The unimaginable dystopias we live in

I’m not sure if it was planned but there was a distinctly dystopian tinge to the magazine section of the Sunday Star-Times yesterday.

The Editor’s Note dealt with the pervasiveness of dystopian themes in the modern books being read by children and “young adults”.    There have been plenty of these in and through our household –  the Wellington libraries seem abundantly stocked with them.  I’ve even read a couple –  the kids seem to like the idea (nay, strongly urge) that Dad occasionally reads one of their books.  I haven’t yet succeeded in getting my youngest to read 1984,  Brave New World, or Children of Men, although she and I both recently read The Handmaid’s Tale and The Testaments –  and I couldn’t really disagree with her, not wholly favourable, assessment of the latter as “like a young adult dystopian book”.  I guess there are all sorts of reasons for liking these dystopian books, some of which are probably less than entirely healthy, but it is interesting to ponder the alternative societies, rules, norms (and lack of them) depicted by the authors.

A bit later in the same magazine section there was just such a portrait, “Dark Days in Dystopia”, but this time about a real place, the state of California.  The column first ran in The Times (UK) and is by Gerard Baker the (British) former editor-in-chief of the Wall St Journal.   It is online only behind the paywall of The Times but the gist is in the lead blurb

“California used to represent a fantasy of Hollywood glamour and wholesome hippie-ness combined.  But now, with blackouts, crippling taxation and unaffordable housing, the Golden State is a feudal society of super-rich and serfs”

Not being that into eiher Hollywood or hippies, I guess my impression of California decades gone by was a bit different, with an emphasis on mild weather, sunny optimism, and widely-spread prosperity.  In childhood TV terms, The Brady Bunch.  In US political terms, it isn’t that long since California was a Republican state – middle (suburban) America.

Baker’s article touches on various aspects of how California has gone bad.  But the revealed preferences of individuals are often as telling as anything and –  as he notes – Americans (net) have been leaving California for years (in the ten years to 2016, a net 1 million left).

Baker makes quite a bit of the breathtakingly high tax rates in California, but his main focus is on housing, “almost unimaginably unaffordable for most Californians” which is, of course “an entirely human-made debacle”.  He quotes a (Democrat-sympathising) academic, Joel Kotkin, who “describes California as a reimagining of medieval feudalism” in which underneath the “wealthy elites” who promote and champion the panoply of problematic policies

are the modern serfs, who can barely afford the land they must rent from their masters. They have no assets, no stake in their economy and, thanks to prohibitive housing costs, have limited mobility.

The column ends

California has always been eyed as a signpost to the future.  The dystopia there might be a warning to voters everywhere.

The column might seem a touch over-written to you (it probably does to me as well) but it was some of the concrete details in the midst of the rhetoric that I latched onto.

The median home price in California is $614000 (NZ$959000), almost three times the national average. The California Association of Realtors’ housing affordability index estimates the percentage of households that can afford to purchase the median-priced home.  For California, that number was 31 per cent….for the US as a whole it was 56 per cent.

But what about New Zealand?

The median house price here is now $607500 (in October, according to REINZ).  That is a lot cheaper than California, of course.  But we, on average, are a lot poorer than Californians.

Average GDP per capita in California is about US$66000.  Here, it about NZ$62000.

In other words, the ratio of house prices to income (this time proxied by GDP per capita) is much the same here –  just a bit worse –  than in California.   I’m a bit wary of median household income figures –  just because I know the data less well – which are more often used for house price comparisons, but it doesn’t look as if the comparisons would be much different in one used that data.   We have our own human-made housing dystopia, without even the consolation of those hugely successful tech companies that also still characterise California.  We have an ongoing productivity failure.   And with few/no offsetting compensations –  between volcanoes and earthquakes, probably much the same sort of natural disaster risk, and –  for those in Auckland in particular –  congestion that seems to rank high (badly) by advanced world standards.   Who’d have imagined just a few decades ago the local dystopia we’ve let our “leaders” create?

