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No Right Turn: One way of fixing the housing crisis

Written By: - Date published: 6:05 am, January 14th, 2021 - 63 comments
Categories: housing, human rights, tenants' rights - Tags:

No Right Turn wrote this week:


One way of fixing it

Yesterday we had the unseemly sight of a landleech threatening to keep his houses empty in response to better tenancy laws. Meanwhile in Catalonia they have a solution for that: nationalisation:

Barcelona is deploying a new weapon in its quest to increase the city’s available rental housing: the power to force the sale of empty properties.

This week, the city’s housing department wrote to 14 companies that collectively own 194 empty apartments, warning that if they haven’t found a tenant within the next month, the city could take possession of these properties, with compensation at half their market value. These units would then be rented out by the city as public housing to lower-income tenants, while the companies in question could also face possible fines of between €90,000 and €900,000 ($103,000 and $1,003,000), according to Spanish news outlets.

That would certainly be one way of fixing the “ghost house” problem, and it would certainly incentivise landleeches to fill their properties. Even fines would be a start on that. Ultimately, we need a mass state house building program to increase supply and crush the market. But in the interim, measures like this may help ensure our housing stock is actually used as intended: as homes, rather than sources of tax-free capital gains.

63 comments on “No Right Turn: One way of fixing the housing crisis ”

  1. Treetop 1

    It goes to show how lucrative owning property is when it can be left vacant.

    A mass state housing programme is the only solution as nothing else has worked. A new agency needs to be set up for this.

  2. Maurice 2

    All the pontificating and debt creation in the World will do nothing until we have nails and lumber enough … and the people who can operate nail guns.

  3. vto 3

    there is no supply problem, there is only a demand problem

    a little over a year ago there was pretty much no demand

    the population hasn't changed

    • Jimmy 3.1

      Are you sure there was no demand for houses a year ago? I thought there was a growing list of people wanting state houses. I disagree with you as in Auckland anyway, I think there is definitely not enough supply of houses. If more Kiwi Build and more state houses built this would definitely help.

      • vto 3.1.1

        yeah nah, seen it all before… investors come out of the woodwork and suddenly there is no supply… couple years later investors have all left the market and there is ample supply with dropping prices.. the population doesn't change… same number of people have same number roofs over their heads

        it is entirely a demand issue

        by investors

        imagine if all investors were ripped out of the market – what would it look like do you think?

    • Gabby 3.2

      A demand problem is a supply problem.

      • Nic the NZer 3.2.1

        Thats only true in an idealised situation where the market itself moves to correct itself by equating demand and supply.

        In housing specifically then price increases produce appreciation income for owners which may mean a supply increase leads to more income for investors leading to the demand from these players making things worse (their next rentals being in a higher price bracket).

        In this situation it definitely makes sense to think about both sides of the market separately.

      • Castro 3.2.2

        So if an additional 100 million people appeared in No Zealand tomorrow wanting somewhere to live it would simply be a supply problem? So a supply problem is simply a demand problem? A lot easier and faster to start rounding people up and deporting them… problem solved.

  4. vto 4

    in fact it shouldn't be called a Housing Crisis, it should be called an Investor Crisis, for that is what is causing the problem

  5. Phillip ure 5

    love that spanish-plan…

    let's do that here….

    • Jimmy 5.1

      I think it's quite frightening.

      • vto 5.1.1

        it shouldn't be.. that is how the current system was established for the whiteys of course wasn't it… when the british crown nationalised the entire country from tangata whenua back in the 1840's….

        just requires some thinking my friend

        • Jimmy 5.1.1.1

          I do not like the idea of any government having that much control and basically being able to acquire your assets at half their value any time they like. Dangerous precedent.

          • weka 5.1.1.1.1

            it's not any time they like. The landlord is given notice and can either rent the home out or sell it.

            • Jimmy 5.1.1.1.1.1

              Yes one months notice given. I still don't like it as too much power in the hands of the government and could cause corruption. Thinking about it further, what if a bank had an interest in the property? ie. if there was a mortgage on it. If governments were able to do this, would banks not lend on rental properties (due to increased risk). That could reduce the number of landlords if banks wont lend if that is an intention.

              • weka

                How is corruption an issue?

                The bank argument is like the old 'don't act or the landlords will throw their toys out of the cot'. Basically I don't care. If banks won't lend, then the government will have to build more houses, which is what needs to happen anyway. Besides, the banks can just change their lending criteria to 'if you build a house it has to be occupied' (with whatever conditions). It's not like banks don't already put conditions on lending, and it's not like banks are going to want to stop lending either.

