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Housing Bubble

Written By: - Date published: 11:11 am, June 13th, 2015 - 94 comments
Categories: housing, housing insulation - Tags:

I grew up in Thatcherite Briton where property ownership was not just seen as something to aspire to but more of a birth rite. A 25/30 year mortgage was a badge of honour as you had provided security for your family and a perpetual hobby for yourself, heading down to the DIY store at the weekend for the next mini project that you would inevitably have to fix the following weekend.

The basic premise that we can generate wealth from investment is a cornerstone of our entire economy and is ingrained as such in our psyches. You purchase something, there’s added value whilst you own it and then it’s worth more when you sell. Seems simple enough right?

Well when it comes to ordinary goods this chain can be seen to be made up of tangible inputs. You buy raw materials. You add value to them by turning them into something new. You can now sell whatever you have made for more than the cost of the raw materials. The added value is coming from physical input and an actual change of state from the initial investment.

In the housing market however, unless you are constructing new houses or renovating old ones, what was first bought, is in essence what is sold. Perhaps however the hallway carpet has gone from blue to green and Uncle Jack has fitted a new lock to the back door but fundamentally it is the same building. Hardly a change in state is it? So this rise in value must come from somewhere else.

It of course does. It comes from our collective expectations that No. 73 Drinsdale Road must be worth more in the future than what we pay for it now. So let’s all buy houses and be rich beyond our wildest dream right?

Well that was the dream being sold to me back in the 80’s and it assumes that the main purpose of buying a house was to make money. It treats a house like any other investment vehicle and negates any social aspects. Let’s be honest however, most people wishing to buy a house are looking for that security of a place to live. A place that is their own space. A house that can become a home.

The housing market fails society when the ordinary person does not have access into this market because the supply of affordable houses for sale is eaten up by pure profiteering. People with a greater starting capital or access to cheaper interest rates will inevitably purchase houses and try to tap in to this price increase expectation. Alternatively they will remove the houses from the market completely by turning them into rentals properties. Both practises are self-fulfilling and constrict supply, further inflating prices beyond the reach of the ordinary person.

When we sit back and take a laissez faire attitude to parts of our economy that have such an impact on our social wellbeing we are doing ourselves a great disservice. The majority of the population become dependent on the few for their existence. Whilst this may work in a world of mass control, it is not part of a world of equality and should not be tolerated in a democracy.

As prices rise due to investment speculation, ordinary people are forced into two scenarios. The first sees them getting into greater debt and spending a higher portion of their income servicing that debt. The second sees them not able to participate in the market at all. The pure monetary on flow from each of these scenarios is a vast portion of the population having a reduced or no ability to access the wealth store that a house provides. The gap between the haves and have nots grows and does no one any favours.

Government has a duty to the population that they serve to ensure that everyone in the land has the same opportunities to prosper. The recent budget has seen an attempt to put the brakes on this 80’s style housing bubble by cracking down on the income tax payable at the point of sale. It’s a nod to the need to reduce speculation in the market but it is such a tentative nod it will probably have very little impact. We see it all the time when a right-wing government attempts to increase fiscal control. It’s so tentative that the outcome is tiny or non-existent and fuels the ability for people to claim that increased taxation does not work. Capital gains tax should be used to guide the market for the benefit of all and will work if it is targeted purely at speculators and is sizeable enough to have an impact on profit rather than just skim off a bit from the top.

There is always a need for rental properties and the idea that there is not enough supply again comes from the inability for people to purchase housing themselves. This swells the demand above and beyond the normal mainstay of the rental market i.e the transient populations made up of students and visitors etc. The shortage that is then seen, feeds back in to the investors mind set and the cycle continues. We hear it all the time that investors are needed to free-up properties to rent. Whilst this is not a false statement in itself, the reason why should always be heeded.

So should the Government try to stop people becoming landlords? Of course not. But a simple change in the law with respect to standards of living that a landlord must provide would have the double benefit of slowing this portion of demand in the market and at the same time raising the living standards of all those currently renting. I see this idea of social responsibility as a no brainer. We legislate to protect our citizens in all other markets, even the labour market with a minimum wage, why not in housing?

We fight to battle inflation everywhere else in the economy. Surely the time to act decisively in the housing market has come.a

Chris Davies

lprent: I was waiting for a response from the author about the name they wanted attached to this post, but while rebooting my workstation, my finger slipped and published the post. 🙁

94 comments on “Housing Bubble ”

  1. Kiwiri 1

    Who is the author for this please?

    [lprent: Attached now. Tragedy of errors by me.

    I was actually sending the email last night, and forgot to send. I had the post sitting on the screen waiting to add it in.

    I’d blame not doing those things all on Lyn distracting me with those pesky household routines like going to bed. But I’m afraid of the consequences so I won’t… 🙁

    This morning rocky came over to get me to look at her dead computer. I shut my workstation down so I could use the power supply to test her board. In the process I managed to
    1. send the email finally.
    2. post the post early.

