Speculative bubbles have occurred in the New Zealand housing market. BRIAN EASTON writes –
Speculative bubbles are common. The Global Financial Crisis of 2008 was an example, as was the New Zealand finance companies’ crash about the same time. The 1987 share market crash was another example, as was the 1929 Wall St Crash. There are at least two major bubbles going on at the moment – one in the crypto-currency market and one in the Chinese Financial System.
Hyman Minsky provided one of the best ways to analyse such bubbles: ‘the financial system swings between robustness and fragility and these swings are an integral part of the process that generates the business cycle’. He thought that such financial instability – and the booms and busts which accompanies it – was inevitable in a so-called ‘free’ market economy, unless government steps in to control through regulation, central bank action and other tools. Continue reading “Brian Easton: Minsky and the housing market”→
One of the key elements of a housing market – what makes it special and complex – is the time dimension. I warn you that we economists have a lot of problems analysing time, but so does everyone else – perhaps we are more aware of our ignorance.
First, a time dimension comes from people wanting to live in a dwelling for a long time. It would be very inconvenient if we had to move as often as we eat. It would also be very expensive.
A rough estimate is that by the time you have paid all the bills – to real estate agents, valuers, lawyers, movers, and allowing something for for housing alterations and the like – you will have outlayed over $30,000 to change your house. So people tend to stay stuck in their houses.
Households need a form of tenure which provides some dwelling stability. For many that means home ownership. Most people accept that there should be some private ownership, including owning one’s house. It certainly has been a driving force in New Zealand’s evolution. Continue reading “Brian Easton: So what is special about housing?”→
It was a simple question about housing and Point of Order listened closely to Housing Minister Megan Woods’ response.
Alas, we are none the wiser on one part of the question, about advice on how long it will take to get the waiting list down to around 5844. But – if we have done our sums correctly – we can tell readers there has been a hefty increase in the numbers of people on the state housing waiting list over the past five years.
We took a crack at working this out after Parliamentary questions were put by National MP Chris Bishop to the Associate Minister of Housing (Public Housing), who presumably was not in Parliament at the time. Megan Woods did the answering.
“How many people are on the State housing waitlist now compared to September 2017, and has she received advice on when that number will return to the levels of September 2017?”
Labour MPs delight in speaking of what the Ardern government is doing in resolving the housing crisis.
Take, for example, Dr Duncan Webb, MP for Christchurch Central, who this week told the House the government is making real progress.
“For the first time in a long time, we’re building more houses than there are people needing them….A housing crisis that was nine years in the making, and we’ve turned the corner. Only today figures have come out to show that not only have prices stabilised but there’s been a small drop in prices across the country, and that is indicative of the progress that we have made.
“How many houses did that lot build when they were in government? This government in the 4 years it’s been here has built 8,000 new houses. We have turned the Housing Corporation into a renter, a property developer, and a responsible landlord—2,400 in the last year, and do you know what? The Prime Minister said in her statement that we would have 2,000 more built in the next year. We will absolutely address these issues.
“Forty thousand building consents were issued in the last year. For the first time in a long time, we’re building more houses than there are people needing them. The Resource Management Act (RMA) fast-tracking legislation is being able to open up whole new developments so that we can have more housing development, and, of course, the RMA reforms—the Natural and Built Environments Bill—is going to progress that.
During Auckland’s level 4 and level 3 period – August to November – house prices rose $113,000, or 8.3%. In the 12 months to November, Auckland prices rose 27.9%.
The speed at which house prices have risen in NZ has even attracted the attention of The Economist. It noted recently that
“… in the past year, prices in NZ have shot up at a pace of more than NZ2000 a week. Costs in big cities have been going up for years, propelled by a mix of cheap borrowing and a scarcity of new homes”.
It’s an old adage that a speculative market collapses not when prices get crazy but when the last person who insists prices are crazy gives up in despair.
Worth bearing in mind when London’s Financial Times tells us that the pandemic has fuelled “the broadest global house price boom in two decades”, even bigger than the one which preceded and helped trigger the 2008 global financial crisis, and which is understandably reviving concerns about financial stability.
So what happened to “go hard, go early”? Does anyone expect house prices (which have risen more than $100,000 since early 2020) to start falling?
The Ardern government’s housing package aroused curiously mixed reactions, hardly any of them providing a glimmer of light to would-be first-home buyers that house prices will be falling any time soon.
From one side, the warning came that rent controls could not be far behind. From the other, “market forces” and the evils of neo-liberalism had at last been corralled.
Over on the Left, Chris Trotter sees a housing crisis ripping apart the country’s weakest and most vulnerable communities.
The headline on a press statement from ACT – Megan Woods In Hiding On Housing – suggested the Minister of Housing had gone to ground somewhere. It quickly became apparent she hadn’t .
The press statement was posted on Scoop at 1:38 pm. Before long, Woods was in the House answering questions about her housing portfolio, albeit from National, not ACT, and about the numbers of people being housed in motels rather than about the numbers of new houses forecast to be built this year.
The replies provided material for a press statement from the Nats later in the day, to highlight figures showing more than $1 million of taxpayer money is being spent each day on motels for emergency housing.
Maybe there’s a case for Woods becoming Minister of Motels.
According to the Nats’ press statement the Government spent $82.5 million, or $917,000 a day, in the past quarter on emergency housing grants for people to live in motels and similar accommodation. This is on top of the $155,000 a day the Government is spending on motels for transitional housing purposes.
One of the strange outcomes of the Covid-19 pandemic has been the surge in house prices, not just in Auckland but through the rest of the country. It’s a phenomenon that runs contrary to past experience when the economy has slipped into recession.
Many authorities say booming house prices are being driven by the loose monetary policy operated by the Reserve Bank in conjunction with the economic stimulus applied by the government. Mortgage rates have fallen, with at least one bank offering a rate below 2%.
The Reserve Bank’s chief economist Yuong Ha is on record as saying:
“The worse situation we’d face right now is actually if we had house prices falling”.