Bernard Hickey embarrasses himself

Bernard Hickey speaking at Rotorua's Blue Baths.  03 November 2009 Daily Post photograph by Stephen Parker SUN 06Mar11 - NZH 26Mar11 -

Bernard Hickey / Daily Post photograph by Stephen Parker – NZ Herald

If you are going to be upheld as an expert in your field, and promoted as an economics correspondent, you must make sure you get the basics right.

Auckland Council has an official target of improving affordability in the world’s most liveable city to five times income by 2030.

The trouble is the Government has no credible strategy to get there. Under Key’s plan to slow it down, even to low single-digit rates, there would have to be an explosion in wage inflation.

Grimes is dead right. Improving affordability will require outright price falls and big ones.

Unfortunately, Labour leader Andrew Little and Greens co-leader James Shaw didn’t do much better in the Grimes test this week. Little also refused to countenance the idea of falling prices, even as he flagged a plan to be announced this weekend to address the crisis.

Shaw refused to answer, not wanting to repeat the mistake of co-leader Metiria Turei, who was more honest a few years ago.

Why are politicians so afraid of voters on this issue? They may think the housing market is a “too big to fail” bomb that cannot be defused or dismantled without turning it into a weapon of mass wealth destruction, but that’s simply not true.

An overnight 40 per cent fall in Auckland house prices would see a return to early 2012 levels. Most Aucklanders have built up big equity buffers and are living in their own homes, rather than speculating.

Tighter lending rules since 2013 cut out almost all those speculators borrowing with 90 per cent-plus mortgages.

The Reserve Bank conducted a stress test late last year that found banks could cope with a 55 per cent fall in Auckland house prices.

Our banks are not like the brittle, trigger-happy ones that threw Americans out on their ears during the Global Financial Crisis.

Yes, a few property developers might go bust, and yes, a few rental investors who banked on tax-free gains might miss out, but a fall in prices would be accompanied by lower mortgage rates.

Ironically, a 40 per cent drop would make housing more affordable for existing home owners because their mortgages would go down.

No it wouldn’t – the house would be worth 40% less but the mortgage would remain the same, even leaving the owner with a huge mortgage and negative equity.

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Let’s be charitable and say Bernard had a bad day, rather than conclude he doesn’t even get the absolute basics.

 

– NZ Herald


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