Much of the media coverage of the housing market in recent months has been on prices having levelled off, or even fallen back a bit in some places. Such things happen – regulatory interventions have an affect for a time, elections create risks of new regulatory interventions, credit standards ebb and flow, as do restrictions on Chinese capital flows – without necessarily signalling any more fundamental change in the market. I noticed a Canadian article just the other day highlighting that in Vancouver house prices are already back up to the levels they were before the substantial tax on non-resident foreign buyers was imposed. That shouldn’t be surprising. The big trends in house prices are mostly about land use restrictions. Neither in Vancouver nor in New Zealand have those restrictions been materially liberalised in ways that might foreshadow a significant structural fall in house prices. And with the leaders of both our major political parties unwilling to suggest that lower house prices would be a good thing, it is difficult to be optimistic that that situation will change here, no matter which group of parties finally gets to form a government.
The situation in Auckland is, of course, far more serious than in the rest of the country. Million dollar houses are two a penny there. But the other day, I heard of a house sale in my own suburb, Island Bay, that left me pretty gobsmacked about the extent of the unjust redistributions of wealth that central and local governments have continued to enable and exact.
It was this house, 34 Derwent St
It looks to have been very nicely restored (see the photos) but:
- it is 113 sq metres only, with a single bathroom,
- it is only 429 sq metres of land,
- it has no views, and
- as you see from the photo, it is in under a hill (on the west side, from whence would come the afternoon sun) and is very close to the house on the north.
And yet two months ago it sold for $1,047,000.
If you don’t value sun, it is quite conveniently located: there is a supermarket just around one corner, and a cinema just around another. The bus stop is perhaps 100 metres away, and the primary school perhaps 200 metres away.
But it isn’t the most salubrious part of the street (nothing wrong with it, but they are mostly smaller workers’ cottages dating from around 1910), and did I mention the hill and the lack of sun? Island Bay is a pleasant family spot, with a safe and swimmable beach (even if the water is not much above freezing even in February), but it is a typically a degree or two cooler than the inner city, let alone than seaside places a bit further north in greater Wellington. It isn’t exactly Grey Lynn, even in proximity to the central city.
As a teenager, I lived a bit further down the same street, albeit in a somewhat sunnier spot (having come from Auckland, we bemoaned the lack of sun even there). And my own first house was couple of hundred metres away. That house was much the same size as 34 Derwent St – although nowhere as nice as the newly-renovated interior – on a section that was almost 50 per cent larger. It had limited morning sun, but at least got good afternon sun, and had a modicum of a view. I sold that house in January 1995 for (in today’s dollars) $235000. There has been some productivity (and real income) growth since then – but real GDP per hour worked is up only 26 per cent.
How have we allowed the market to become so rigged and dysfunctional that 34 Derwent St now sells for $1,047,000? Why do none of the main political parties appear to have the courage and vision to want to change this? What, in their plans, would prevent the situation continuing to get worse – wealth transferred from the young to the old, from those without to those with?