And what of the prospects of the next generation?  One of the downsides of living with me, is that my kids get to hear my fulminations about the disgraceful government failure that is our housing market, which in turns engenders occasional, slightly despairing, comments from them about the unlikelihood of ever being able to afford a house in New Zealand.

I was having one of these conversations with one of my daughters the other day.  She was asking how much I’d paid for my first house, which is just down the street and which we walk past quite frequently.  I told her I’d paid $155000, which brought gasps of astonishment. I did hasten to point out that there was this thing called inflation and in today’s dollars that was something like $290000, but it didn’t really change the point (in our unprepossessing but pleasant suburb the median house price now appears to have passed $900000).

When we have these conversations I periodically point out that real mortgage interest rates in 1989 were a lot higher than they are now, that first home buyers probably shouldn’t be expected to buy a median house, and that there are cheaper parts of cheaper suburbs (without, say, having to fall back on the desperate expedient of relocating to my childhood home of Kawerau, where median prices have recently rocketed back up to…about $290000).  I think the kids are right to be uneasy, but smart hardworking well-educated people who marry sensibly will probably eventually be more or less okay.

But in the course of our conversation I got to think about my parents.  They bought a first house (new) in Christchurch in 1962, just before I was born.  It wasn’t a particularly big house, but it was an 809 square metre section –  bigger than most Island Bay sections. My father was 27.  Dad had gone to work at 16 –  as probably most people did in 1950 – working as a clerk at the BNZ and by this time he had his own small newsagent’s shop in Riccarton, but was just about to move back to a salaried position.  Mum didn’t work after I was born –  as probably most mothers didn’t in those days.   There wasn’t –  at least that I’m aware –  family money behind them.    But at 27, on a single income (not supported by tertiary qualifications or lots of overtime), they had their own (new) house in one of our bigger cities.

I don’t suppose it seemed extraordinary then.  It was what young couples typically did.

I’m not suggesting it is impossible now: there are, from the time to time, those stories of extraordinary young people who through hard work, thrift and a focus on one goal have purchased a house very young. But it is extraordinarily difficult now for those who are poorer, less-skilled, less well-qualified, with children.   Almost inconceivable for young people earning average incomes for their age to even think of doing it on a single income in any of our bigger cities, at least without enormous sacrifices of material living standards.    Perhaps simply impossible in Auckland.  And if the groups most severely affected aren’t exclusively Maori and Pacific, they are disproportionately so.

It is a human-made dystopia.  And the humans who lead our governments (central and local) seem quite uninterested in doing anything serious to fix the problems.

39 thoughts on “The unimaginable dystopias we live in

    • Yes, but planning laws should be sufficiently permissive that those sorts of situations don’t arise and aren’t possible. We want people to be able to live, reasonably affordably, reasonably near where the jobs are and wealth is being generated. In one of the richest countries in the world it shouldn’t really be a problem.

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      • Yes, and the second leg of the planning task is mass transit/public transport – this article uses London and Tokyo as examples;

        https://www.theregreview.org/2018/06/14/somogyi-zoning-codes-gdp/

        I agree with the authors that zoning rules ought to be imposed nationally as NIMBYism is a serious problem for local authorities to combat when attempting to open up new land and/or relax height restrictions. Great example in the Welly area is Shelly Bay.

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      • Nimbyism is a throw-away word similar to racism

        Don’t know too much about Shelly Bay in Wellington but I do know a bit about Herne Bay in Auckland which has been embroiled in Nimbyism. It is the most valuable suburb in New Zealand. Well, it is the most valuable in Auckland anyway. It’s a leafy suburb and 4 kilometres walk from Auckland CBD. Its an old established suburb along with the adjacent suburbs of Ponsonby and Grey Lynn. Probably 120 years old. Have a Google maps satellite view of the area and see how much green space there is or isn’t. Then take a street view along Jervois Road which is the western boundary. About a year ago there was NIMBY outrage when the council eased the height restrictions

        Back to Jervois Road. You will see 2 high rise apartment buildings of about 30 levels each. The rest is low 1-2 level buildings. The problem for the Auckland City council is the sewage system is (at least)100 years old. If big money penetrates the area and the whole of Jervois Road succumbed to high rise buildings the sewage system would fail and that is the dilemma face by the ACC right now. It would cost $1 billion or $2 billion to replace the aged infrastructure for that small suburb. Apart from the outraged Nimby’s the ACC must be terrified.

