Liam Dann: The real house price problem is us


This is a column about house prices. I’m pretty sure it will resolve the issue.

I’ve been writing about our over-heated property market for 15 years.

I reckon one more column ought to fix it, one more impassioned plea from an earnest business commentator and then we can all move on.

Yes, that is sarcasm.

I’m trapped in a kind of journalistic Groundhog Day.

This week, house-price hysteria hit levels we haven’t seen since 2016 (my barometer being degrees of tension between the government and Reserve Bank).

I’m not sure the current boom is as deep as the one through the middle of past decade.

But this one is more disappointing to people who had hoped a global pandemic, complete cessation of immigration and a recession might have offered a small window to get on the property ladder.

It didn’t.

In fact, it seems to have had the opposite effect and in doing so has highlighted just how entrenched this issue is here.

I’m beginning to think the attachment of New Zealanders to property as an investment class is a cultural phenomenon that runs so deep it will never change.

There’s an old joke: How many social workers does it take to change a lightbulb? Just one, but the light bulb’s got to want to change.

The point being that you can’t help anyone who doesn’t want to be helped.

That’s us – middle New Zealand.

We can’t solve the housing crisis because we don’t really want to.

“We seem to have made no progress towards dealing with house prices despite having been granted six years’ grace since the peak of the last bubble,” I wrote back in 2013.

And here we are again.

One of the ways we have collectively avoided dealing with this issue is by endlessly dragging out the debate about which of several possible causes is the right one to address.

Supply or demand? Immigration? Interest rates? Tax treatment? Zoning laws? Building costs? Bank lending policies?

Well, we can narrow that list a bit this time.

Immigration used to cop a lot of blame but is entirely out of the picture now.

And while it is still a hot issue in central Wellington, Auckland has made good progress on issues like zoning and consenting.

The rate of new building is at record levels and starting to balance with population growth.

Interest rates have been the obvious culprit this year.

But we shouldn’t forget that housing boomed all the way through 2007 when the Reserve Bank pushed mortgage rates above 10 per cent.

It took the GFC to stop that boom.

Or how about the boom through 1986 and 1987 when mortgage rates went as high as 20 per cent?

The cost of borrowing is just part of the credit story, which includes availability of credit.

Low interest rates drive behaviour but so too does the attitude of banks to risk.

Back in 2007 banks were taking plenty of risk – allowing people to borrow with no deposit if they liked the cut of their jib.

We have changed that culture to some extent.

Even though loan-to-value restrictions were removed, banks didn’t revert completely to the bad old ways. And they’ve quickly fallen into line ahead of plans to bring LVRs back in March.

Ultimately fiscal policy (tax) and monetary policy (the cost of borrowing) are the two fundamental drivers of the way people behave in an economy.

They are the Yin and the Yang of economics.

Of course our economy is unbalanced while we expect one to do all the heavily liftingand don’t ask anything of the other.

Looking back at everything I’ve written, it’s a relief to see I have been consistent in my support for a change to the tax treatment of property.

That support wasn’t born of leftie ideals about lining the government coffers.

It grew out of conversations with fund managers and brokers frustrated at the way New Zealand’s tax system steers capital away from productive investments that actually improve economic performance.

There will be no capital gains tax under Jacinda Ardern.

But there does appear to some prospect of extending the bright-line rules for treating property profit as income.

That seems like the least the PM could do if she is genuine about shifting the dial on housing.

One of the biggest arguments from opponents of property taxes is that they won’t make any difference.

Well fine, so no harm in trying then. If older, savvy property investors want to work around rules then so be it.

Change on that level will be generational. There’s no tax-based solution to this current boom.

But we need to take the first step on the journey to some sort of cultural shift if we want to head off another next 20 years of house-price angst.

Finally, it is possible that the surge of the past few months has its roots in a more specific psychological response to the pandemic.

The need for security – as evidenced by early demand for toilet paper and public support for the border restrictions and lockdowns – has dominated our thinking this year.

That will pass.

So for now let’s all take a deep breath, let’s ignore the FOMO.

Let’s have a think about our attitudes to wealth and social inequality – and decide if we really care enough to change things.

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