Housing is the new cholesterol

Screen Shot 2017-06-12 at 2.34.54 PMBaby boomers have both the majority of housing and cholesterol.

Frankly, I don’t know why we didn’t see the connection sooner. I don’t know about you, but I feel pretty silly. Jesus, this is like that time I shaved my tongue. Thanks, Facebook!

Remember when housing investment was good? And then it was not so good. Then it was bad. Cholesterol started off bad, then not bad, then good. It’s in eggs.

And eggs are good, right? They’re certainly yellow. And cholesterol is also probably, possibly, potentially yellow in its effects, seek* advice** from a professional***.

Who can see the pattern?

Things are Bad, Not So Bad, Debunked, Oh my God, you can see that agenda from space! I knew that bacon flavoured lip balm was good for me!

Don’t go looking for confounders, or multiplicative effects. No. Just look for things that are Bad, Good or Yellow.

Currently, New Zealand’s housing availability is Not Yellow. This is because there is an election looming.

Roughly the argument goes something like; high cholesterol is strongly correlated with home ownership. Follow the money sheeple!

But here’s where things get beyond the scope of finger puppets. There is more than one factor contributing to the housing shortage in NZ. It’s not just immigration, speculation or intergenerational fleecing.

In fact, it’s a whole bunch of RELATED factors, with multiplicative effects which reach a series of tipping points.

Too hard too hard! Can’t we just hate baby boomers? And immigrants? I have so much hate to give!

Screen Shot 2017-06-12 at 2.39.20 PMLet’s have a look at this news article. It appeared on my facebook feed. It’s about restricting NZ’s immigration but the comments section quickly degenerated into a conversation about home ownership.

Apparently, foreigners are buying all the houses, thus driving up prices for New Zealanders. Those fuckers! Swooping in with their haircuts and fancy teeth!

Thing is, of course, only 3% of houses are bought by non residents, and that’s in the frothiest market, Auckland. (The rate is no doubt lower in the rest of NZ, as the market for wobbly weatherboard methlabs in Bunnythorpe is surprisingly bearish).

It’s not immigrants speculating on housing, it’s New Zealand baby boomers. They are seeking capital gain. This is as self-evident as it is yellow. YELLOW!

Although the average rate of investor owned property in Auckland is around 40%, around 70% of ‘entry level’ housing in Auckland was purchased by investors.

This means that would-be first home buyers face the stiffest, frothiest market conditions. (I’m only talking about Auckland here because let’s face it, compared to Auckland everything else IS a meth-lab in Bunnythorpe. Also, Fun fact; 50% of the electoral seats are in Auckland).

So where else will Sue and Brian put their money? How will they grow their wealth in order to pay for the extravagant luxuries they’ve become accustomed to, like heating and meat that hasn’t got a picture of cat on the tin?

The NZ pension pays about 20 grand. Now I can live on rather a lot less than 20 grand, but that’s because I’m a completely impoverished Gen-Xer with a student loan almost entirely comprised of compounding interest (remember that, GenY? Student loans used to have compounding interest. dissolve that in your turmeric mylk, snowflake etc.,). I consider my life fairly comfortable, but I doubt there are many baby boomers who’re willing to climb into my cut-off sleeping bag.

Let’s talk about other reasons baby boomers invest in housing.

Many New Zealanders do not retire with heaps of cash. Their superannuation scheme is voluntary and there aren’t the tax breaks that exist in Australia to encourage saving. For many, their main source of capital is their house. They can use their small savings to buy another house, leveraged off their existing house. Interest rates are low, which means their mortgage is ‘cheap’ and it’s less tempting to keep their money in savings.

As noted above, investors comprise the majority of the lowest quartile of the market. They are effectively bidding one another up, and the resulting increases in rent are worn by tenants and the government (through the ever climbing accommodation supplement – indexed to market rents. NB; In Australia, when the government transfers money to wealthy property owners it’s called ‘middle class welfare’).

Yes, this housing situation is fragile – the bubble might burst, and those who with negative equity may lose both their rental property but also the family home. Not that it matters because they’ll still have some remaining equity and houses will be cheap as chips! However, no one really thinks this will happen – the market isn’t wobbly enough for it to fall over. There may be some corrections, but the reality is, as long as the government continues to pump warm bodies into the cities, she’ll be right.

Sure, Sue and Brian could take their modest savings and invest them in the sharemarket, (Mum and Dad investors), but they’re not comfortable doing that because they don’t know anything about it. The returns might be higher but they equate higher returns with greater risk. At least a house is a real thing. You can constantly reassess your vulnerability with a house. People will always need houses.

So let’s have a capital gains tax, right? Because that will make housing more affordable for lower and middle class families, right? Less liquidity in housing means more liquidity for alternative investment. The rest of the economy will benefit in more balanced growth! Huzzah!

Well, as far as I know the only tolerable capital gains tax model floated so far is one where investors must hold on to the property for 3-5 years to avoid the capital gains tax. That might knock a touch off the froth of the speculation, but it’d be three fifths of fuck all. Hanging onto a rental property for five years isn’t a problem for most baby boomers – they’re going to live to 150 years old.

While we’re here, let’s have a bit of a chat about immigration and infrastructure in Auckland. Underfunding infrastructure is underfunding infrastructure. It’s not a matter of demand outstripping supply – you can always build more infrastructure. In the old days governments used to even plan for it! On paper! Yeah you can limit the number of people moving into cities but….

Sprawl is the new MasterChef. It’s worth it just to wait until the pressure is at fever pitch then expand the outskirts of the city, delivering the maximum profit to landbankers. Land bankers don’t want infill housing or more infrastructure within existing city limits. Neither do homeowners – no-one wants a block of flats next door. Imagine what that’d do to the market value? No, no no, Murray! It’s much safer to return a tax free profit to investors. Because; voting demographics.

It’s worth noting that Australia has capital gains tax, compulsory super that is heavily supported with generous tax incentives and is discussing ways to limit negative gearing BUT its housing market remains far too frothy for almost everyone under the age of 60 to enter in the city.

This polarised, simplified ‘debate’ is what’s known as class warfare/wedge politics.

That’s my contribution for today. Feel free to correct me.

 

 

 

 

 

 

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