Labour wants to destroy your home’s value

It is obvious John Key has no intention of reducing the value of Auckland homes.

Since Mr Key’s first re-election in 2011, house prices in the crucial median voter battlefields of West Auckland, North Harbour and South Auckland have increased by well over 80%. That perceived additional wealth has been used to fund Gold Coast and Pacific Island holidays and buy more consumer gadgets that people otherwise could not afford. It’s why National remains at nearly 50% in the polls eight years into government.

Mr Key is the last person who wants to call time on the party. His political interest lies in continued steady house-price inflation combined with regular headline-grabbing initiatives to send a message to those still saving for their first home – who feel they are drifting further behind – that help is on its way.

Thus, his appointment of Nick Smith as housing minister to rush around like a deranged Energizer Bunny making announcements, to quote Dr Smith, of “housing accords and special housing areas, our social housing build, our emergency housing programme, the expanded HomeStart scheme for first home buyers, the development of surplus Crown land, the National Policy Statement, RMA reform and the extra tax measures we took last year.”

Sounds well thought out, comprehensive, and not driven by panic at all. 

The Labour Party appears to be made of sterner stuff. This weekend, overcome by nostalgia from its 100th anniversary celebrations, the party is set to reach back to the 1930s and the days of Michael Joseph Savage to announce plans to build 100,000 new houses.

If the market expects a Labour-led government to be elected next year and, if it believes it will keep its promise and, if it believes such a policy is logistically possible, then house prices should start falling next month, and quite significantly. According to former Reserve Bank chief economist Arthur Grimes, 150,000 new houses in Auckland would crash prices 40%. ANZ data suggests perhaps a third of Auckland homeowners would be put into negative equity. Worst affected would be younger families who have recently bought their first homes in West Auckland, North Harbour and South Auckland. The baby boomers who have paid off their mortgages would be OK.

Well done Andy.

Mr Little may argue his policy would not so powerfully trash the value of Auckland homes but he can’t have it both ways: If it wouldn’t reduce Auckland house prices by a significant amount, then he can’t very well argue it would make houses more affordable. The usual sophistry to get around this dilemma is to argue the plan is only to build cheap houses mainly on the edge of the existing city. This, it is claimed ludicrously, will somehow not negatively affect the price of existing homes in the region.

Setting aside whether it is good social policy to build massive modern-day shantytowns on the edge of the city, if Mr Little really thinks 100,000 cheap new houses can be built without lowering the price of existing homes he really is an economic imbecile. In reality, to reduce house prices, it doesn’t matter whether new houses are built at the top, middle or bottom of the market. All that matters is that more houses are being built than are demanded. If there are enough of them, prices will fall. This makes it even more stupid to base a housing policy around reducing the average quality of Auckland homes. What might be more sensible – and here is to risk moving into Winston Peters territory – is to also look at the demand side. Auckland Council forecasts the city’s population will grow by another million people over the next 30 years. But who says it will? And why should it? It is certainly not going to be driven by the birth rate.

Auckland’s supply problems can not be solved if demand is kept high through immigration.  It is something Key is counting on, but anyone who turns off the tap too vigorously is likely to go down in history as the person who single-handedly plunged New Zealand into a recession.

As for Labour’s compehensive plan:

…how are these 100,000 homes going to be built?

By immigrants, who then would need housing.

Before building them!


– Matthew Hooten, NBR

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