No, this post isn’t about Smile and Wave’s failure to close the gap with Australia. It’s about the widening gap between the tiny wealthy elite in this country and the rest of us. Even before the Great Recession, 10% controlled more wealth than the rest of us combined. The housing market shows that their wealth is still rising while ours falls.
There’s no question that the housing bubble needed to pop and is still in the process of deflating. House prices are down 11% from their peak in real terms. But it’s obviously a painful process for those who are experiencing the value of their properties falling, especially if they have leveraged debt off that now declining value. What’s clear though is that the pain is not being shared evenly.
Load up a newspaper site and it won’t be long until you find an article about how million dollar plus property sales are going strong (ever notice that there’s a hell of a lot more stories on the rich than the rest of us, despite their proportion of the population)? Take this one from the Herald yesterday, for example:
Finding new building projects doesn’t seem hard for the head of an Auckland residential construction firm specialising in the luxury end of the market.
Philip Lindesay of Lindesay Construction says the downturn is having little effect on his business.
Lindesay is building new houses in Auckland and the Bay of Islands and his forward-order work book shows few vacancies.
“We’ve got 15 contractors working on two sites in the Bay of Islands alone,” Lindesay says from his offices in the basement of a Newton apartment.
His firm built Eagles Nest, the much-awarded resort near Russell where guests pay $37,000 to $42,000 a night – a rate which covers all activities including chef and butler. His firm also built the Mann house near Russell and is now working on a further six new houses.
With two teams of contractors working full time in the Bay of Islands, where he specialises in waterfront homes, Lindesay has carved out a specialist niche.
Some houses are more than 1000sq m, almost 10 times the size of an average Kiwi villa…
Lindesay was not hit by the recession: “The past two or three years, we have been busier than ever and taken on more builders. The coming year is very promising and we have inquiries coming in regularly…
Beveridge says expensive new houses are not that rare, even in the downturn. “Things are happening at the top end of the property market. There are a lot of other builders, apart from [Lindesay], that would be as full in that high end of the market, including around Queenstown.
“New Zealand is a great place to build a house and now is a good time to be doing it … This is a good news story in a property market devoid of good news,” says Beveridge.
Statistics NZ figures show the value of house building is falling.
Consents were issued for buildings worth $9.8 billion in the October year, down from last year’s $9.9 billion and 2008’s $11.6 billion, although volumes are up lately from this decade’s low of 12,311 in the year to October 2009, to 15,228 in the year to October 2010…
Nick Horton of Luxury Real Estate is marketing some of New Zealand’s iconic properties, including the $20 million-plus Paoneone Farm in the Bay of Islands, owned by interests associated with venture capitalist Bill Birnie…
“Primary homes in the city suburbs and fringe areas are selling well [with] multiple sales in the $8 to $10 million range for the last six months.
“I am also doing some trips promoting investor immigration. I have teamed with ANZ Private Bank, PricewaterhouseCoopers and Malcolm Pacific. We recently travelled to Asia running seminars and finding applicants for the new scheme. All of them are interested in luxury property,” Horton said.
Although the downturn has been longer and deeper than many expected, not all projects have turned to custard. The successful developers are carrying on.
OK, leaving aside queries over why some pillock chose to name his luxury resort after Hitler’s mountain retreat (we don’t even have eagles in this country), lets concentrate on the question that the reporter failed to ask despite it being something you learn to ask in form 2 writing class: ‘why’.
Why is the luxury end of the property market going gangbusters when the rest is tanking?
It’s certainly not because their are lots of new millionaires looking for a place to kip that befits their new found wealth. The number of people with incomes over $250,000 a year actually fell for the first time in a decade in 2009 (from 13,240 to 13,220).
It’s because the wealthy are getting even wealthier. The top 5% of New Zealanders saw their combined pre-tax incomes climb by nearly a billion dollars in 2009 to $150,000 on average. On top of that, their income tax bill has fallen by an average of $7,500 since 2008. The average real after-tax income of the 5% has risen 10% since the beginning of the Great Recession while GDP per person has fallen 4.6%.
In New Zealand, we have about 50%, probably more, of the population shut out of the housing market unless they were lucky enough to get in when prices were lower. Then you’ve got another 40% or so who are watching the value of their property ebb away at the same time as their real wages fall and they worry if their job is going to last the year. Then, you’ve got a few percent, the elite, who are getting wealthier because the whole response to the Great Recession (and National’s default economic policy) has been targeted towards preserving and enhancing their wealth above all else.
Recessions are a time of upheaval, when the different interest groups in society make grabs for a larger share of a shrinking pie with results that can lead to radical change in the distribution of power and wealth. During this Great Recession, however, the bulk of the population has stayed asleep, if not cheered, as the elite has done all the grabbing, taking more of the nation’s wealth for themselves.