The time has come for New Zealand to ask itself, what has it really bought into with these record-high house prices, which have been entirely artificially engineered. What will this country now turn into?
Well, the problem at its deepest root boils down to the fact that as soon as a young person buys a home, they only want to see the price of it go up. They then become the very people that they themselves complained about, voting to block the new-build market to inflate the price further. They demonstrate that there are no goodies and baddies in this game, just a mass-society driven by probably too much self-interest over principle, allowing democratic dynamics to do their worst.
Ok. But then why is it that young people buy into a crippling mortgage in New Zealand, when there are still great alternatives in Australia, in their smaller towns, and in beautiful climates with spectacular beaches, etc?
Social-gravity and ignorance is part of it, but probably the biggest part is the belief that when they take on that $700,000 mortgage, they will nonetheless, in good time, have a home inflated to a million bucks and more a little further down the track. That's what puts the quiet smile on their faces in spite of the financial hell. The property market is a "ladder" afterall, right?...
Well it's a ladder up to a point - but only a point. Please think about this. Market value means resale value. You can only sell your home for a million dollars if the buyer has access to that kind of credit. And this is where young people need to think carefully...
The VERY thing that has allowed property to radically inflate--that is, the artificial restriction of urban land supply--is the same thing that destroys real economic development.
But how?...
It's the same as making electricity five times more expensive than it should be. Your nation becomes a bad place to invest capital for economic development. In turn, your handsaws don't get replaced with chainsaws (to put it crudely) and economic development becomes anemic -- as it famously is, in New Zealand.
Making business pay a fortune for land rents, and a fortune more to compensate their staffs' residential rent, means business growth (capital investment) naturally bypasses New Zealand and looks for better opportunities elsewhere, like the flow of electricity responding to resistance.
In a world that's ultimately competitively balanced, the price of this resistance is paid for with cheap labour. Indeed, already New Zealand has the highest cost of living relative to wages, as compared to nearly all other industrialised nations. High land rents are a powerful player in achieving exaggerated economic resistance, and make no mistake they will continue to achieve that effect.
Now! If we don't get the productivity growth, then we don't get the wage growth. And if we don't get the wage growth, then you don't get to sell your house for $1m because, of course, the market simply doesn't have access to that kind of credit. GET IT? All bubbles come to an end, sooner or later.
The only way New Zealand can hold onto ever-higher house prices--to keep the scam (can I say that?) going for much longer--is to create the illusion of climbing house prices. What this will mean, in effect, as that our national dollar will go down as house prices [appear] to go up. And that means everything gets steadily more expensive, while wages seem to go up, as house prices seem to go up, though in international terms they will actually be going nowhere...
The final result, is an amplification of what we're already seeing in New Zealand today. Young people who wish to make an easier life for themselves will continue to move to Australia, faster and sooner, and they will be replaced by immigrants who are desperate to move to any country that's at least better than the country they've abandoned. We will have a revolving-door economy, where people hang around for a while but only until they find a better place to live (probably Australia).
New Zealand, in terms of per-capita wealth, is slowly rotting and it's set to get worse.
Grossly inflated house prices will mean nothing much for you in the end, because you will not be able to materially cash in on them anyway, as you will still need a place to live. All that's really achieved is the loss of your children, and/or grandchildren, to another country. New Zealand will also become a country that can't offer first-world healthcare because it simply won't have the economy to support it, due to forever-suffocated economic growth.
So how do we stop this painful trend?
We need a government that's prepared to risk an election to break the bubble today, to save the county. Sir Roger Douglas saved New Zealand in the 1980's by willfully risking an election, to do what simply had to be done in his time. It's happened before, so could it happen again?
Alas, I'm doubting it. Old-school patriot politicians have long been replaced by career boys, whose sense of moral reality is conditioned by their political tribe. All I see in there today is vote-hunting nobodies telling us exactly what they think we want to hear. Yeah - a bit depressing.
Anyway, from a long term outlook, New Zealand is dreaming if it thinks it can compete with other nations offering demand-responsive new-build communities, with dirt cheap urban land for development, making good houses for NZD$200k and less, within a beautiful place and based on various new technologies...especially when people can, and will, work anywhere based from the electronic cloud which is now due for rapid expansion.
Things will most likely get worse, far worse, before they get better. It's sad, because if New Zealand took its bitter pill today and crashed the bubble outright, it could compete spectacularly with where this world of ours is going. Though I have to say it probably won't...
There are just too many votes to lose should any government dare bust that bubble. So the bubble will bust itself, but not without first dragging our anemic economy even deeper into the dirt. From that point there, we will finally understand the meaning of artificial property price inflation:
FOOLS. GOLD.
-Andrew Atkin
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Postnote: A model case:
California has employed the same urban land policies as New Zealand, and the effect has been devastating for that state. However, they have a safety valve - Texas.
California's urban land prices are ridiculous, and economic investment is deflecting to Texas and other states because of it. Great numbers of people are leaving California for better opportunities elsewhere, and they are being replaced by Mexicans (legal or not).
Houston, Texas, has the highest growth rate in America today, and it offers the highest living standard in America once wages are normalised to living costs. Houston has one of the least politically-distorted property markets in the world (see here).
It's ok enough for America to have states that do strange things to their property markets, when the capital deflection remains in-house. If California wants to make Houston rich instead of itself then that's fine, as America's national social security system will not be compromised to the end of it.
However this is not the case for New Zealand. Our capital deflection leaves our shores altogether. This is why the game New Zealand is playing is so dangerous. Honestly New Zealand, we cannot afford this nonsense. We cannot afford to be a California.
A timely 14 minute video: Fleeing California
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