          • vto 5.1.1.1.2

            the land all belongs to the queen anyways… we only have titles issued for certain limited rights over tiny wee individual bits of it … dunno why we always think "ownership" means actual ownership..

            all we have are a few rights issued by the crown

            nothing more

            true this

            • Maurice 5.1.1.1.2.1

              Indeed – most house lots are held in "Fee Simple" from the Crown

              Pastoral Leases are more securely held, for instance, with contracted rights in perpetuity.

            • mikesh 5.1.1.1.2.2

              The land doesn't belong to the queen. The queen has sovereignty but that doesn't equate with ownership of the land. Ultimately I think the land should be regarded as belonging to the people jointly, and anyone claiming private ownership should pay for that privilege. Hence the need for a land tax.

    • Agree Phillip….but predict Jacinda will continue to twiddle thumbs and continue to support house price rises. Madness.

      • Incognito 5.2.1

        As long as the legal framework is in place, this would fall to local (i.e. Councils) rather than central government.

    • mikesh 5.3

      I also agree with the Catalonian plan, but a mere 50% compensation seems a bit too vindictive to be plausible. Usually, when property is commandeered for state purposes, a more just compensation is paid – however "just" is defined.

      • RedLogix 5.3.1

        Barcelona has a very specific problem with AirBnB style rentals where due to the immense popularity of the city as a visitor destination, it's been far more attractive to cater to the visitor's short-term needs than the locals longer-term ones. (Conflating that specific problem with the much more complex mess that the NZ housing sector has gotten into is also unhelpful.)

        In this Barcelona has been a victim of it's own success, and they need to contemplate better regulation of the business models involved. A punitive confiscation of private property doesn't seem quite like the most intelligent place to start.

      • Phillip ure 5.3.2

        @mikesh .

        they could have a choice..50% of current value..

        or 80% of what they paid for it..

        or they can take the easy path..

        ..and rent it out…

        ..(which is the object of the exercise..after all..)

        • mikesh 5.3.2.1

          Or the government could take the "easy path" and provide full compensation. They would probabably save the taxpayer the cost of a lot of litigation.

          • Phillip ure 5.3.2.1.1

            I'm agnostic about details like that…

            the prize is to stop the current practice of house-banking..

            of course another approach would be to license all rental properties..

            with not offering the property to the rental market after a reasonable time for all eventualities ..incurring financial penalties…

            this is a gordian knot of a problem..

            and it needs a sword taken to it to effect the needed change..

            in case anyone is still wondering..we are currently pouring millions into the pockets of motel owners and the like..

            a total waste of money..

            • mikesh 5.3.2.1.1.1

              We certainly need to take a sword to the "gordian knot". The new regulations are a start, but we also need to get rid of accommodation supplements, and make interest non deductible for tax purposes. The latter measure would hit landlords who have borrowed heavily to obtain a rental property. Stopping privately owned banks from creating credit would also help. We could setup a central government agency, similar to the former State Advances Corporation to make housing loans.

              • Pat

                The 'State advances ' option has been removed for the foreseeable …with private bank mortgage interest rates approaching 2% there is no room for the state to provide a cheaper option to those struggling.

                As noted the issue is how to slowly deflate a bubble (of our own making)….Im not sure it can be done for as soon as 'the market' is aware that that is the strategy there will be a rush for the exit,

                Having said that a DTI regime with a timetabled sinking lid appears to me to be the best chance provided the offshore buyer loopholes are closed (not the loose nominal regime that currently exists)…and an alternative investment option is offered ,i.e. decarbonised economy.

  6. Paul Rayner 6

    Do what the NZ Railways did in the 1920s.

    https://teara.govt.nz/en/railways/page-9

    • RosieLee 6.1

      And those houses and settlements were operational and occupied by the workforce until pretty much the 80s. Oh wait! There were also Post office and Public Works houses and settlements forming whole communities in rural towns. What has happened since then is absolutely shameful.

      The bottom line is that if this government is worthy of its name, we need a state house building programme right now, using our own trade training schemes, as well as up spec NZ expertise in prebuilt homes.

      Forget Kiwibuild. it is not the business of a Labour government to build houses for middle class home buyers. They can sort themselves out.

  7. Treetop 7

    Home ownership keeps dropping. This would be due to the inability to get a deposit and to service the loan.

