Wednesday, November 27, 2013

The problem with fixing housing

Why has the government done so little to fix the housing crisis? Because anything which looks to produce a real solution gets a reaction like this:

Auckland's housing shortage is smaller than officials think and if the Housing Accord reaches its target over the next three years there could be an oversupply of 10,000 homes, says the Institute of Economic Research.


NZIER estimates the shortage of housing at around 5000 homes.

"If the Housing Accord is successful in delivering 39,000 homes and sections, we estimate it will result in an oversupply of 10,000 homes. A significant increase in the housing supply, alongside the Reserve Bank's efforts to cool highly geared credit growth, is a significant risk for house prices in Auckland," NZIER principal economist Shamubeel Eaqub said.

(Emphasis added)

Pretty obviously, increasing the supply of houses will cause prices to fall. And that is the ultimate goal of the exercise - to lower the price so that housing is again accessible to all. But that threatens the vested interests of a whole lot of people: not just morons who leveraged themselves to the hilt to invest in overpriced rental properties, or people who borrowed on the mortgage against their bubble-priced asset to fund a lifestyle they couldn't afford, or MPs who own a disproportionate number of houses, but also ordinary people who simply bought an overpriced house to live in (and who would face seeing it devalued, possibly to the point where they had negative equity, if housing policy was successful). And that's a powerful voting bloc to keep locking the young out of home-ownership in favour of turning them into peasant tenants.

And that said: enough of them seem to realise that we just can't go on like this. Mass home-ownership is a core part of the kiwi dream, and a key underpinning for our vision of ourselves as an egalitarian society. More prosaically, those wealthy property-owning parents don't like seeing their kids struggle to enjoy the same lifestyle they had. That's a powerful force as well, and enough to support at least some explicit deflation of the housing market.