Polity: Madness: Our house

Written By: - Date published: 1:18 pm, May 20th, 2014 - 24 comments
Categories: housing, labour, national - Tags: ,

At Polity, Rob Salmond asks:-

How an average family would fare under National’s do-nothing approach to the housing crisis?

YES, IT IS A STOCK PHOTO.

Here’s an anecdote, which has some numbers in it, too. In 2013, the median household income in New Zealand was around $69,300. Let’s call that $71,000 now. After tax, assuming the best possible split of incomes, the couple would have around $60,500 market income to live off.

Let’s assume this average family has two dependent kids, bringing them about $4,000 a year in Working for Families as well.

This middle of the road family buys a middle of the road house. The current median house price in New Zealand is $432,250. For about that, you can get this 3 bed, 1 bath “potential do-up” in Otahuhu.

To get that house today, the family would need a $86,500 deposit, and could get a floating mortgage for the rest at around 6% interest. Over a 25 year term, repayments on this mortgage would be $26,720 a year, leaving around $37,800 a year for the rest of the family’s needs. Remember that number: $37,800 left over, after mortgage costs.

What could happen to this average family over the next five years, if National’s do-nothing housing policy is enacted, and the Budget forecasts are accurate?

Most importantly, rising interest rates mean the family’s mortgage payments will jump by over $6,000 a year. That puts a huge hole in the family finances.

At the same time, however, the families income is projected to go up by around a nominal $9,600 after tax, so they would be able to cover the increased mortgage payments, and would be left with $41,300 to cover the family’s other expenses.

But the price of everything else in their lives is projected to jump by around 10.5% over the same period. $41,300 in 2019 buys about the same amount of stuff that we can buy with $37,400 today. Which is less than this same median family earns today ($37,800 – did you remember the number?).

This family – the median New Zealand family – is projected by Treasury to have their disposable income go backwards over the next five “rock star” years. That is a disgrace.

The most galling part about this is that this five year period is forecast to see strong growth across the economy. If we can tolerate a growing economy that doesn’t deliver for absolutely middle of the road families, even in good times, and which even makes them go backwards – then we are not the caring, considerate nation I thought we were.

We need action on housing supply and on mortgage rates now. Labour has a plan; National doesn’t.

24 comments on “Polity: Madness: Our house ”

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  1. just saying 1
    20 May 2014 at 1:49 pm

    If we can tolerate a growing economy that doesn’t deliver for absolutely middle of the road families, even in good times, and which even makes them go backwards – then we are not the caring, considerate nation I thought we were.

    I take your point, Rob and this is a well written and informative post. But Labour is proposing to throw the poorest quarter of people to the wolves while supporting the middle with policies like Kiwi-build (a gift equivalent to more than three years of jobseeker benefit). So what about caring and consideration from Labour? What about compassion, and not just a few more crumbs for poor children? What about social justice?

    I don’t want to be so critical, but I saw David Parker on Sunday night, talking about Labour spending about one percent more than National is proposing to, and my blood boiled. Especially since that one percent is likely to be spent primarily on bribes for the middle-class and their children.
    Many people are doing it really hard and Labour is supposed to care.

    • lprent 1.1
      20 May 2014 at 4:20 pm

      If you were talking to Rob, you might be better off asking Rob that over at his site (see the first link on the post). I can’t remember the last time he commented here.

      Also I’d suggest that his point wasn’t if Labours plan was a perfect one or not. It was more that National doesn’t seem to have one. Based on the numbers in his post, their own projections say that they’re planning on making it harder and harder on a median family to own a house.

    • Lanthanide 1.2
      20 May 2014 at 7:55 pm

      while supporting the middle with policies like Kiwi-build (a gift equivalent to more than three years of jobseeker benefit).

      I really have no idea what you mean by this.

      Kiwibuild is about building houses cheaply and selling them. There is no subsidy or payout from the government whatsoever.

  2. Molly 2
    20 May 2014 at 2:19 pm

    What blows our budget is unexpected costs: $2,500 repairs to car, followed by $1,600 dentist bill for a broken tooth, and then a $1,500 plumbing bill. All within three months. We don’t have that kind of safety net in our budget, and I’m guessing the same is true for many others.

    (Note: Repairs and maintenance on the “do-up” in your example, is likely to see that backward slide happen from the first time the plumbing fails, or you add the cost of replacing the roof. Playing catch up to stand still is incredibly wearying, and energy sapping – with or without the projected rises in income.)