    I’d blame it all on rocky distracting me. But I’m afraid of the consequences so I won’t… 🙁

    So you see – it is all my fault. 🙂 And probably the fault of that pesky lethargy inducing flu/cold killing my ability to multitask ]

    • Chris Davies 1.1


    • Draco T Bastard 1.2

      Why? Does knowing the author really add to the argument presented?

      • Colonial Rawshark 1.2.1

        Well, it’s a reasonable question; a name (or even a pseudonym) would help people connect with the content better

        • Kiwiri

          Indeed. Thanks. I do get tired of those anonymous editorials in newspapers.
          I wondered if this piece here might indicate a practice (new or perhaps already established) where ‘Guest Post’ pieces are authored under a kind of generic pseudonym.

    • Colonial Rawshark 1.3

      lprent: I recommend selenium drops and rescue remedy. Available from your nearest open minded pharmacy 🙂

      • DH 1.3.1

        “Who is the author for this please?”

        Why would this matter? It’s an opinion supported by reasoning, all that matters is the quality of the argument… which seemed pretty fine to me.

    • Nick Morris 1.4

      Half the people who contribute to the Daily Blog are feral or furious or both. But at least the site is readable. I occasionally try to read the Standard, but everything about it is ghastly. I say this as a sympathiser, believe it or not. Some serious editing is needed here.

  2. AB 2

    “So should the Government try to stop people becoming landlords? Of course not.”

    Why not? The popularity of landlordism amongst the kiwi middle class is a form of moral rot. See it every day as they gloat about doing up the ‘rental’.

    And besides all that it is bad economics – investment should be in productive activities not leeching off others.
    And it makes the housing bubble worse by increasing demand, and it increases inequality, etc.

    • I see no reason why private citizens should not become landlords …

      … once the industry is properly regulated;
      WoF (houses that don’t contribute to killing people via cold and disease), rent controls, more secure leasing/renting terms for tenants so they don’t have to move every time the landlord decides sell that property.

      Housing NZ should be providing best practice in these areas. They should be the benchmark, the model for others to follow.
      That they aren’t is one more example of poor leadership by the minister and the executive.

      • marty mars 2.1.1

        “I see no reason why private citizens should not become landlords”

        I totally agree – landlords – land lords – think about it – just another form of exploitation.

        • Naturesong

          If a person provides and maintains clean, secure, warm and dry housing I believe they should be able to get a return on the investment of their time and labour.

          It’s the cowboys, lack of rental controls (price controls, minimum standards for housing stock etc.) and the current out of control capital gain in Auckland with which I take issue.

          Given that the major economies have been printing money hand over fist for the last few years, surely putting controls on the flow of capital into the country would have been a no brainer?

    • Colonial Rawshark 2.2

      Why not? The popularity of landlordism amongst the kiwi middle class is a form of moral rot. See it every day as they gloat about doing up the ‘rental’.

      Neoliberalism has made becoming part of the rentier capitalist class the dream of very many people

    • johnm 2.3

      Hi AB

      100% right on!

  3. Stuart Munro 3

    A graduated housing tax would solve the problem quick smart.
    1 house – no tax.
    2 houses – 1% of capital value of one of them per year
    3 houses – 4% of capital value of the ones other than the residence
    4 houses – 9% etc.

    This would rapidly cool the housing bubble, and deter slum lords without unduly penalising the ordinary folk or folk who for one reason or other (inheritance, marriage) end up with more than one dwelling temporarily.

    It would also bring in so much money even that numpty Bill English might be able to break even occasionally.

    • Lanthanide 3.1

      Or, it would ensure that those who own many houses, do everything in their power to suppress the capital value of the house, to minimise the tax they pay. Ie, slums.

      There simply are no single silver bullets. Stop trying to imagine there are.

      • Colonial Rawshark 3.1.1

        Don’t worry Lanth, if rentals were being run down, and they failed the WOF and were not being rectified, they could then be nationalised at cost and upgraded to add to the State Housing stock.

        The solutions aren’t rocket science.

        • Lanthanide

          I agree, multiple policies will be needed. Stuart however was proposing just a single policy that would “solve the problem quick smart”.

          • Colonial Rawshark

            Well you are quite right when you say that there are “no silver bullets.” It will actually require a thoughtful and thorough set of measures in order for significant and effective change. A housing programme comprised of many different policies and elements, rules and incentives.

          • Kiwiri

            “Silver bullets”, by definition and strictly speaking, are matters of folklore and fiction. They do not exist.

            But yes, I know what is intended as the meaning as used.

          • Stuart Munro

            You caricature my comment.

            Legislation would necessarily be more complex but any number of relatively simple fixes are available.

            The current government is doing none of them, and most opposition parties aren’t doing anything either.

            It is fair to say they are simply not doing their jobs.

      • Stuart Munro 3.1.2

        You mean magic bullets – as in der Freischütz.

    • Colonial Rawshark 3.2

      Pretty decent suggestion Stuart, definitely something which can be developed further.

      And any house which was not personally owned i.e. in a trust or company ownership, automatically starts at the 1% level.

      • David 3.2.1

        What stops you creating a separate company for every house?