    1. What sort of deposit would be required for a first home?

    2. What would the deposit need to be if the mortgage repayment was set at the cost of the weekly rent?

    3. Is the deposit the main problem or servicing the mortgage repayment or both?

  8. Descendant Of Smith 8

    If the state wants to build and sell houses then retain the land in perpetuity with no rental (after all if its good enough for the Taranaki farmers who have paid peppercorn rentals for years it is good enough for the rest of the population).

    The cost just becomes the house and infrastructure.

    If you want to nationalise then just nationalise the land – all land becomes free and no-one has to buy anything but the house. The money spent on land could be moved into more productive uses – after-all the land isn't going anywhere.

    • Treetop 8.1

      Is it the cost of the land which is keeping house prices high?

      • RedLogix 8.1.1

        Yes. While the cost of building in NZ is excessive, the asset price inflation we're seeing is almost all in the land value.

        This us generally not too bad an idea, one that I've suggested here many times over the years. Essentially it turns all residential land into leasehold instead of freehold. There already is a fair bit of that about so it's not completely unthinkable.

        • mikesh 8.1.1.1

          I also have considered the option of nationalization of all land, but it would be expensive since they would need to compensate all landowners. The government however could effect the takeover gradually – they could stipulate, for example, that land could only be sold to the state, so that, over time, the state would acquire more and more ownership. If property values fell as a result, many landowners, on finding themselves "under water", could well be be willing to sell to the government under a "sale and lease back" arrangement.

          • RedLogix 8.1.1.1.1

            Yes it would be a challenging process, but perhaps the state could give local government the role of 'landlord' and the rates bill could evolve into something like a land rental charge.

            There isn't a lot of space between the two ideas in principle, although I accept it would be a major conceptual leap for most people.

      • Herodotus 8.1.2

        You forget get about failing infrastructure and the cost to remedy eg waste water, roading, power retriculation and the cost to enlarge the infrastructure to accomodate the increase in demand. We have councils at the limits of their allowed debt, and total inaction to even address current issues let alone to future proof for increased population and its demands.

        • Nic the NZer 8.1.2.1

          If the political will was there then councils can be more centrally funded and less rates funded. Its a matter of political interest in this way of doing things.

          But there is no underlying technical reason for council infrasturucture spending to be constrained by possible rates growth.

    • mpledger 8.2

      Part of the value of the land is its location. Making the land free won't change the value of its location, the cost will just be transferred to the house price.

    • weka 8.3

      interesting idea. Who decides who gets to build on land with no buildings?

    • Pat 8.4

      except the land does not become 'free' as anyone on a leasehold property will tell you…and try selling that leasehold property should the need arise

      • Descendant Of Smith 8.4.1

        Said state should own the land, not that it should be leased.

        Singapore has 90% of its land publicly owned for instance.

        • Pat 8.4.1.1

          Except the 'cost' is not in the land per se….the cost is in the provision of services to that land and regardless of the ownership structure those costs have to be met….ultimately the users will pay the cost.

          • Descendant Of Smith 8.4.1.1.1

            Charges for development in direct charges in Auckland in 2013 were estimated at:
            Type of infrastructure

            Transport $3,641
            Water / wastewater $10,760
            Stormwater $8,648
            Open space and community facilities $2,179

            Land costs a darn site more than the total.

            https://www.nzae.org.nz/wp-content/uploads/2016/10/Nunns-and-Denne-urban-growth-costs-and-benefits-NZAE-v2.pdf

            • Pat 8.4.1.1.1.1

              Yes it will because that list of figures is an estimate for a particular development to show a differential between greenfield development and brownfield intensification for 11,000 hectares where…

              "A portion of this infrastructure will be funded by user charges (DCs or IGCs) or out of the National Land Transport Fund (NLTF) administered by the NZ Transport Agency. And it is likely that they reflect, in part, “future proofing” for later stages of urban growth. We therefore make the following (optimistic) assumptions about actual infrastructure costs borne by Council: à 50% of transport infrastructure costs are for new or improved state highways, which are funded 100% by the NLTF, and the remaining 50% are local roads or public transport funded 50/50 by NLTF (or fares). (This ignores the issue of cross-subsidisation between fuel taxes or road user charges paid on new versus existing roads.) Under these assumptions, the remaining 25% of bulk transport infrastructure costs must to be funded by DCs or rates. à Actual costs of water/wastewater will only be 60% of the reported figures, reflecting optimistic assumptions about what may happen to costs as a result of further investigations à Actual stormwater costs will only be 60% of the reported figures, reflecting optimistic assumptions about what may happen to costs as a result of further investigations à Open spaces and community facilities will be 90% paid by developers or DCs, or paid by central government, who would otherwise have to expand schools / hospitals / etc elsewhere. Under these assumptions about infrastructure costs in future urban areas, and CIE and Arup’s estimates of infrastructure costs for brownfield development areas, we estimate the following infrastructure costs for urban intensification and greenfield areas. In the case of stormwater infrastructure costs for urban intensification, good data was not available and hence we used the upper bound figure for greenfield areas."