  3. Colonial Viper 3
    20 May 2014 at 2:32 pm

    Life is so tough for the famous “median household” on $71K pa.

    So I guess a household with 2 adults working full time on the minimum wage bringing in a total of just $59K p.a. is rightly fucked.

    The most galling part about this is that this five year period is forecast to see strong growth across the economy.

    That’s never going to happen. Firstly I’m picking growth will eventuate at no more than 10% cumulative over the period – so less than 2% p.a.

    Secondly, once inflation and population growth is considered, real growth per capita will actually be negative.

    Good god, why is everyone still fixated on the holy grail of economic growth? It’s over peeps, we are entering a post-growth world due to energy and resource depletion and our leaders at the top (and their policy analysts) better start acknowledging that.

    • minarch 3.1
      20 May 2014 at 4:13 pm

      “Good god, why is everyone still fixated on the holy grail of economic growth? It’s over peeps, we are entering a post-growth world due to energy and resource depletion and our leaders at the top (and their policy analysts) better start acknowledging that.”

      +111

      The partys over, if you under 45 your out on the curb waiting for a bus home with all the other latecomers…

      you might be able to pick up some used streamers or confetti from the garden outside, but they ate all the cake a LONG time ago

      • Colonial Viper 3.1.1
        20 May 2014 at 5:13 pm

        There might be a few chippy fragments left at the bottom of the foil packets, and if you’re lucky a half bottle of flat Pams brand lemonade lying around

    • Draco T Bastard 3.2
      20 May 2014 at 5:04 pm

      Firstly I’m picking growth will eventuate at no more than 10% cumulative over the period – so less than 2% p.a.

      Reading Piketty is interesting – he points out that ‘normal’ growth is less than 0.1% and we’re heading back toward that normal as developing nations become developed and population growth begins to slow and then decline. Some nations are already looking at a possible population decline in the near future – NZ without immigration would be one such nation.

      The strong growth (>1%) that we’ve seen over the last couple of centuries cannot be maintained.

      • Colonial Viper 3.2.1
        20 May 2014 at 5:16 pm

        If energy availability and affordability remains strong, population growth will also remain strong. Since that isn’t going to happen…

        • Draco T Bastard 3.2.1.1
          20 May 2014 at 5:36 pm

          Nope, population decline was already obvious before we hit peak conventional oil in 2005/6 in developed nations. NZ has a birth rate of just 2.1 per woman which is just on replacement rates but isn’t enough to replace the Boomers. IIRC, some developed nations have a birth rate of less than 2.

  4. Jepenseque 4
    20 May 2014 at 3:31 pm

    This is a poor analysis sorry.

    In practice peoples lives are quite different to what you have laid out.

    In practice peoples wages will rise faster than what the median wage will rise by and then at the end of their working life it will drop significantly (and they will begin to live off capital).

    So what I am saying is that this median family will do better in income terms than the median income and then in 20 or what ever years will do worse (hope that makes sense!). So disposable income will grow over time.

    • lprent 4.1
      20 May 2014 at 4:39 pm

      However you appear to be completely missing the point- probably because you didn’t read the post.

      In the short to medium term Treasury is anticipating that interest rates will rise faster than wages. For that matter they also appear to be anticipating that so will overall costs. This means that wages are rising slower that all of the costs.

      He gives a subtle hint of this by saying….

      This family – the median New Zealand family – is projected by Treasury to have their disposable income go backwards over the next five “rock star” years. That is a disgrace.

      It appears that you missed it. Probably had your head so far up your arse that little snippet bypassed your brain. Certainly you offered nothing to show why you thought people would gain value when the treasury doesn’t think that they will for the next 5 years.

      But lets deal with your other objections as if you had a working brain. Now if a working family goes backwards financially in terms of disposable income when the economy is having a rockstar life. What are they going to do when it goes into another recession? Go backwards faster seems like the obvious response.

      So if this backwards financial pressure continues for the next 20 years, in rockstar years and recessions – what makes you think that they will avoid a mortgagee sale? It only takes a few minor disasters like leaks, roofs, or cars or illness to do that. A reducing disposable income makes the probability of one of those wiping the family out financially higher and higher over that 20 years

      Voting National out seems like a good idea. At present it looks like anything apart from their prescription would be better.

      BTW: I just fixed the links – they were broken at Polity.

      • minarch 4.1.1
        21 May 2014 at 12:15 pm

        The only real similarity between our economy and a rock star is a bad addiction to white powder(ed milk)

  5. Ad 5
    20 May 2014 at 4:22 pm

    The MSM commentariat will frame this election around the middle class and their interests, and to those who aspire to be so.