        • Colonial Rawshark

          There are typical avoidance techniques of course, but the usual rules will apply – i.e. if you have created structures with a primary purpose of evading tax, you will get done.

  4. Lanthanide 4

    “It of course does. It comes from our collective expectations that No. 73 Drinsdale Road must be worth more in the future than what we pay for it now.”

    No, it comes from the collective realisation that to demolish and replace No 73. Drinsdale Road with some other structure (or build a comparable size house on a separate piece of land) will cost more in the future than to do that construction does now, thanks to inflation in the price of materials and labour.

    Also add that there is a fixed, scarce quantity of land, with the ‘best spots’ of land being developed first (just like any other resource usage). This inherently means previously developed land, all else being equal, is preferable to occupy and own than newly developed land, thus it commands a price premium.

    The rise of property prices is a purely rational, and expected, outcome of the way markets work in general, and the way the property market is structured.

  5. Draco T Bastard 5

    So should the Government try to stop people becoming landlords? Of course not.

    Yes they should. They should also look to putting an end to home ownership with all homes being rented from the government. Why? Because private property is detrimental to society as it drives rentier behaviour in speculation (asset bubbles) and rent seeking through ownership of land/housing.

    • I would oppose this.

      I am a social democrat not a socialist – not that there is anything wrong with being a socialist, but while I rate Marx’s diagnostic abilities I just don’t see how his prescription can work.

      Every time it’s been tried, and putting aside the initial violence required for most movements to depose or dispose the existing power structure, its either been taken over by the most ruthless leader of the movement and corrupted beyond all recognition (sometimes slaughtering specific professions, whole classes, communities or races), or other nations labouring under different systems have either sought to isolate and cripple them, or simply invaded them.

      • Colonial Rawshark 5.1.1

        mate, NZ can do democratic socialism far better than any of those historical examples.

    • RedLogix 5.2

      Well I’d not go quite so far. I have argued elsewhere that all LAND ownership should remain with the state – and instead of paying rates we would all pay rent to the local councils.

      In fact much of the so called ‘housing bubble’ is no such thing. It’s a land price bubble – it just happens that the homes we need to live in are sitting on it. No-one actually needs to own the land, all they want is the right to occupy it.

      If all land was leasehold – crucially the banks could not register it as an asset against the mortgage – and I believe this single factor alone would almost entirely eliminate this insane inflation.

      • Tracey 5.2.1

        agree @ land price bubble

      • Draco T Bastard 5.2.2

        I have argued elsewhere that all LAND ownership should remain with the state – and instead of paying rates we would all pay rent to the local councils.

        I’d say that that was the minimum that we need to do but to be honest I don’t see a lot of difference between just renting the land from the state and renting the whole place. In fact, I can see advantages in the latter especially as far as maintenance goes.

        • RedLogix

          Well I’d suggest the big difference is that one idea stands a snowballs chance in hell of ever being implemented – the other doesn’t. 🙂

          • Draco T Bastard

            Not necessarily. To get either is going to require a culture change and we may as well go for full state ownership of housing because of the advantages that it offers people while also being cheaper than owning.

            • One Anonymous Bloke

              full state ownership of housing

              …and have a bunch of right wing nut jobs come through for “inspections” every time the electorate shits itself and votes National? No thanks.

              • Draco T Bastard

                Obviously, we’d put in place legislation to prevent that. There’s also the point that the inspections would also happen to the RWNJs.

                • One Anonymous Bloke

                  Not the ones in Cabinet Club.

                  Joking aside there are serious privacy issues here, not to mention the whole matter of Article 12 of the UDoHR.

                  • Draco T Bastard

                    Not the ones in Cabinet Club.

                    The legislation I suggested would, I’d further suggest, ensure that they’d be the first ones inspected.

                    Joking aside there are serious privacy issues here

                    So, private rentals are also a “serious privacy issue”?

                    not to mention the whole matter of Article 12 of the UDoHR.

                    I don’t believe people have a right to own a home. They have a right to a home but not to own it.

                    You’ve got to remember that the UNDoHR was set up by capitalists to propagate capitalism and thus we really do need to question some of the things in there.

                    • One Anonymous Bloke

                      So, private rentals are also a “serious privacy issue”?

                      Not as much as providing the state with a universal warrant-free pretext to poke its nose into everyone’s homes.

                      As for the UDoHR and the propagation of Capitalism – citation needed.

                      Edit: Oh, and good luck convincing tangata whenua that the Crown now owns all the houses in the country.

                    • Draco T Bastard

                      Not as much as providing the state with a universal warrant-free pretext to poke its nose into everyone’s homes.

                      Really? When was the last time that a landlord could simply turn up and view a house?

                      And I note that I got Article 12 wrong. I thought it guaranteed owning a home whereas it only guarantees privacy of the home – my bad.

                      As for the UDoHR and the propagation of Capitalism – citation needed.

                      Try article 23 and 24. Such would only apply, and be necessary, in a capitalist society.

                      Oh, and good luck convincing tangata whenua that the Crown now owns all the houses in the country.

