than 100,000 properties. When tenants are paying more than half their wages in rent or repayments, something has to give. In New Zealand it is forcing full-time employed two-parent families to seek public assistance and we all need to be aware that every dollar given to landlords is a direct wages subsidy and highly undesirable. Literally tens of thousands of landlords are in receipt of hundreds of billions of annual subsidy. It is an outrage that at least equals that of the company tax avoidance schemes practiced by the likes of Amazon, Apple and other multinationals.
As for the property shortage as highlighted in a recent Herald article, 3 no one mentions that there are many thousands more empty residential properties in Auckland (pop. 1.5 million) than in London (pop. 8+ million). Then there is land banking, whereby ‘rich-listers’ and others have purchased large tracts of land around Auckland in particular, with the intention of awaiting increased demand for housing, which is then sold tax free for $500k a section. This isn’t smart – it is a tax free privilege conferred by successive governments who have refused to recognize the proportion of income that is generated through tax free income substitution – i.e. capital gain. Unlike other countries, notably the US, New Zealand does not publish this data.
MORE DISTORTION
While this housing distortion continues and individuals keep feeding it by ‘investing’ in rental housing, demographics continues to be a major distorting factor. In most countries, New Zealand included, there has been a human drift to the big cities which comes with all the consequential problems, including a strain on infrastructure – and let’s not forget the time wasted in getting to work! Only this week yet another article appeared on the latter and for Auckland the problem is, apparently, set to get much worse. 4 The problem is so bad in continental Europe that whole villages are now empty.
However, this trend is reversing in one place – London – where the major influences seem to be commuting time/costs, property costs and quality of life. According to a recent BBC article, London’s population is declining. 5
To some extent some might say Auckland is following London, as retired people flow to Tauranga and the Bays. But to date Auckland continues to grow – mostly on the back of immigration and the relentless relocation of domestic business HQs.
As Internet speed and bandwidth problems recede this business migration becomes ever more costly and to some extent pointless. Where is the home working revolution and ‘hot-desking’?
The lack of national planning on all the issues raised here is staggering and in no way limited to New Zealand. 1 https://www.theguardian.com/ commentisfree/2019/jul/17/housing-britainlandlord-tenants 2 His recent Newsroom article can be seen here: https://www.newsroom. co.nz/2019/07/18/686320/our-armour-platedhousing-bubble# 3 https://www.nzherald.co.nz/index.
cfm?objectid=12250724&ref=twitter 4 https://www.nzherald.co.nz/nz/news/ article.cfm?c_id=1&objectid=12251374&fb clid=IwAR15i39SRyWQ9TJ5gJkhM6JVVxkCzfzV1pgGfHe45JdFZdoAT_zpTINzr8 5 https://www.bbc.com/news/uk-47529562?SThi sFB&fbclid=IwAR3njjNRA1H7aG5fYRSPYudLnU 6Nl8EgNBrjjfx-GzN2WQ_LWigkjNBQM60