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    • Thanks for the link Katherine. It appears that the unfolding dystopian disaster of California goes way beyond housing issues. A chronic failure to acknowledge, never mind address, illegal immigration, failing infrastructure, drug abuse and crime by a left wing clown of a state and local government.
      Hears a (somewhat light hearted) take on the situation in San Francisco.

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      • Most homeless would be marginal no matter the cost of housing – they’re flat broke for a variety of reasons. It’s a crude grouping, useful for overwrought rants, not much else. One the most over looked reasons for the volume of homeless in California is that the climate permits it. That doesn’t let policy makers off the hook of course, but you will find appalling poverty in marginal rural areas and small towns throughout the US too, even where people have some sort of very basic housing.

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  1. It has already been worked out that the millenials will inherit the largest fortunes ever as Boomers age and start to pass down their wealth. I have already started the process by gifting $200k equity to my 25 year old daughter and transferring a $400k property to her. My 10 year old already has $60k cash in her deposit savings account.

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    • I certainly do not think I fall into that category of a wealthier boomer. Bob lives in Mt Eden likely in a $2 to $3 million dollar property. I had to sell my Mt Eden Villa property in a divorce settlement and moved to a average ex state Mt Roskill property now valued at $1 million. The difference is that instead of sitting on one property worth $3 million I shifted my focus into 11 other smaller average investment properties to derive a rental income in preparation for retirement when I worked out 25 years ago that Universal super would have not allowed me to retire and at the rate of my savings meant a bleak poverty stricken retirement. The power of leverage and inflation just compounded the equity returns over time.

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  2. You are considerably wealthier than the typical ‘boomer”. A fair proportion of today’s kids will get well into adulthood and even their parents will never have owned their own homes. For others, wealth transfer to the next generation depends on the parents not living too long, or not needing astonishingly expensive rest home/dementia care.

    But, yes, it isn’t the wealth is destroyed, just badly skewed, and in ways where there is almost no morally defensible foundation for.

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    • The power of leverage. It is just very simple maths. When you borrow 80% on 20% equity, a 10% increase in property price equates to a 50% gross return on your investment. Over time, inflation gives you a exponential increase in your net worth.

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    • My sister (68) who lives in the US (independently in her own home) pays a monthly fee which holds/guarantees her a room in a rest home when she can no longer live independently. In order to qualify for this type of ‘hold’, you also have to prove that you have cash savings to the tune of at least three years of residential care in the facility – and, as I understand it, that proof of savings is required every year on renewal of the ‘hold’.

      I suspect very few will be able to afford residential care into the future.

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      • In NZ, the government will fund your rest home costs by placing a caveat on your property ie holding the equity in your home until you pass away. They then initiate a sale of the death estate property to pay back the rest home costs incurred by the government. Therefore NZ aged care can be paid for by the trillion dollars in residential property assets available.

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      • Overly optimistic, I think. Rest home places, like social housing, will have extremely long waiting lists in future.

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  3. The average section price in the US has just risen to a shocking (for them) US$49500. (NZ$77500). The average size is 800m2 – so NZ$100/m2. West Coast sections are about NZ$250/m2 – an 800m2 one would be NZ$200K

    http://eyeonhousing.org/2019/11/lot-values-hit-record-highs/ (…from Hugh Pavletich)

    In Auckland – about 25km from the CBD in a former paddock you can snap up this section – https://www.bayleys.co.nz/1330663

    That’s $1900/m2. Nineteen times the US average.

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  4. A few years back I asked an immigrant taxi driver in California what life was like for him. He told me he worked 12 hour days (from memory) and was always just two weeks away from living on the streets. If he became sick, or unemployed he would be unable to pay his rent, and would be joining the homeless.

