2 years on: Is the Housing Affordability crisis still a crisis?

Here’s part of an article I wrote for the main online NZ media outlet stuff.co.nz on housing affordability prior to the 2017 election…

Talk of a housing “crisis” tends to focus on an increasing number of people not being able to afford good quality, affordable housing – whether through owner-occupation, private renting or social renting. Affordability problems ring true for New Zealand, but it needs to be put into global perspective. New Zealand is not the only country facing a housing “crisis”.

By looking at the bigger picture you could argue that party claims on housing deal more with the effect than the cause. House prices in global cities have certainly been on the rise, and Auckland is just one example of this.

There are several definitions of affordability but, in general terms, we are looking at the imbalance of housing capital and income. So what is causing this imbalance?

The weight and scale is certainly on the side of housing capital – there is an incentive for residents to accumulate wealth and we also see cities becoming spaces of capital accumulation. In global cities space has become commodified and valued, then used to lever more returns on investment.

An “Economics 101” explanation – that there is a simple mismatch of housing supply and demand – is often put forward. This under-supply argument states there are not enough houses for the number of people demanding them, resulting in over-inflated prices. Attention then turns to releasing land supply constrained by the planners and land-bankers.

And what about the role of interest rates in house price inflation and affordability? Continued low interest rates enable buyers to own property more cheaply, but low interest rates can work against affordability by inflating prices when demand for housing is high.

Meanwhile, monetary constraints that reduce access to credit, such as rules around loan-to-value ratios, can dampen prices. But they can also pull up the drawbridge by making deposits unattainable for first time buyers or those wishing to access higher priced properties.

Immigration is the unmeasured, politically-sensitive issue around housing pressure. There are claims that Chinese investors and the Chinese economy have had a spillover effect on the New Zealand; others suggest returning Kiwis have added to housing pressures.

Net international migration in global cities such as Auckland will inevitably affect demand for, and investment in, housing but there is a need for stronger research on the impact immigration, particularly as analysis often falls as political rhetoric.

For the pessimists, solutions are futile – global capital is the natural order and cannot, and should not, be contained. Plus, the damage has already been done. It can be argued that any fall in house prices will not realistically return us to any sensible balance between housing capital and income without some form of major economic crisis.

Here’s a thought experiment that turns the house price and affordability question on its head: Would we be prepared to take a collective fall in house price value?

The answer would no doubt depend on our own individual relationship with capital. There are clear winners and losers, depending on personal circumstances and world-view.

Arguably, owners are happy to reap the benefits of asset appreciation and will not make too much political noise. Renters are smaller in number, but growing as a proportion in New Zealand, so permanent renters may start to raise their voice as discontent sets in.

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