A recent article by Jesse Columbo
in [published on the website of] that doyen of capitalist magazines Forbes about New Zealand’s housing market is a very interesting if somewhat terrifying read. Although he is not the first to claim that our property market is unsustainable he says there is clearly a housing bubble.
American Economist Nouriel Roubini stated last year that New Zealand’s housing market was potentially toxic and was in danger of suffering a calamity. Another American Economist Harry Dent has forecast a 30% to 50% correction once the Chinese Housing market also corrects from a bubble.
Columbo’s reasoning is compelling. The following is a gross simplification of what he is saying but I believe the gist is clear:
The consequences of a bust are also clear. Overleveraged borrowers will go broke, credit will dry up and unemployment will increase. As Selwyn Pellett has been saying for years the basic problem with the New Zealand housing market is that more and more people are borrowing more and more money from Australian Banks to buy the same houses off each other.
This is scary stuff.
And the failure of the housing market can clearly be seen now. Out west a modest three bedroom home in Glen Eden sold recently for $600,000. A friend’s son has become one of the few young people I know who has been able to buy a two bedroom major fix up home for $425,000. Our next generation must be wondering if they are ever going to own a home of their own. And meanwhile with increasing values there is a comparable increase in rentals and many people are being rented out of the market. If they are unemployed they could head for the country but no doubt it will be claimed that they are avoiding work and their benefit will then be taken off them.
National’s response to Columbo’s article are typical. Stephen Joyce this morning attacked the messenger and called him an alarmist. Obviously according to Joyce there is nothing to worry about. And obviously it would be politically unpopular to even acknowledge that for the common good the value of peoples homes should be reduced. Bernard Hickey said that the issues were real but that the talk was somewhat alarmist. Both men miss the point though. If there are these structural problems then something should be done.
You would think that the prospects would have any responsible Government taking urgent action to correct what is clearly a badly performing market. Regrettably National’s approach seems to be:
Labour has a variety of policies which can address the problem. These include the following:
The Greens’ policies are similar. They want to:
I hope that Columbo and Roubini and Dent are wrong. But just in case the Government should be doing something to address what clearly is a major threat to New Zealand’s economy.