In the lead-up to last year’s Australian federal election and since, we have witnessed politicians from both sides feign concern over Australia’s poor housing affordability while at the same time soothing concerns that house prices would necessarily fall.
It seems New Zealand’s politicians have followed the same script in this week’s leaders debate. From Mike Reddell:
There was the sight of both party leaders falling over themselves to disavow any notion that house prices should fall. Apparently, a $1 million average house price (or the less headline-grabbing but still obscene median price of $800000+) in Auckland is just fine. I suppose we should be grateful that on the one hand the National Party has moved on from the nauseating talk of how these house prices were a “sign of success” or a “quality problem”, and on the other hand that Labour’s housing spokesman will openly talk of an aspiration to having house prices averaging perhaps 3 to 4 times income. Perhaps both party leaders really would prefer that Auckland house prices hadn’t increased very substantially in the last five years, but now they both seem content to simply treat it as a bygone – as if we should simply live with $1 million house prices indefinitely until, some decades hence, a combination of inflation (mostly) and real income growth, might render home-owning in our largest city once again affordable to new entrants.
A couple of weeks ago I showed this chart. Starting from a price to income ratio of 10 – roughly that in Auckland now – it traces out how house price to income ratios would evolve if nominal house prices were unchanged from here on (something both party leaders now appear regard as a good outcome).
Just focus on the green line. If we have inflation averaging two per cent, and productivity growth matching the performance of the last 30 years (quite a step up from where we are now) it would take almost 25 years to get price to income ratios down to even around five times income.
The Prime Minister talked of this being an issue for his kids. The solution, to the extent there is one, seems to be aimed at his grandchildren.
[Labour’s] Ardern seemed to try to have it both ways with the talk of “we just need to build more affordable houses”. Lay members of my household responded “well, wouldn’t building more houses lower prices, which she just said she didn’t want?”.
Actually, it is unlikely to make very much difference, unless she is serious about freeing up land supply. Without that, the overall affordability of the housing stock won’t change much, and any new houses built by or for the state will largely displace others that would have been built by the private sector. And yet, although on paper Labour’s policy on improving land supply looks promising, the current Leader of the Opposition continues in path trod by her predecessor and simply never mentions the land issue – even though everyone recognises that in Auckland in particular, the price of land is the largest component of a house+land…
Sadly, I suspect there is an element of dishonesty about both party leaders’ responses…
Much like in Australia, Labour’s housing policies targeting both demand-side and supply-side factors are far superior to those of the conservative National Government. Labour has also pledged to lower net migration by some 20,000 to 30,000 people per year, thereby reducing housing demand by up to 10,000 homes annually.
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Even so, it would be nice if both sides engaged honestly in the housing debate.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
