I’m not usually much inclined to support the Green Party on anything – their interest in reforming the governance of the Reserve Bank being an admirable exception. And political courage on doing something about house prices – and being honest about what making house and urban land more affordable means – had seemed to be in really short supply from all across the political spectrum. I’m not sure even the current ACT leader has been willing to openly suggest that if prices in Auckland fell 70 per cent it would only bring them into line with the price to income ratio of around 3 that has been a typical benchmark of affordability (happy to be corrected if I’m wrong on that).
And so I can only commend the Green Party for being willing to say it: house prices should fall, especially those in Auckland, and the fall needs to be large.
On Wednesday Turei, the Greens co-leader, put her neck out politically calling for house prices to be slashed, particularly in Auckland, where the average is knocking on $1 million.
She’s considering policy that house prices drop to about three to four times the median household income.
As the Stuff story puts it
Her party’s approach is not dissimilar from former Reserve Bank chief economist Arthur Grimes and former National and ACT leader Don Brash, who are calling for a 40 per cent drop and as much as a 60 per cent fall respectively.
Don Brash would probably describe himself as being on the right of New Zealand politics, while Grimes has always struck me as being (non-partisan but) a denizen of the mild centre-left. This isn’t an ideological issue (at least on any traditional left-right spectrum) – but one about facing facts, and prioritizing people who currently have little hope of ever being able to afford a house. There is simply no excuse for that sort of systematic exclusion.
Turei says she’s doing work around what a policy would look like but she’s taking a lead from initiatives, such as Auckland Council chief economist Chris Parker’s report picked up by the council to aim for house prices five times the household income by 2030.“We are saying it like it is. Most people believe house prices are far too high, most people believe house prices need to come down.”
But Little says the solution is stabilising house prices by cracking down on speculators, building more houses and lifting wages – not crashing the market.
Turei says addressing the issue involves a capital gains tax, a state house building programme, both state houses being built and a state programme for building houses for sale, the unitary plan and supply.
Any approach to bringing down house prices needs to be done in a controlled way and over a long period of time, she said.
I think that is exactly the wrong approach – and the idea of “controlling” the pace of adjustment seems far-fetched. Turei’s comments remind me of a cartoon – which I might track down later in the day – from the 1980s contrasting the Roger Douglas and Jim Anderton approaches to economic reform. Dressed as surgeons, confronting a gangrenous limb, one advocates lopping off the entire limb in a single blow, while the other advocates removing tissue just a slither at a time.
The sooner house prices come down the easier the adjustment will be – politically and economically. The longer the current disaster goes on the larger the proportion of people who will have borrowed and entered the market on the basis of current high prices, and harder it will be, on both political and economic grounds, to secure the support for the necessary adjustments – the more there will simply be a push to wait out the problems and leave affordable housing as a dream for a couple of generations hence. That really would be a national failure (well, National and Labour).
A journalist asked me the other day for some comments on the housing market. They don’t seem to have been used, so I’ll reproduce them here
Do you think the Auckland housing bubble will burst and why/ why not?The best way to think about Auckland house prices is that they have reached their current outrageous levels because of the interaction of rapid population growth (mostly on account of immigration) and tight land use restrictions. Whether prices, or price to income ratios, ever fall back very sharply mostly depends on what, if anything, governments do about alleviating those pressures. Net immigration does ebb and flow, but around a very high annual target for the inflow of non-citizens. There doesn’t seem to be much political appetite to change that target, and there also seems to be only limited appetite for really freeing up land use restrictions. Allow any land within 100 kilometres of downtown Auckland to have even two storey houses built on it, and the price of urban land would quickly fall a very long way – owners of land on the margins of the city will be keen to utilize the land as soon as possible, not as slowly as possible. But far-reaching reform like that doesn’t seem that likely. So, sadly, while we might see house prices fall back 10 or even 20 per cent in the next recession – whenever that is – it is difficult to be optimistic that price to income ratios will drop back to around 3 (where they should be) any decade soon.If yes – any idea about when?Forecasting is a mug’s game. All that can really be said is “please, as soon as possible”. The longer the eventual adjustment is delayed the more people – owner-occupiers and investors – who will caught having borrowed hugely to pay today’s massively distorted prices. The longer prices stay at these, or even higher levels, the more difficult the economics and politics of ever making Auckland housing affordable again.