              "Following on this, we estimate the typical range of DCs or user charges that would apply to development in urban intensification areas and greenfield areas. These figures are reported in the following tab"

              As stated earlier, the cost of services dosnt disappear with a changed ownership structure and nothing in the linked paper suggests otherwise

              • Descendant Of Smith

                The costs I quoted were the non-green field ones – which would be lower.

                The only person suggesting they might disappear was you. The point is, is that they are not anywhere near the major portion of the cost of land.

                You're also only taking about new builds – rates covers the cost of ongoing infrastructure.

                You can't seriously be suggesting that if you took away the cost of purchasing the land, prices wouldn't reduce substantially.

                • Pat

                  You continue to misunderstand that the 'costs' (both development and maintenance) ARE the price of the land….the land exists already, ownership structure cannot invent it.

                  That development/maintenance is paid for somehow

                  The table you are quoting does not reflect the development costs only the estimated DCs to the authority….table 26 has the gross estimates (with a myriad of qualifiers)

      • Descendant Of Smith 8.4.2

        Been there done that wasn't a problem.

        Here's the key: with 21 year leases as we had the maximum the lease could be at renewal was 5% of the land value at renewal. So for the first year the cost is 5% but as inflation eats away at the value of the dollar and wages rise by the time 21 years came along we were paying a pittance.

        The quality of the house we could buy on leasehold was miles higher than we could on freehold and the savings in repairs, maintenance, upgrading, etc far outweighed the cost of the lease.

        Yep it is quite a jump when the 21 year renewal hit but less so as each year goes on.

        For all of the time we owned it interest rates were well above 5% so the lease was considerably cheaper than the interest I would have had to pay to freehold – which we couldn't afford to do.

        The lease itself was never a problem and you have 21 years to plan for the next jump.

        Sure you do not get the capital gain but you didn't buy the land so you shouldn't and I've only ever bought a house to live in – I don't subscribe to the notion that you need more than one nor that it is there to make a profit. I do subscribe to the social outcomes of home ownership – building communities, stability, not paying predatory landlords.

        I'm well aware I could have been rich by now if I had bought all (or even a few) the houses I'd been offered for cheap over the years but sometimes principles are principles. I only need one house.

      • mikesh 8.4.3

        Selling a leasehold property would not be difficult if leasehold was the norm.

        • Pat 8.4.3.1

          That may or may not be true but you have the problem of moving from the current model to the lease only model…..doing so would create exactly the condition you are trying to avoid.

          Ever higher house prices (and debt) are currently being used to prevent a collapse of the real economy (employment) and financial system….and privately owned property (land) underwrites that…remove that land ownership and the house of cards collapses.

  9. Castro 9

    A good start… certainly a lot better than descending into a type of violent, unequal society where the landed gentry all have bars on their windows and live behind razor wire…

  10. Descendant Of Smith 10

    I'm not trying to avoid a drop in house prices and I think there is a bit of mythology around the notion that house values underwrite the economy. A nice myth popularised by the land owning gentry – along with those other myths – anyone can become a millionaire if you only work hard enough, if you tax us more we will leave the country, chief executives and managers deserve high salaries because they are so good (actually they are just stealing capital from the companies they run and manage), Maori are lazy, if we go so will the jobs.

    The fact is home ownership continues to reduce to the point where most people are serfs to their landlords. The economy hasn't collapsed because fewer and fewer people own their homes – most are barely getting by.

    New Zealand is rapidly turning into the company town, with the company store.

    Drive wages down to the point you have to buy things on credit. The credit companies owned by the landed gentry who extract the money gained in low wages (increased profit being diverted) through high salaries which enables them to buy the houses to rent to their workers.

    Worker works for a pittance then gives employers their money back through rent and interest. Worker in effect works for nothing.

    This is what we have become.

    • Pat 10.1

      Assume thats a reply to 8.4.3.1?

