Housing 'cultural change' called for

Shamubeel Eaqub
Shamubeel Eaqub
New Zealand's fixation with home ownership is causing social inequity and despair, NZIER principal economist Shamubeel Eaqub said yesterday.

If New Zealanders were not cured of their housing fixation, the nation's financial and economic stability would continue to be put at risk every time there was a recession.

People feared being locked out of a traditional route to financial security as nearly 70% of New Zealand's household net worth was stored in housing, he said.

Mr Eaqub released the latest New Zealand Institute of Economic Research report, ''The home affordability challenge'', which said the country's crippling home affordability rates could not be fixed by a single solution, such as changing immigration policy or urban planning rules.

He also ruled out implementing a capital gains tax as a single solution to fix housing affordability. A capital gains tax is a main election policy for both Labour and the Greens.

''There is no one fix. It's not just Chinese investors, it's not just a lack of an effective capital gains tax, it's not just councils' planning rules or cheap credit.''

With so many variables in the mix, the solutions would be complex and perhaps the most effective measures could come from unexpected quarters, such as rental market reform.

Mr Eaqub has often been quoted as someone who prefers to rent than to buy. He said New Zealand had one of the least renter-friendly regimes in the OECD.

Renting was not seen by many as a viable long-term housing option. If tenants were offered better security of tenure and were able to treat their rental like their own home, many could be willing to forgo home ownership, he said.

The report explained New Zealand's obsession with home ownership was one of the key reasons it took so long for New Zealand's economy to recover after the 2008 global financial crisis.

''Our reliance on future capital gains to pay for debt-funded spending caused a long hangover when households realised they needed to pay off the mortgage.''

Home ownership rates were at their lowest since 1951 and rather than bleating about that, New Zealanders should embrace that trend, Mr Eaqub said.

Economies prospered when people invested in business, not just housing.

''We need to create level playing fields for different types of investment and parity between renting and owning to support a much needed cultural change around housing.''

Policy options
• Make renting more attractive: Tenancy policy and agreements provide a lot of flexibility but this is a barrier to regarding renting as a substitute for owning.
• Make land and house supply more responsive: Regulations and local politics mean greenfield development and intensification is not as responsive to demand as it could be.
• Eliminate the property investment bias in banking: Current banking regulation does not fully recognise the systemic risk, and a higher capital requirement may be justified.
• Clarify the tax rules: New Zealand already has taxes applying to investment property but their application is unclear and inconsistent.
• Improve the data: Experimental title transactions data suggests much of the turnover in the housing market is driven by investors and movers, not first-home buyers or new entrants to the New Zealand market.


What's ruined the country is the change in the way houses were marketed in the late 80s early 90s. It used to be "the family home" but it became "an investment opportunity". Since then the housing stock has resided in an ever-decreasing number of hands, forcing the prices to sprial up and decreasing the affordability for the average person/family who just want to own a home.
There is not a housing shortage in NZ. Most people have accommodation. There is also not a shortage of "investors". There is a shortage of affordable rentals that also allow people to save an ever-increasing deposit and affordable homes to buy and live in, because they get promoted as investments and the investor-owners have another property to help leverage the next purchase off, resulting in ever-increasing rents.
The problem is actually the opposite of what this story would have us believe. Fifteen-twenty years ago $40,000 would buy a nice entry level home, but now those same houses sell for $220,000 to $300,000. However, real world wages for the bottom 80% of us haven't kept pace. Don't be fooled by the "average wage" that's always quoted. Take just the top 10% of earners out and it halves. An average house used to cost about one-third of one wage to service the mortgage - now it's 1.2 wages. 


Silly idea

Ok Shamubeel, I'll let my tenants treat my houses as their own. They can pay for the upkeep and repairs. I'll let them paint and wallpaper my houses as long as they pay for it out of their own pocket while still paying rent. As long as they paint it back to what it was when they moved in at the end of their lease. I'm sure that will work - it would save me a lot of money and most likely mean i would be in profit each year.

Simple fact is if it wasn’t for landlords there would be a lot more people out there paying higher costs for renting as there would not be enough rental stock out there for people to rent, pushing up rents. That would mean more people for landlords to choose from, meaning the landlords would be able pit one tenant against the other to see who can afford to pay the most. A lot of people selling houses would be left without sales, as nobody would be buying.

Landlords tend to spend more money in their communities then homeowners. In many cases we spend more money on insurance and rates then home owners. We are more likely to contract plumbers, builders etc to work on our rental properties then home owners do.

In the past I have helped tenants to buy my houses by leaving the deposit in the house for them. But banks are much less likely to lend under this option now days. Most people aspire to own their own home in NZ. Having come from a family that grow up in rental houses the one thing I wanted to do more than anything else was own my own home for my family to grow up in (now I have 7). As a child I moved schools every couple of years as our lease would end due to either higher rents that my parents couldn’t afford or the house being sold.


Housing disease

Well done Shamubeel: another piercing analysis of the NZ housing fiasco, laughably called a market.

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