    He was bitter about his circumstances.

    More recently my wife and I stayed for several days in California with a retired surgeon and his wife who was a retired theatre nurse. They lived in a modest home in the suburbs and drove a Honda that was near ‘end of life’. They were not about to become homeless, but even for successful professionals it seems living in California is still something of a financial struggle.

    There are no easy answers.

    For decades Governments have attempted to ‘do good’ with other people’s money. California is no exception. It has an ‘F’ rating for its debt at around 125% of GDP. It only has $114 billion of assets available to pay bills totalling $388.9 billion. The only reason it has not been officially declared bankrupt is presumably because it is considered ‘too big to fail’.

    So, dystopia on the horizon, yes.

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    • Surely one long term problem is how those without a home survive old age. The government will need to pick up the tab for these people while the various landlords pocket the capital gain made over the years. There will be a certain amount handed down, but it will tend towards keeping it in fewer and fwere hands.

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    • A New Year holiday in Los Angeles recently was a real eye opener for me as I watch Million Dollar Property – Los Angeles regularly on Bravo TV. Expecting to see glitzy streets instead it was an eye watering dusty city with cracked and dirty pavements. The “Walk of fame” was more a walk of shame and lined with drunks and entire streets filled with the homeless. The stench from vomit, excrement and people getting high on weed was city central horror show.

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    • Have a link for California’s “F” debt rating please?

      There are other reasons for California not being as you describe “officially declared bankrupt”. One is that CA’s liabilities aren’t all due at once. Another is the state can increase revenue via taxation. Yet another is that California’s (real), public pension under funding can be reduced by shaving pension promises as a last resort.

      CA has problems for sure. Here’s a much better overview “California Is in Big Trouble Again
      The state averted a collapse in the 2000s, but it’s in trouble again.” https://www.bloomberg.com/opinion/articles/2019-10-17/california-is-back-on-the-brink-of-being-a-failed-state

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      • The data concerning California’s debt and the ‘F’ rating is found on this website:

        https://www.statedatalab.org/state_data_and_comparisons/detail/california

        The ‘F’ rating for its finances was given by a group called “Truth in Accounting” not S&P or the other credit rating agencies. While its creditors are happy perhaps it’s not a problem, but the idea that the state can continue to raise taxes in a market where people and capital are mobile is questionable.

        If defaulting on your financial obligations (pension fund) is considered to be appropriate, then I guess that option exists. The point is that many many people are eventually going to get hurt as a result of their profligacy.

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  5. The planning and building laws are stark, staring mad – but too many people benefit from them and their inexcusable destruction of productivity.

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  6. The government is responsible for a large part of the cost of land and housing

    The difference between developing bare land, developing sections, and building new houses before and after 1984 is GST

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    • Yes GST does have a major cost impact. Many people do not believe that GST has an impact on businesses as it is a consumer tax. But the problem with price is that you only charge what the market is prepared to pay. There is therefore a ceiling which makes GST on the profit a cost to business. I encounter many flippers of property that do not correctly account for GST in their margins because their accountants get it wrong. Usually they price in 33% or 28% if they are using companies. This is wrong and they find themselves cashflow deficit as their margins cannot carry the cashflow costs.

      A property flipper must plan for 41.5% as a tax on their margin ie income tax and GST.

      28% company tax misleads because as soon as you draw it out for personal consumption, you either draw it out as a wage subject to 33% or you draw out dividends subject to an additional 5% if you have already paid 28% in the cvompany.

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      • Correction: a property flipper or a property developer of builder must plan for 41.5% as a tax on their margin ie income tax and GST.

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  7. Just reading an interesting, relevant essay; the prospects for these cities might be even more dystopian as young, creative folk are abondoning them.
    “scholar Richard Florida, arguably the world’s most influential urbanist, suggests that new growth of the “creative class”—the well-educated millennials critical to the urban renaissance—is “shifting away from superstar cities.” Growth in numbers of such prized workers is now two to three times faster in Salt Lake, Pittsburgh, Cincinnati, and Grand Rapids, MI than in regions around New York, Los Angeles, or Washington, DC.

