Tuesday, July 05, 2016

For crashing house prices

Writing in The Spinoff yesterday, former Reserve Bank economist Arthur Grimes suggests a radical solution to the housing crisis: crash the house price by 40% by building 150,000 houses in six years:

In March 2016, the REINZ Auckland median house price reached $820,000. Four years previously, it was $495,000 – that’s a 66% increase in 4 years. What’s more alarming is that in 2012, many people considered that house prices were already getting out of reach for most people. That was particularly the case for young people and low income earners.

That extraordinary increase – coupled with the already high level in 2012 – was behind my call to a recent Auckland Conversations event that policy-makers should strive to cause a 40% collapse in house prices to bring the median back to around $500,000.

My call for policies to drive a house price collapse is driven by my personal value judgement that it’s great for young families and families on lower incomes, to be able to afford to buy a house if they wish to do so. My concern is not for older, richer families, couples or individuals who already own their own (highly appreciated) house.

Naturally, John Key - supported by those older, richer families, and personally owning three properties in the Auckland region (plus fuck knows what through his network of trusts) - thinks this is "crazy". But when average Auckland house prices are just short of a million dollars, and an entire generation is being locked out of the housing market by greedy speculators who can leverage the inflating values of their existing properties, its the solution we need. And the primary cost - the evaporation of illusory paper wealth - isn't a cost at all (though it will be very real for speculators who have over-leveraged themselves, and for the few people who have managed to get on the Auckland housing ladder in the last five years - though in the latter case, at least they'll have a house to live in and they'll be no worse off materially than they were before).

Politics is, at its core, about who gets what. There is no "win-win" solution for the housing crisis. If the boomers want their kids to be able to enjoy the sort of life they had, to have the security of owning their own home, then house prices have to drop significantly. And if they don't want that, fuck 'em.