The Weekend Herald yesterday had a lovely story about the 'high cost of living in paradise.'
Paradise is not something I associate with Auckland but I guess a few days of warm sun, coupled with a few weeks of quieter holiday traffic may make Herald headline writers feel giddy about their homeland.
The article looked at how high house prices were hitting lower income families and lurking lower down another segment of society set to suffer was also revealed- that of the renter.
As night follows day, if house prices and mortgages increases, inevitably so will rentals.
If someone has $500,000 of capital tied up in a bog standard house, espeically if the landlord is paying a mortgage on it, then the investor /landlord will demand a return.
So 5% say of $500,000 naturally means more rent than 5% on a $300,000 house.
And if the mortgage rate is 9%, then that's an even higher cost to pass on.
Now I noted a few days back that much of the buy-to-let market appeared after Liarbour increased the top tax rate to 39% , leaving property a much more effective tax shelter for higher earners.
Cullen has realised this and has proposed the loopholes be closed. But the housing horse has bolted and National wisely realises that if you push on costs to the landlord, they will then pass them on to the renter- so by attacking the landlord, as Liarbour propose, the poorer tenant will suffer even more.
We see this where Liarbour proposes 'affordable housing' – forcing property developers to set aside housing for whoever government deems poor and deserving . And the cost of this will be recouped by making others pay, those buying homes in the open market.
Be it rental or purchase- supply matters. Apartment rentals are much cheaper in the CBD and have stayed low or have fallen in recent years thanks to the boom in supply of CBD flats and 'rats nests' for both the rental and owner-occupier market.
Therefore, the best way to lower housing costs is to increase supply.
If we do not, what will the cost to 'society ' be? I would say quite a lot. New Zealand would not be the egalitarian one it was, it would be one dominated by and divided by housing haves and have nots. This is the society Liarbour's housing policies are creating, intended or otherwise.
Home-owners have a stake in society and the success of the country. The buy-in from renters is less so. It is the rented areas that suffer more from crime because their residents do not have this stake. Rental areas would be tatty too. In Thatcher's Britain I recall that when someone bought their council house, they would immediately install new doors and windows and tidy up the garden.
Renters would feel that if they cannot get a house after years of working, why toil so hard, so national productivity and wealth would suffer. The temptation to just spend it all would be all the greater.
There would be other costs too. And these costs would also fall on the homeowners eventually.
When you retire, you pretty much have the mortgage paid off. Thus your state superannuation might be enough to live on. If not, you can boost it by downsizing or even getting one of those reverse equity mortgages.
Renters have no paid off mortgage to fall back on. They still have rent to pay. So they would need more state rental assistance in addition to their state super.
As cohorts of renters work their way towards retirement, thus the cost of rental support for pensioners will eventually rocket, affecting government spending and taxation plans.
Government might then have to find ways to make up this loss.
Well, if there is a society divided into property haves and have nots, then inheritance taxes will be an easy sell for a left-wing government. Other taxes might be introduced or raised too. No doubt such a government would target 'beastly' and 'greedy' landlords in pushing such measures, when they themselves would be to blame, as now.
Thus, we are all losers from higher property prices.
The best thing might well be a government-engineered collapse in the housing market to bring instant relief, albeit at some instant pain, by boosting supply.
Now to the 70% or so that own your own homes, I say much of your recent wealth gain has been illusory.
Higher prices have probably stopped you trading up as well. I have friends in this position who are stuck in their small start-ups despite needing space now for their growing families.
The higher wealth is only of value to those who are trading down- usually the retired or the property investor who has many homes. So we have a much smaller number of the 'losers' from a property price collapse. And we might only just be asking prices to fall back to what they were, say five years ago.
But think about it? Do we want housing to account for a quarter of our weekly spend, a third or half as we work our way through life? And isn't it this higher portion of our wage going on housing making us all, all the poorer.
January 17 in history
6 hours ago