    These elite cities, of course, still attract young people straight from college, but many don’t stay long. A new Brookings study shows that New York now suffers the largest net annual outmigration of post-college millennials (aged 25–34) of any metropolitan area—followed by Los Angeles, Chicago, and San Diego. Nearly half of all millennials in San Francisco described themselves as “likely” to leave the city by the Bay, a dramatic shift from a decade earlier.

    Demographer Wendell Cox has noted that similar dispersive patterns can also be found in Europe.”
    https://quillette.com/2019/11/27/mayors-wont-rule-the-world/

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    • With respect, I think you’re misreading what Richard Florida is saying. Young, creative folk, as a group, aren’t abandoning superstar cities. Some are leaving, but they’re choosing second tier cities because the cost of living, rents mostly, are lower, more affordable. This is an expansion of urbanism, not evidence of its demise. I’d say this is a Good Thing.

      New York City, where I’ve lived for over 40 years, has always had a churn of post-college people trying out the city for a few years and then moving on to other places. NYC is unforgiving in terms of cost of living, and if you don’t score that high paying job, it’s not a happy place to live.

      In the rest of the US, from my reading, it’s small towns and cities that are being abandoned by the educated young (and others as well), as the highly productive knowledge industries that dominate growth cluster in big/bigger urban areas i.e. where the jobs are.

      The migration from rural and small town America to urban/suburban locales is secular, a response to the changing nature of work in the digital era. In my view, the problems cities are experiencing are problems of success, as policy and infrastructure adjust to new economies, not evidence of leftist dystopia. YMMV

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  8. Further, from the above essay – and confirming P J Watsons cheeky vid:
    ” The biggest challenge, however, may well be social disorder. San Francisco’s tolerance of people sleeping on the streets and of property crime, has helped create a city with more drug addicts than high school students, and so much feces on the street that one website has created a “poop map.” Remarkably, San Francisco just elected Chesa Boudin, the son of unrepentant radical terrorists, on a platform further de-emphasizing criminal prosecution for property and vagrancy. Good luck with that.

    Other left-dominated core cities like Portland, Seattle, and Los Angeles are also experiencing massive problems with homelessness and disorder. Los Angeles’ core city—filled with overbuilt, overpriced apartments—is ringed with homeless camps overrun with rats. A UN official last year compared conditions on the city’s Skid Row to those of Syrian refugee camps.”

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    • Well, I think one can convincingly argue that San Francisco’s tolerance (in general), and the value it places on education and the proliferation of ideas this generates is the basis for its economic dynamism. Blaming this on “left-dominated” city cores is conflating correlation and causation. Not that cities can’t do better, obviously they have to.

      It’s worth noting that CA’s housing original sin was and remains Prop 13, a direct democracy poison pill championed by libertarian rightists, that’s seriously warped property tax revenues available to local governments – not to mention housing prices.

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  9. Many years ago I read “Selfish Generations” by David Thomson and he made a good point about stay at home mums being able to afford to because the early days of the family benefit was very generous – something like equivalent to 3 days average wage from memory. And it could be capitalised into a deposit on a house – all with a 3% loan. The 60s were pretty generous.

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    • I can’t see the specific numbers flicking thru Selfish Generations. But the 1968 Yearbook – which I happened to have on my shelf – says that in 1967 Family Benefit was $1.50 per week per child, and the average wage was about $44 per week then, so with 3 kids (as my parents had) about 10% of the average fulltime work wage. The FB was introduced universally in 1946 at $1 per week per child, so may have been a bit larger rel to wages back then.

      But note that someone currently earning $60000 pa with 3 kids will get $202 pw in Working for Families, or more than $10000 per anum. At about $72000, WFF for 3 kids is still about 10% of wages.
      https://www.ird.govt.nz/-/media/Project/IR/PDF/IR271.pdf

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