                      I’ve been considering, for quite some time now, that Iwi should be recognised as some form of local government. This would be full recognition of the partnership and self-determination as guaranteed in Te Tiriti o Waitangi.

                      Of course, such would require them to become responsible for administering, building and maintaining the ‘state’ houses in their purview.

                      Basically, it comes down to discussion. I’m pretty sure that some agreement could be reached.

        • mikesh

          [I don’t see a lot of difference between just renting the land from the state and renting the whole place.]

          Nobody can reasonably claim ownership of land since none of us created any of it; in fact it was probably here millions of years before any of us were born. So, if we are to countenance private ownership of land, it should be on whatever conditions we the wider community democratically decide. It is a no brainer that the first and most obvious condition would be that ownership should entail payment of a land tax.

          The same would would not apply to a house however.

  6. RedLogix 6

    As the resident ‘landlord’ around here I feel obliged to comment. (And as it happens I’m a tenant at the same time. In fact I really dislike both archaic terms that freight a perfectly ordinary business with class terminology dating back feudal times.)

    Absolutely there are plenty of healthy societies in Europe especially where renting is the dominant form of housing; therefore home ownership is not a prerequisite for a decent society. However NZ society is configured differently and we generally consider it a ‘good thing’.

    But the crucial thing missing from the NZ rental business is adequate controls – from both sides of the game. I’m completely supportive of improved standards, ‘rental WoF’s’ and the like. And equally landlords need increased protection from rogue tenants who create unreasonable losses and a risk averse behaviour that inhibits investment and upgrades.

    Very roughly the total NZ housing market comprises three main segments:

    1. About 60% are homeowners with or without a mortgage
    2. About 25% rent from the private sector
    3. About 15% rent state provided social housing

    And there is of course considerable movement between these three.

    There will always be a group of people who need social housing. This is the essential safety net for those who for one reason or another cannot access any other form of housing. It is also the role of the state to provide a sufficiently decent standard of social housing as to provide a ‘floor’ to the market below which no other provider would want to fall.

    And to be blunt – there are many people who are just too high a risk for a private landlord. They create all sorts of problems, intentionally or otherwise, and frankly they are better off with HNZ who should have the skills and resources to handle them.

    And there is always a need for rentals. This is a perfectly legitimate market to be serving. People who are too young, who are transient, not in a family relationship, or just plain don’t want the expense and bother of ownership and choose to remain renting.

    The two big challenges with renting long-term are; security of tenure and the need for an alternative investment vehicle to support your housing needs when you can no longer work. Good landlords place a high value on good long-term tenants. They look after the place like it was their own home and are very low risk. (Every time a tenancy changes the new tenant brings with them a whole bundle of as yet unknown risks.) In turn a good tenant should have the right to ‘enjoy undisturbed occupancy’. In other words, to feel like this house is their home.

    In reality – the main difference between renting from a landlord, and owning your own home boils down to whether you are paying the mortgage directly, or indirectly to the bank via the landlord.

    Normally about 2% pa of this group will migrate into home ownership as the usual part of life’s progression. But this housing bubble – caused entirely by excess global bank credit – has unquestionably slowed this number down, and has resulted in too many people stuck in the rental market when they do not want to be.

    Between this, and a poorly regulated rental business – both of which can be largely sheeted back to this ‘no ideas’ government – we do have a very real social problem.

    • I’d agree with that.

      With one change, have HNZ develop best practice as a model for other landlords to follow, and publish it for free.
      This free IP would help landlords in their processes to ensure stock is kept up to spec, regs complied with, smooth the learning curve first time landlords, and likely introduce basic business practice to some of the cowboys out there.

      • RedLogix 6.1.1

        The Dept. of Housing and Building make a reasonable fist of this sort of education and support already. But none of it is backed up with any teeth or real supervisory capacity.

        If a landlord wants to be a slumlord there’s little to stop them.

    • Draco T Bastard 6.2

      In fact I really dislike both archaic terms that freight a perfectly ordinary business with class terminology dating back feudal times.

      It’s a structure that dates back to feudal times and so I’d say that it’s reasonable to use feudal terminology. In fact, it is the same structure as serfdom. You own the land and house and the people pay you to live in it from the produce of their work.

      In reality – the main difference between renting from a landlord, and owning your own home boils down to whether you are paying the mortgage directly, or indirectly to the bank via the landlord.

      Actually, that’s not the main difference. The main difference is that ownership in one generation passes on to the next slanting the economy in favour of the new generation. This particularly applies when the older generation owns multiple houses.

      This ownership then drives the capital accumulation that Piketty describes. An accumulation that drives an ever higher amount of serfdom and poverty with the inevitable result of the collapse of society.

      Of course, this type of accumulation doesn’t just apply to housing but to all privately held capital it’s just that housing is presently highly visible.

      • Psycho Milt 6.2.1

        In fact, it is the same structure as serfdom.

        Serfs are bonded to a piece of land and differ from slaves mainly in that they can’t be sold separately from the land. It’s not “the same structure” as renting a flat from someone, unless by “the same” you mean “bears no resemblance to.”

