Suggested Sabotage of Auckland house prices Socialist Shipwreck waiting to happen Shipwreck

The Daily Blog currently has an article promoting the sabotage of Auckland house prices.They provide a link to a site that publishes both satirical and serious articles. It is hard to imagine that a call to force Auckland home owners into a mortgagee sale is a serious article.

Labour and the Greens should not be scared to support economist Arthur Grimes’ call for policies to bring down Auckland house prices by 40%. We don’t need to support all his policy suggestions. But let’s recognise that a 40% drop would only bring the Auckland median house price (now around $820,000) down to what it was four years ago ($495,000). Why not aim for that?

How is hurting middle income and upper income families in Auckland who have managed to get a foot on the housing ladder going to help those who currently haven’t?

Let’s assume that those who currently cannot afford a $820,000 house in Auckland have saved a 20% deposit for a house worth approximately $500,000. With a  deposit of $100,000 they are in a strong position to buy a property in every single town and city in New Zealand. They are in that position whether or not Auckland houses have their value sabotaged.

The most simple solution for those who want to own their own home is clearly to move out of Auckland. Market forces determine value and Auckland is very popular. If you want to live in Auckland you need to pay the price. If you are fortunate enough to own a house in Auckland you benefit  from capital gain but you also pay high rates as a consequence. If you are a property investor who wants capital gain Auckland is the place to be. If  if you want passive income from your investment property Auckland clearly is not the place to be.  Landlords go where the returns are and people who want to own their own home need to do a cost benefit analysis.  The lower costs associated with living outside of Auckland can result in a much better lifestyle. Towns like Tauranga still have excellent capital gain, 23.6% this year alone.

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In any case, most New Zealanders support a big fall in Auckland house prices. Most Kiwis have Auckland friends and relatives who are paying high rents and can’t see how they will ever get on the housing ladder, with median house prices now nine times the median annual income.  Most Kiwis know that a drop in  Auckland house prices  would be beneficial to their Auckland-based friends and family members.

It’s true that a small percentage of Aucklanders who bought between 2012 and 2016 would lose money.

If it is true that most New Zealanders support a fall in Auckland house prices, I suggest that it is also true that most Aucklanders do not. It will not be a small percentage of Auckland homeowners who will be hurt by a sabotage of  their house’s value.

If you have paid a 20% deposit on a house valued  at $820,000 you owe the bank $656,000 principal plus interest.  Both the writer on the Daily Blog and economist Arthur Grimes  are suggesting that the house’s value be slashed by 40% to $495,000. If you owe the bank $656,000 plus interest on a house that is now valued at $495,000 you will have negative equity of an eye watering $161,000 plus interest.

For the 40% of those who are investors it would be a gamble they lost. In the investment game, be it the property market or the share market, there are always winners and losers.

Those who already had an Auckland home and traded it for another between 2012 and 2016 wouldn’t have lost much. They would have been selling and buying in the same market.

The big losers would be those first home buyers who purchased their property near the price peak.

This is clearly a socialist policy as they do not care about the harm done to the middle-class and the wealthy. Don’t you love how the writer talks about winners and losers?  Yes in life there are winners and losers. People who have managed to buy a house in Auckland are winners and like a typical socialist he wants to turn them into losers.

Labour is getting some good housing policies, and the Green ones are even better: they include a much needed capital gains tax. But the housing policies of both parties would gain more credibility if they said openly that their aim was to substantially reduce median house prices, particularly in Auckland.

-The DailyBlog

The suggested policy is the politics of envy. It will not result in more people being able to afford to buy a house in Auckland, it will just hurt those who already do.

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