      The condition I suggest you are seeking to avoid is worsening the wellbeing of the workers….and workers do not fare well in a depression.

      As much as you may wish to believe that house prices do not underwrite the economy the fact is that for years the credit (debt) that is held against that property has been the growth engine in almost all western economies as manufacturing was offshored to cheaper labour sources in the developing world….and moving it back or finding an alternative income source is not an overnight project.

      • Descendant Of Smith 10.1.1

        Nonsense much of the economy has been driven in the last 30 years by the bulge in population with the baby boomers. They were at a point in their lives where they had paid off their mortgage, kids had left home and they had two disposable incomes. We in effect, as in many other OECD countries became a consumer society.

        They have been busy spending benefitting from the massive lowering of the tax rates that should have been paying, during their period of maximum earnings capacity, for their free education, universal family benefit, future superannuation, and so on.

        The contrast between the previous generation who mainly aspired to have paid their mortgage off by 60 and to receive an endowment from their life insurance policy to aid them in their retirement and the expectation of regular overseas trips, owning a rental for their retirement, eating out regularly, live in a residential village, etc is significant.

        As the baby boom population started to wane in spending as they started going on NZS twenty years ago National propped up the economy through immigration. It is now that ridiculous high house prices are being used to prop up not the economy but the wealthy – this started before the last recession and is being exacerbated now. The economy isn't helping the working class at all. They are getting poorer by the day and their income from working is going straight into the hands of the wealthy.

        We don't need an alternative income source – we need a better distribution of wealth. This country produces enough GDP for everyone to live a better life than is currently the case.

        • Incognito 10.1.1.1

          This rather technical analysis, most of which is lost on me, might shed some light on the discussion that you two are having.

          https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Analytical%20notes/2017/an2017-03.pdf

          The picture is dynamic (i.e. changing over time) and complex (i.e. not B & W).

          HTH

          • Pat 10.1.1.1.1

            The linked 2017 analysis (which I have skimmed) notes the uncertainty but when I have time I will find the more recent papers that note the diminishing return of increased debt on consumption (and therefore inflation).

            It appears to me that DoS is confusing cause and effect as what he is describing as 'drivers' are in fact outcomes and the key is in the degree by which debt has expanded while labour's share of the economy has declined…the debt is supporting the consumption, not the wage growth that can be expected in a high investment environment

          • Pat 10.1.1.1.2

            A 2019 RBNZ paper after further modelling..

            "This empirical finding implies that the precautionary savings effect and the collateral effect work in the different phases of housing cycles. In a housing boom the precautionary savings motive dominates and high leverage weakens the reaction of consumption spending to housing wealth increases. In a housing downturn the collateral channel dominates and high leverage strengthens the reaction of consumption to housing wealth decreases. In another words, the household leverage reinforces the housing wealth effect in a bust, but dampens the housing wealth effect in a boom. The asymmetric transmission mechanism through household indebtedness explains the asymmetric housing wealth effect that we find in the data without controlling leverage explicitly."

            https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Discussion%20papers/2019/DP2019-01.pdf?revision=95fabd9a-7d03-4a83-b3d0-08085e2b8dac

            The important factor in both papers however is the importance that central banks place on the 'wealth effect' of asset prices as key to consumption, whether or not they they can successfully predict it….this has been regularly alluded to by Gov. Orr.

        • Pat 10.1.1.2

          "We don't need an alternative income source – we need a better distribution of wealth. This country produces enough GDP for everyone to live a better life than is currently the case."

          I agree with half that statement….we definitely need a better distribution of wealth, but for the past couple of decades almost all our wealth growth has been in housing so if we are to correct the housing market then we most definitely need an alternative source of wealth generation as for as long as we dont have an alternative the powers that be will pull every lever they can to support the bubble for fear of the consequences of not doing so.

  11. Descendant Of Smith 11

    "Housing wealth has increased rapidly in recent years but relative to the 1990s and 2000s, the response of per capita household spending has been weaker than expected."

    That's pretty consistent with what I'm saying. The baby boomers are not spending as much as they used to despite wealth accumulation through housing increasing. They are getting wealthier though.

    They started going on NZS in 2010 with ever increasing numbers since then. The first baby boomers started turning 75 last year so we can expect to see an increasing death volume occurring with some wealth transfer (if it hasn't all gone to residential villages) to the next generation and freed up housing that hasn't previously been freed up through movement to rest homes and retirement villages.

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