        • Draco T Bastard

          It’s the same basic structure as I pointed out:

          You own the land and house and the people pay you to live in it from the produce of their work.


          Serfs who occupied a plot of land were required to work for the Lord of the Manor who owned that land, and in return were entitled to protection, justice and the right to exploit certain fields within the manor to maintain their own subsistence.

          The renter is required to work for the lord. Sure, there’s some differences but not enough, IMO, to truly differentiate them.

          • Colonial Rawshark

            Nice analogy there DTB

            • mikesh

              [The renter is required to work for the lord. Sure, there’s some differences but not enough, IMO, to truly differentiate them.]

              The rented doesn’t work for the landlord, Accommodation is something he purchases from the landlord, and is in principle no different from purchasing a loaf of bread.

              • Draco T Bastard

                Incorrect. The person renting from the landlord is paying a large part of their income from their work so that the landlord doesn’t have to work themselves.

                As a multimillionaire once told me: You don’t get rich from working, you get rich by having others work for you.

                That’s how all capitalist businesses work.

                • mikesh

                  Presumably you think there is no work involved in building a house. You think that millions of years ago when the land was formed it was formed with houses on it.

                  • Draco T Bastard

                    Wow, that’s got to be the standard meaningless argument from RWNJs.

                    No, I think builders built the house. Chances are, this wasn’t the landlord.

                    I also don’t think that there’s no work in being a landlord but I think that it’s only one persons work and that they should only get one persons income rather than the income of several which is what a landlord actually receives.

                    This is all identical to the old feudal system where the rich benefited from the work of the serfs on their land and not just from their own work.

                    • mikesh

                      [Wow, that’s got to be the standard meaningless argument from RWNJs.]

                      I admit to being a bit sarcastic, but I think your original argument merited a sarcastic response.

                      [No, I think builders built the house. Chances are, this wasn’t the landlord.]

                      Whoever built the the house might presumably have transferred his rights to another for a price. That would include the right to let.

                      [I also don’t think that there’s no work in being a landlord but I think that it’s only one persons work and that they should only get one persons income rather than the income of several which is what a landlord actually receives.]

                      I doubt if that’s true. The average house wouldn’t fetch more than about $15K to $20K per annum in rent, and that doesn’t take into account outgoings.

                      [This is all identical to the old feudal system where the rich benefited from the work of the serfs on their land and not just from their own work.]

                      The serfs of yesteryear would be laughing their heads off at that sort of comment.

                    • lprent []

                      Ah! Another idiot right winger who has a problem with basic maths.

                      First off an “average” for rentals is a useless measure. You can rent houses for a pittance in Westland that would cost a fortune in Auckland.

                      Just to give an idea. My nothing special one bedroom flat in Newton Auckland last rented for $320pw 3 years ago before we moved back into it. That is $16,640pa. But I’d had a good tenant so had raised the rents at all. The current market rate according to Housing NZ (there are a couple of HNZ apartments in the block) is about $400pw – that is to say $20,800pa.

                      The cheapest three bedroom house in Mt Albert when we looked 4 years ago was more than $500pw.

                      But hey, don’t take my word for it. Try reading this link with a listing of rental prices by area and look at the AVERAGE prices by area and how much they vary.

                      The prices above were recorded during the six months to 30 April 2015.

                      According to Crockers Property in May 2015, Aucklanders are paying around $623 per week to live in a three bedroomed rental property and $451 per week more to live in a two bedroomed rental property in Central Auckland.

                      From the selection displayed, the Tenancy Services Division figures show that in Auckland Central the most expensive average rent for a two bedroomed house is in Ponsonby / Freemans Bay at $682 a week. The cheapest is in Otahuhu at $370 per week.

                      For a three bedroomed house in Auckland Central the most expensive average rent is in Parnell at $800 per week and the cheapest is in Otahuhu at $445 per week.

                      So the “average” for a Auckland 3bdm is $32,396pa, the average for Parnell is $41,600, and the lowest average for Otahuhu is $23,140pa. Well above your $20k pa

                      The other ‘city’ areas in Auckland tend to have prices that “average” at higher than Otahuhu because that is kind of an industrial zone rather than residential. I haven’t bothered to look it up, but I’d expect that the average 3bdm house rental for the whole of Auckland would be around $550pw ($28,600pa) and rising fast.

                      Then consider that about 52% of the households in Auckland rent (the highest ratio in the country) and therefore they are the largest portion of rented properties (even a maths twit like yourself should be able to figure that out – Auckland city has about 35% of the families in the country).

                      What that tells you is that your “average” is a completely daft and stupid measurement. The rents in other parts of the country are just really really low by comparison to Auckland. The entire business of being a landlord in Auckland and a few other high demand cities is completely different to anywhere else in NZ.

                      Here is the thing that you are carefully ignoring in your argument. Virtually every rental 3bdm house in Auckland runs at a break even or small loss. The reason why is because rentals are really only expected to pay the interest, rates and any maintenance – which is tax deductible against any income. In virtually every rental house I have seen, they don’t effectively pay down any capital parts of a mortgage. If they do too much of that, then they tend to get sold fast to realise the capital gain.

