Labour, welcome to the housing crisis you promised to fix

Liam Dann thinks housing will be this government’s biggest challenge.

So welcome, Labour, welcome to the housing crisis you promised to fix.

I hope you’re up for a challenge because right now the whole market is so complex and unpredictable you’d be doing well just to understand it.

There are two big problems for the new Government as it seeks to fulfil the over-egged promises of the campaign trail.

One is that the fundamental question of whether we want prices to rise or fall was never resolved.

Politics doesn’t allow it to be addressed properly.

You don’t get good election results from promising to bring down house prices – particularly in an economy like New Zealand’s where much of the confidence and wealth effect is underpinned by consumers who own homes feeling rich on paper.

But with housing affordability at such crazy highs, the issue of getting young people into the market also had to be addressed.

Both Bill English and Jacinda Ardern shuffled their feet on this question and alluded to some ill-defined sweet spot where prices track sideways while fantastic, liveable, affordable homes are built en masse in the CBD and the city fringes.

Sadly – as anyone involved in either equities or property for more than a decade can tell you – gentle, well-ordered resolutions to overheated markets are not the norm.

It also leads us to the Catch-22 around addressing supply.

To put it bluntly, nobody in the industry believed either party could deliver on pre-election promises on house building. The numbers were too optimistic.

House building is already at record levels – at least in recent history – and the industry is near capacity.

The evidence for this is coming through clearly in consumer price index inflation data.

On an annual basis, national inflation rose 1.9 per cent in the year to September but housing and utilities costs – which exclude residential sales prices – rose by 1 per cent in just three months.

Construction costs in Auckland rose 6.8 per cent in the year. Some industry players would say it is higher than that.

So in a market where residential house prices are falling and the cost of building is rising there is little incentive for developers to start new projects.

Meanwhile, if prices start rising fast enough to get ahead of cost increases supply might pick up again. But that would put price increases back out in front of inflation – making them less affordable.

So the big challenge will be to deal with industry issues like material costs and skills shortages.

The latter is going to be difficult if Labour and NZ First are serious about heavy curbs on immigration.

On the flipside, the policies may go some way to resolving the affordability issue by lowering demand and further depressing confidence in the market.

If that plays out Ardern is going to have to pull off an impressive sales and marketing feat to convince home-owning New Zealanders not to panic.

Perhaps we can afford a price slump, perhaps it will be good for future generations and push investment focus back to more productive economic sectors. Certainly many voted for it.

I’m ready to be convinced. But in this property-obsessed nation, it will not be an easy sell.

Housing will be the challenge because it’s not a matter of stealing more taxpayer money and throwing it at it.

We did this?

You’ve done NOTHING

 

– Liam Dann, NZ Herald

 


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