    Cunliffe, Parker and Twyford would do well to read “Boiling Point”, which analyses how Reagan won the first time by finding the mortgage-vulnerable sweet spot of anxiey and aiming for it every time. Interest rates almost turned the US election by themselves. He understood this from LA and California real estate politics.

    I believe of those uncommitted 12-15% of the electorate left here, the vast majority are aspirant or squeezed middle class. It won’t ever be parliamentary scandal that sinks the Nats – it will be whether sufficient numbers feel the pathway to personal progress is closing.

    Labour is dead on target here.

    • just saying 5.1
      20 May 2014 at 5:51 pm

      I believe of those uncommitted 12-15% of the electorate left here, the vast majority are aspirant or squeezed middle class.

      What exactly is “aspirant middle-class”? Aspiring to be able to afford nutritious food, a decent home and basic health care?

      That 12 to 15 % is almost all working class, whether they want to call themselves that or not.

      Labour is dead here. fify

      • Ad 5.1.1
        20 May 2014 at 8:43 pm

        Aspirant middle class are those who want a house but can’t afford one. House ownership is the definition of middle class sine qua non.

        And nope, very few of those uncommitted are working class. There are vast political machines (called unions) ready to energise them.

        Labour is fully alive in both spaces, and will win power because of it.

        • just saying 5.1.1.1
          20 May 2014 at 9:18 pm

          I disagree.
          I’m home-owning and working class through and through.

          We’ll see who is and isn’t middle class as things get tighter. The working class drop first.

          • Colonial Viper 5.1.1.1.1
            20 May 2014 at 9:29 pm

            Yes. The working class has been declining, heavily in the last 30 years. In NZ, like in the US, UK and many other advanced western countries, those white collar professionals and upper middle class who voted Thatcher and Douglas in, and let their blue collar mates hang, are now starting to wonder why things are now getting so tough for both themselves and their own children.

            Too late fellas, the power elites game of divide and conquer worked too well (and is still in play), but there is so little left to extract out of the working class the top 0.1% are now starting to steal directly from the top 10%. And so it has always been throughout history.

            • minarch 5.1.1.1.1.1
              21 May 2014 at 12:17 pm

              I like to call them “the parasite class” about as useful as a bloated tick sucking the blood out of a hardworking loyal family dog….

              but much more destructive !

  6. DH 6
    20 May 2014 at 5:35 pm

    I have to question the priorities here. Mr Polity’s own figures show that the median house price is expected to rise by nearly 20% in the next five years.

    The poor hard done by median home owner is predicted to make an $80,000 tax free profit to counter that $6000 jump in mortgage payments. Sure the cashflow might hurt a little but they’re not losing there so why is Labour so keen on pandering to people who frankly are not in need of any help.

    I’d also be interested to know how a family with two kids, on nett $64,500, can even save $86,500 in the first place. The median difference between rent & mortgage payments is around $7000 pa. You’d need to either live rent free or have a substantial disposable income to save $86k in any reasonable time. If you could only save the $7k it would take 10yrs and by then the deposit required would be over $120k at predicted housing inflation rates.

    • geoff 6.1
      20 May 2014 at 5:43 pm

      This and your other comment would make a good guest post, DH.

    • minarch 6.2
      21 May 2014 at 12:22 pm

      as we will start to see more and more , infact depending on where you live and how open you eyes are you may already be seeing it

      crime…

      but thats ok, I actually trust criminals more than politicians, as least they are honest and upfront about their intentions

      a FOAF works at an “indoor gardening/hydroponic centre” their sales of equipment are going through the roof !

  7. Ecosse_Maidy 7
    20 May 2014 at 7:27 pm

    I understand all the figures etc etc in the article above…I take on board all the figures.However the core issue is that we know National is going to do sweet bugger all to remedy the problem.
    Labour at least has a plan.
    People who don’t visit the standard or think of politics each day are worried they will never have a chance to buy a home, they worry they can hardly make the rent payments etc and saving also for a deposit into the realms of never ever.
    Come election time We need to ram home that with National there’s not a chance…However with Labour and their policy there will at least be one.

    • Colonial Viper 7.1
      20 May 2014 at 9:31 pm

      Labour at least has a plan.

      Which is better than National’s, for sure, but only goes 25% of the way towards what is needed.

      Which is to stop trying to squeeze 1/3 of the country into 0.3% of the space.