                      Their increasing capital value is usually used to leverage into new rental properties.

                      The payoff comes when the properties are sold. That is because all capital gain is untaxed. They weren’t ‘speculating’ as a business, they were running a business as being ‘landlords’ – but not expecting to make a profit from the operation of being a landlord. They were expecting to make a untaxed profit from selling the property. The tenants were just a cost recovery feature.

                      That is why we need a effective capital gains tax applied to landlords as being speculators. Its lack at present is largely what is driving the speculative market in Auckland.

                      So the landlords are playing capital gains and milking the tenants mostly to pay for the interest. They are doing so in a market that offers little choice (look at the limited spread between “lowest” and “average” in those suburb rents and you’ll see what I mean. Costs upwards in the form of rates changes and interest are passed directly to tenants – you can see that happening every time one of those rises. And the costs of moving are horrendous – typically 6 weeks up front (“average” about $3300) while TNZ holds your previous bond while the landlord gets around to examining the property AFTER the notice expires.

                      The closest analogy is tenants as being serfs – those are exactly the same kinds of rent slavery practices used in the middle ages on serfs.

                    • Draco T Bastard

                      I doubt if that’s true. The average house wouldn’t fetch more than about $15K to $20K per annum in rent, and that doesn’t take into account outgoings.

                      15k to 20k per house. 5 houses and income is already above the average.

                      The serfs of yesteryear would be laughing their heads off at that sort of comment.

                      Why? The lords of the land did have work to do and, generally speaking, they did it. They were rich only because they had the income from all their serfs work. Exactly the same as it is today.

                      People can only get rich because they benefit from others work – lots of others.

                    • mikesh

                      [Ah! Another idiot right winger who has a problem with basic maths. ]

                      Actually I’m pretty left wing; and I made no mathematical claims.

                    • mikesh

                      [ 5 houses and income is already above the average.]

                      He would have paid 5 times the price for them; and of course he is providing 5 times the service.

                      [People can only get rich because they benefit from others work – lots of others.

                      In providing someone with accommodation a landlord is providing a service. Would it be true to say that anyone who provides a product or service is “benefitting from the work” of his customer?

              • sabine

                unless you work in on a farm, or in hospitality (hotels often offer accomodation for their staff – same in hospo on skifields etc, where people only work seasonal i.e. are shipped in to work).

                Hospitals also offer accomodation for their workers etc etc etc.

                and with all these jobs, if you loose them, you loose your accomodation.

    • mikesh 6.3

      [In reality – the main difference between renting from a landlord, and owning your own home boils down to whether you are paying the mortgage directly, or indirectly to the bank via the landlord]

      Except that rent is payment for a service (accommodation) provided by the landlord, whereas a mortgage payment is directed at ownership and has nothing to do with any with any service provided through letting the house. This service is free to an owner-occupier and represents income which should be taxed.

  7. Weepus beard 7

    The big one for me is security of tenancy. If we, the under 45s with young families, are to become “generation rent” then much more needs to be done to bring both tenancy laws and the high rate of change of ownership of rental properties under control so that we see similar stable patterns and outcomes for families who rent all their lives for whatever reason that we see in other countries.

    These new life tenants would do a lot to improve their “homes” for the benefit of their families’ health and comfort if only they were left alone to live normal and stable lives instead of being pushed around on the whim of the new class of amateur landlord.

    There’s no use banging on about the benefits to society of stability of communities if low income families are forced out of their rented homes every 18 months because some speculator/landlord decides to update their portfolio…

    • RedLogix 7.1

      Absolutely – I didn’t get into the business to be a speculator or ‘portfolio shuffler’. We actually built (and I mean hands on built) or completely renovated all of our units.

      We plan on holding them long-term as a core component of our family assets. As some of you may have noticed – I’ve several dependent family members I need to ensure long term support for – and this is how I’m doing it. Plus in a few years when I get too senile for programming anymore I want to go tramping full-time and have just enough income to do it as long as my knees hold out. It’s not the sort of thing I can trust to a finance company or the share market.

      It’s also why I’ve consistently tried to draw a distinction between property investors – and property speculators who create all the kinds of problems for tenants that you describe WB.

      • Colonial Rawshark 7.1.1

        In Europe isn’t it usual for secure long term renters to be able to decorate the premises as it suits them, on the understanding that they are (eventually) responsible for returning things to the original condition?

        It would make a place feel much more like “home.”

  8. ianmac 8

    And a product of low incomes and poor housing is that people cannot speak up.

    As Dame Silvia Cartwright says,”If the people of the communities that are really hurting – [like those in] Auckland living in overcrowded, unhealthy and unsafe conditions – had the time and the money to protest, I’m sure they would.”

    A great read from a great woman.

    • Tracey 8.1

      Inisightful but we have seen this week what death by poor housing does…

      a whole street gets visited with promises to repair/upgrade their homes (suddenly money as available)
      a state house is pulled from sale and given to a family living in a garage (suddenly money wasn’t needed from the sale)

      THIS government follows only one “principle”, that is money… and the only thing that trumps their cutting, cutting, cutting of support for vulnerable people (indirectly or directly) to save money is publicity which might impact their ability to keep doing that for the next term.

    • Tracey 8.2

      “”As a community we are less interested in human rights than we were. Of necessity, we have become very interested in economic survival. The rights issues have taken a second place.”

      Dame Silvia says discussion is less than she recalls, and there is less interest in promoting equality between those of differing ethnicities or gender. “Even the discussion about children’s rights is dominated very much by economic factors – poverty, the suggestion we have a disproportionate degree of poverty amongst our children.

      “It’s moved away from talking about what these children’s rights are – that they are members of the community, where they have equal access to all opportunities, education, sport, music, whatever they need to become well-formed and useful citizens – to one factor: Can they survive? Have they got enough to eat? Have they got enough clothing? Adequate housing?”

      The result is New Zealand being seen less as a place with an image of valuing human rights. “I don’t think we’re seen quite like that so much, although there is this lingering knowledge of us as decent human beings who are above international politics to some degree, but I don’t think it’s completely true any more.”

  9. Policy Parrot 9

    Current Government policy is to do anything to prevent a downturn in the housing market, despite the fact that this will make the inevitable downturn worse that it would have otherwise been. How?

    1. Refusing to make investor owned properties ring-fenced for tax purposes.
    2. Introducing an easily evaded capital gains tax as a public relations exercise (to be seen to be doing something), rather than serious action.
    3. Adding fuel to the fire by giving away free money to first home buyers in order to keep a few success stories coming along – but all with eye-watering mortgages.
    4. Only drip-feeding new housing (and then only at median-to upper quartile prices).
    5. Refusing to bring in measures that prevent foreign money launderers from washing their money with the Kiwi dream of now generation Kiwi Rent.

    • RedLogix 9.1

      To which I would add:

      6. Refusing to look at a grossly overpriced building industry.

      Just a month back walking through my (Aussie) home town centre I spotted in one of the real-estate windows a new build package:

      160m2 , four bedrooms, double garage, main bathroom and ensuite in master, two family rooms and so on. Perfectly decent kitchen and really nice fittings throughout. Outside alfresco dining area optional.

      Select from one of six standard designs – and all of them really very modern and attractive. (Fuck me I’m sounding like a real-estate agent!). 14 week build from cheque to key.


      Now there is the land (very reasonable otuside the big Aus cities) and some other sundry costs – but at under $1000/m2 this makes NZ look sick.

      • Lanthanide 9.1.1

        Equivalent house-and-land packages can be had in Christchurch for about $550,000.

      • Tracey 9.1.2

        DBH had a design competition and put up the designs for free use for homes of $100,000 value to build.

        In Auckland it is the cost of land that is the barrier… and the ambition of some first home buyers to want to start at WOW


        • RedLogix

          And the unwillingness of many builders to do affordable. More profit per unit at the upper end.

          • Colonial Rawshark

            Probably why the NZ Govt should have a team of 1,000 public sector employees doing its own building work.

            • Draco T Bastard

              Actually, they’d probably need closer to 10,000 builders and perhaps more. The government is large and requires a lot of work which is why the private sector doesn’t like them hiring people – it cuts down the number of unemployed and so can push wages up.

          • lprent

            Having been mostly apartment living for a while, I’d hate to go back to having a vast expanse of lawn/gardens to maintain.

            The land prices in Auckland homes are only expensive because they want to use so much damn land.

  10. DH 10

    I’ve found that views on housing tend to reflect the economic perspective of the viewer but there’s an economic view which is being deliberately ignored by politicians from both National and Labour. It clashes with their own self-interest

    It’s a plan fact that renting is worse for the economy than home ownership. Renters spend no money on the property they’re renting and neither, to all intents & purposes, do the investors.

    If we use Redlogix 40% above as a starting point, well…. 40% of the population aren’t spending much money on home improvement goods & services. That sector of the market makes up a very big chunk of our economy. Think about the work that doesn’t get done and which would employ people…. from basic maintenance to growing garden supplies to re-roofing, cladding, painting, decks & walls etc etc etc.

    People don’t think about the economic side of this issue much but politicians who majored in economics, like the execrable BIll English, know full well that maximising home ownership is unquestionably an economic good that any Govt should be striving for.

    • Tracey 10.1

      and superann is calculated on the basis that when retired people now own their homes entirely… so no need for an accommodation cost…

      more trouble coming in 10 to 50 years

      • DH 10.1.1

        Yes. Another economic fact is that buying your own home kills housing inflation stone dead. For the buyer that is. Since wage inflation tends to follow consumer inflation that halt in housing inflation gives the home buyer an ever-increasing disposable income. That increase leads to them spending more which naturally boosts the economy.

        Renters don’t get that increase in disposable income because their rents keep going up with inflation. Their money goes to the investor who often has an interest-only loan of which the money is sourced from overseas borrowing by the banks… the cash goes straight back offshore as dividends and doesn’t get spent in the NZ economy.

        • mikesh

          Historically houses have tended to increase in value, but this not some iron cast law. It is possible for houses to fall in value.

      • RedLogix 10.1.2

        Exactly – that is the big bug in the ointment with long-term renting.

        In principle people should be able to invest the difference between renting and owning – and be able to use that to fund their retirement housing.

        But in practise it rarely seems to work out that well.

        • DH

          You just can’t do it when interest rates are so low.

          Even 5yr term deposits are paying only 4.5% now. With the standard tax rate of 30% that a real return of 3.15%

          Houses only need to go up in value by 3.2% annually to be a better investment than saving. And when you consider that the gain of 3.2% largely only has to be on the part the home owner funds, ie the deposit & principal payments, the real housing inflation only need be about 1-2% for home ownership to be better than saving.

          This is a Government that exhorted us time & time again to save and the treacherous swine have totally betrayed us. Our savings are being wiped out and handed over to borrowers.

          • Naturesong

            There’s a flaw in your logic. It’s actually worse than you state.

            If I have $100,000 and put that on term deposit I get a net return of $3,150 (3.15%).

            All good so far.

            Then, to get that same return from a house:
            $100,000 deposit on $500,000 house
            $3,150 / $500,000
            = 0.0063

            Or in english, my $500k house (the bank still holds title I know) with my $100k deposit only has to increase in value by 0.63% to break even with the return I get from a term deposit.

            And we know that house inflation in Auckland is running at 10 to 15 times that rate.

            So a landlord can negative gear their property, pay no tax (or reduce their tax liability from other income) due to outgoings being higher than rental coming in.

            The kicker? The entire capital gain is tax free when the property is sold.

            It’s money for jam.

    • Draco T Bastard 10.2

      …know full well that maximising home ownership is unquestionably an economic good that any Govt should be striving for.

      Would that be an economic good or a more consumption and thus more profit good? The two are not necessarily the same. In fact, I’d say that they’re complete opposites.

      Also, maintenance should be maintained by the landlords and if they’re not doing so then we have a problem in that the landlords aren’t maintaining the houses to the proper standard.

      • DH 10.2.1

        Well I’d call it both a social and an economic good. Most home owners want to improve & personalise their properties, home is the castle & all that. I don’t see anything wrong with that, think it’s pretty good actually.

        Investors don’t want to spend anything. They’re not in the business of spending they’re in property to make money. They’ll typically spend the absolute minimum required on maintenance and nothing on improvements. No vege garden, no trees, no (wo)mancave for the home handyman, no nothing.

        Take a good look at all the little things home owners do to their property and then ask… how much is the economy and the country losing out with 40% of the population not doing it?

        • Draco T Bastard

          Well I’d call it both a social and an economic good.

          The problem with that idea is that it’s not necessarily economic as it’s using up scarce resources for very little or no gain.

          Take a good look at all the little things home owners do to their property and then ask… how much is the economy and the country losing out with 40% of the population not doing it?

          That’s just it, the country’s not losing out if it’s not using up it’s scarce resources. After all, it’ll still have those resources and thus still have that wealth.

  11. Ch-ch Chiquita 11

    ” We legislate to protect our citizens in all other markets, even the labour market with a minimum wage, why not in housing?”
    I have a feeling the current govt would have liked to get rid of minimum wage and go to zero dollars alongside zero hours, and the only reason they don’t do it is fear of it exposing their true colour.

  12. Nessalt 12

    This is a very keen solution. it’s well thought through and doesn’t require “Breaking the system” to implement. It takes the best of market economics and applies it for social good.

    Maybe combined with a law requiring that all foreign investments in property can only be in new building and we could see house prices back to feasible levels.

    • Stuart Munro 12.1

      You could do a similar thing with rental housing – make landlords build to rent rather than buy to rent. You’d need a transition mechanism, but the landlords would cease to be chief competitors with prospective owners.

  13. feijoa 13

    Sorry Redlogix @ 6
    I believe home ownership is now at 48%
    Renters for the first time, are now the majority

    • RedLogix 13.1

      Well I did say “very roughly” and to clarify – what I had in mind was an outline of the housing market as it had been the norm for most of the past 90 years or so.

      As also mentioned – it’s fairly easy to estimate that about 2% of renters normally transition to ownership every year. If the proportion of renters has grown to 48% – over and above my 40% – then this is consistent with that number halving to 1% pa over say the past 8 years.

      All very back of the envelope with several gross assumptions – but it confirms the scale of the problem and the potential rate at which it is getting worse.

  14. Just my opinion 14

    Why not remove all tax incentives for residential property rentals? That would see a devaluation of houses and a glut of houses on the Market. Australia is looking at this right now.

  15. Stuart Munro 15

    The other popular measure overseas has been various forms of rent control. If rental income is capped the appeal of capital gain declines as the margin of mortgage above rental increases.

  16. Tracey 16

    Inflation is SO important we have legislated a band within which the Reserve Bank must operate to manage deflation/inflation…

    YET, house prices in Auckland are exempt from what ever “problem” that legislation was trying to see off… so there is very high inflation in th eproperty market in Auckland but apparently it’s no problem.

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